“Explore the transformative amendments in SEBI’s LODR regulations with our in-depth analysis. From immediate compliance changes to enhanced cybersecurity reporting and shareholder rights, stay informed for effective adaptation. Dive into the details now!”
The SEBI has introduced the SEBI (LODR) (Second Amendment) Regulations, 2023 on June 14, 2023. These regulations introduce a range of noteworthy modifications that will impact listed entities and shape their obligations and disclosure requirements. It is crucial for stakeholders to be aware of these changes in order to adapt and comply with the evolving regulatory framework.
Stay ahead of the curve as we uncover and analyze the key amendments brought forth by the SEBI (LODR) (Second Amendment) Regulations, 2023. Our comprehensive coverage will shed light on how these changes will influence the operations, reporting, and compliance aspects of listed entities.
Get ready for a wave of significant changes in the regulatory landscape of listed entities in India! Join us as we dive into the details and explore the implications of the SEBI (LODR) (Second Amendment) Regulations, 2023, empowering you to embrace these changes with knowledge and confidence which will come into effect on July 14, 2023.
1. Immediate Appointment of Compliance Officer: Regulation 6 Revised
Enhancing regulatory compliance, Regulation 6 now mandates that any vacancy in the position of Compliance Officer within a listed entity must be promptly filled, no later than three months from the date of the vacancy.
2. Shareholder Approval for Director Continuation: Regulation 17 Amendments
Sub-regulation (1D) mandates that the continuation of a director serving on the board of a listed entity must receive shareholder approval at least once every five years from their appointment or reappointment, starting from April 1, 2024.
Exceptions to this requirement are specified for certain director positions and appointments made by courts, tribunals, or government/nominee directors.
3. Swift Appointment of Key Management Personnel: Regulation 26A Stipulations
Regulation 26A introduces measures to address vacancies in critical roles within a listed entity, including Chief Executive Officer, Managing Director, Whole Time Director, Manager, and Chief Financial Officer. The listed entity is required to fill these vacancies promptly, within three months from the date of occurrence.
4. Strengthening Cyber Security Reporting:
In a notable development, Regulation 27 has been updated aimed at enhancing cyber security reporting. Organizations must now disclose details of cyber security incidents, breaches, or data/document losses alongside their existing reports.
This crucial addition bolsters transparency and accountability in addressing cyber threats and promotes a proactive approach to mitigating risks.
5. Strengthened Disclosure Framework: Regulation 30 Amendments
Regulation 30 has undergone notable revisions, enhancing the disclosure framework for listed entities. Key updates include:
- Expansion of Materiality Criteria Sub-regulation (4) – The criteria for determining materiality have been refined, incorporating factors such as turnover, net worth, and profit/loss after tax. In cases where these criteria are not applicable, the board of directors may determine materiality. Continuing events or information that become material due to these amendments must be disclosed within 30 days.
- Timely Disclosure Obligations Sub-regulation (6) – Revised timelines for disclosure have been specified. Material events or information must be disclosed within 30 minutes from the board meeting’s closure, 12 hours from the event’s occurrence within the listed entity, and 24 hours if the event is external. Delays in disclosure require an accompanying explanation.
- Media Reporting Confirmation: Sub-regulation (11) – The top 100 listed entities (from October 1, 2023) and subsequently the top 250 listed entities (from April 1, 2024) must promptly confirm, deny, or clarify reported event-related rumors in the mainstream media.
- Communication Disclosure: Sub-regulation (13) – If a regulatory or judicial authority communicates with a listed entity regarding an event or information, the entity must disclose such communication, unless prohibited by the authority.
These amendments reinforce transparency and accountability, ensuring timely and comprehensive disclosure of material events and information by listed entities.
6. Disclosure Requirements for Certain Types of Agreements Binding Listed Entities: 30A
Listed entities and their related parties must inform the listed entity about agreements they enter into, which the listed entity is not a party to. This includes shareholders, promoters, directors, key managerial personnel, and employees. The notification must be made within two working days of entering into such agreements or signing an agreement to enter into them.
For agreements that were already in existence when clause 5A was notified, the parties must inform the listed entity, and the listed entity must disclose all such existing agreements to the Stock Exchanges and on its website within the timelines specified by the regulatory board.
In addition, the listed entity must disclose the number of existing agreements, their key features, and provide a link to the webpage where complete details of these agreements can be found. This disclosure should be included in the Annual Report for either the financial year 2022-23 or the financial year 2023-24.
7. Special Rights to Shareholders: 31B
Any special rights granted to shareholders of a listed entity must be approved by the shareholders in a general meeting through a special resolution every five years, starting from the date of granting such special rights.
For special rights already available to shareholders when this regulation comes into force, approval by shareholders through a special resolution must be obtained within five years from the date of the regulation’s implementation.
However, this requirement does not apply to special rights provided to a financial institution registered with or regulated by the Reserve Bank of India under a normal lending arrangement, or to a debenture trustee registered with the Board under a subscription agreement for the listed entity’s debentures, if the financial institution or debenture trustee becomes a shareholder as a result of the lending arrangement or subscription agreement.
8. Enhanced Financial Reporting Obligations for Listed Entities: Regulation 33 (3)
Listed entities are now required to submit their financial results for the quarter or financial year immediately following the period covered in the offer document for the initial public offering. This submission must adhere to the specified timeline mentioned in clause (a) or clause (d) of sub-regulation 33 (3), or within 21 days from the date of listing, whichever is later.
This amendment ensures more comprehensive and timely financial reporting by listed entities post-listing.
9. Enhanced Business Responsibility and Sustainability Reporting for Listed Entities
Regulation 34 has been amended to introduce a more comprehensive reporting requirement for the top one thousand listed entities based on market capitalization. These entities are now required to prepare a Business Responsibility and Sustainability Report that includes disclosures on environmental, social, and governance aspects.
To ensure the credibility of the report, the listed entities must obtain assurance for the Business Responsibility and Sustainability Report Core. The board will specify the process and timeline for obtaining this assurance.
While the reporting requirement is mandatory for the top one thousand listed entities, other listed entities, including those on the SME Exchange, have the option to voluntarily disclose the Business Responsibility and Sustainability Report or obtain assurance for it, either for themselves or their value chain.
10. Sale, Lease, or Disposal of an Undertaking Outside Scheme of Arrangement: 37A
When a listed entity intends to sell, lease, or dispose of its entire or substantially entire undertaking, or if it owns multiple undertakings, any of them, certain requirements must be met:
- Prior approval from shareholders must be obtained through a special resolution.
- The purpose and commercial rationale for the transaction, as well as the use of proceeds, must be disclosed in the statement accompanying the notice sent to shareholders.
- The special resolution can only be implemented if the votes in favor of the resolution from public shareholders exceed the votes against it. Public shareholders who are directly or indirectly involved in the transaction cannot vote.
The requirements mentioned above do not apply when a listed entity sells, leases, or disposes of its entire or substantially entire undertaking to its wholly owned subsidiary, whose accounts are consolidated with the listed entity. However, if the wholly owned subsidiary subsequently sells, leases, or disposes of the undertaking received from the listed entity, the listed entity must comply with the requirements mentioned in point 1.
The provisions of this regulation do not apply if the sale, lease, or disposal of the undertaking is governed by a covenant in an agreement with a financial institution regulated by the Reserve Bank of India or with a registered Debenture Trustee.
These regulations ensure transparency and shareholder approval when a listed entity plans to sell, lease, or dispose of its undertaking, safeguarding the interests of public shareholders.
Conclusion
In a realm of evolving corporate governance, disclosure requirements, cybersecurity, director appointments, and shareholder rights, the recent amendments to SEBI’s LODR regulations bring forth a game-changing paradigm.
With compliance as the key, listed companies must swiftly acquaint themselves with these transformative amendments. By embracing the revised regulations, reviewing policies, and establishing robust reporting mechanisms, they can confidently navigate the regulatory landscape and seize opportunities for growth and success. Stay ahead of the curve by embracing these significant changes and ensuring effective adherence to the revised SEBI regulations.
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Author is a Qualified Company Secretary, with over four years of comprehensive experience and knowledge in navigating complex Act, Rules and Regulations, including but not limited to The Companies Act, 2013, FEMA, LODR, PIT, SEBI ICDR and more. With a strong passion for law and ongoing pursuit of an LLB degree, possess a comprehensive understanding of legal principles and practices.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. For legal advice, please consult with a Qualified Company Secretary familiar with the relevant laws and regulations. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the article or the information contained in it.
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