SEBI proposes mandatory electronic payments for all listed company securityholders

Securities and Exchange Board of India (SEBI) has proposed amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, mandating electronic payment of dividends, interest, and redemption amounts for all listed entity securityholders. This move aligns the payment process for demat account holders with physical securityholders, who already receive payments exclusively through electronic modes as per SEBI’s circular issued on November 3, 2021. Currently, demat account holders may receive payments via cheques or warrants in case of electronic payment failures caused by incorrect bank details or mismatched information. The proposed changes aim to eliminate this disparity, encourage accurate bank detail updates, reduce environmental impact, and promote digital transactions in line with government initiatives.

As part of the proposal, SEBI suggests deleting provisions in Regulation 12 and Schedule I of the LODR Regulations that allow non-electronic payments. Stakeholders were invited to provide feedback on these amendments through a consultation paper issued on September 20, 2024. The proposal emphasizes that while investors must ensure correct bank account details, companies will also have an obligation to notify investors about payment failures via email, SMS, and registered post. The recommendations will be finalized after Board approval, with necessary circulars to be issued to inform stakeholders of the regulatory changes. This transition to exclusive electronic payments is expected to enhance efficiency and compliance while minimizing operational disruptions for listed entities.

Securities Exchange Board of India

Aligning the modes for payment of dividend, interest etc. for demat account holders in line with physical securityholders to promote online/digital transactions

1. Objective:

1.1. This memorandum seeks the approval of the Board to make amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as the “LODR Regulations, 2015”) for mandating payment of dividend or interest or redemption or repayment by a listed entity to its securityholders in electronic form only.

2. Background:

2.1. At present, by virtue of SEBI Circular dated November 03, 2021¹, physical securityholders are entitled to receive any kind of payment including dividend or interest or redemption payment in electronic form only.

2.2. Regulation 12 of SEBI LODR Regulation, 2015 read with Schedule I (Annexure A) provides for manner of payment of dividend or interest or redemption or repayment in electronic mode and further provides that:

2.2.1. where it is not possible to use electronic mode of payment, ‘payable-at-par’ warrants or cheques maybe issued:

2.2.2. where the amount payable as dividend exceeds one thousand and five hundred rupees, the ‘payable-at-par’ warrants or cheques shall be sent by speed post.

2.3. Thus, while the physical securityholders can receive any kind of payment in electronic form only as specifically provided in SEBI Circular dated November 03, 2021², the demat account holders are still eligible to receive payments through warrants or cheques in case of payment failures.

3. Issue for consideration
3.1 Proposal

To mandate any kind of payment including dividend or interest or redemption or repayment by a listed entity to its security holders in electronic form only and doing away with sending of cheques or warrants in line with modes of payment allowed for physical securityholders.

3.2. Rationale

3.2.1. In a meeting held with X (name has been changed for reasons of confidentiality) and listed companies, it was brought to the notice that many a times, electronic payments fail in case of demat account holders due to incorrect bank account details, IFS Code, name mismatch etc. and as a result of which Companies are required to send warrants or cheques to such demat account holders. Thus, while the physical securityholders can receive any kind of payment in electronic form only, the demat account holders are still eligible to receive payments through warrants or cheques in case of payment failures.

3.2.2. To remove this anomaly as well as due to the below mentioned reasons, it is proposed that any payment including dividend or interest or redemption or repayment may be mandated to be made in electronic form only to all the securityholders of a listed company:

1. To bring the process of payment of dividend, interest, redemption or repayment to demat account holders at par with physical securityholders;

2. To encourage investors to update their bank accounts correctly to avoid payment failures;

3. To promote sustainability of environment by doing away with the requirement of sending cheques/ warrants;

4. To align SEBI regulations with the objective of the Government of India to promote online/digital transactions.

3.2.3. The measure is not expected to cause significant inconvenience to the investors since the investors will need to update the correct bank account details only once to get the payments from the listed companies without any difficulties. Further, in case of unpaid dividend/interest, there will be an obligation on the Company to inform demat account holder by way of email/sms as well as by registered post to update their correct bank account details.

3.3. Public Consultation

3.3.1. In order to seek public opinion on the proposed amendment to SEBI LODR Regulations, 2015 with respect to allowing only electronic mode for payment of dividend or interest or redemption or repayment amounts, a consultation paper on the captioned subject matter was issued on September 20, 2024 (Annexure A) inviting comments regarding the proposal in the consultation paper.

(This has been excised for reasons of confidentiality).

3.4. Recommendation

3.4.1. It is proposed that in order to give effect to the provision that electronic credit shall be compulsory for demat accounts, the following two provisos of Regulation 12 and Para 3 of Schedule I are proposed to be deleted in the entirety from LODR Regulations, 2015:

“Under Regulation 12

Provided that where it is not possible to use electronic mode of payment, ‘payable-at-par’ warrants or cheques maybe issued:

Provided further that where the amount payable as dividend exceeds one thousand and five hundred rupees, the ‘payable-at-par’ warrants or cheques shall be sent by speed post.”

“Para 3 of Schedule I

In cases where either the bank details such as Magnetic Ink Character Recognition, Indian Financial System Code, etc. that are required for making electronic payment are not available or the electronic payment instructions have failed or have been rejected by the bank, listed entity or share transfer agent shall issue ‘payable-at-par’ warrants/ cheques for making payments:

Provided that the listed entity shall mandatorily print the bank account details of the investors on such payment instruments and in cases where the bank details of investors are not available, the listed entity shall mandatorily print the address of the investor on such payment instructions.”

3.4.2. The amendments to LODR Regulations required to implement the recommendation made at paragraphs 3.4.1 above are given in Annexure C for approval.

3.4.3. It is proposed that a circular may be issued to the stakeholders –

(a) informing them of the change in LODR Regulations prescribing that dividend shall be paid only in electronic mode.

(b) mandating the listed companies to inform such demat account holders by way of email/sms as well as by registered post, who have not received the payments, to update their correct bank account details.

4. Proposal for consideration and approval of the Board:

4.1. The Board is requested to:

4.1.1. consider and approve the recommendation stated at paragraph 3.4 to amend the LODR Regulations.

4.1.2. authorize the Chairperson to take necessary steps to implement the proposals including notification of amendments, issuing circulars, wherever necessary with consequential and appropriate changes, as may be required.

Encl.:

Annexure A – Consultation Paper on Proposed amendment to SEBI LODR

Regulations, 2015 with respect to allowing only electronic mode for

payment of dividend or interest or redemption or repayment amounts Annexure B – (This has been excised for reasons of confidentiality.)

Annexure C – Present provisions and proposed Amendments to Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

Annexure A

(Available on SEBI Website www.sebi.gov.in under the head “Reports & Statistics”>>”Reports”>>”Reports for Public Comments”)

Annexure B

(This has been excised for reasons of confidentiality.)

Annexure C

Present provisions and proposed Amendments to Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015:

Notes:

¹ Now part of SEBI’s Master Circular for RTAs dated May 07, 2024

² Ibid

Source: SEBI Board Meeting Dated: Wednesday 18^th December 2024