The Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirement) Regulations, 2015 (LODR Regulations) have been recently amended by way of the LODR (Second Amendment) Regulations, 2023 (Amendment Regulations). The changes were initially proposed in a SEBI consultation paper on “Strengthening Corporate Governance at Listed Entities by Empowering Shareholders”. Some of the key changes introduced by these Amendment Regulations are as follows:
1. Obligation of a listed company to confirm or deny rumours
A definition for the term “mainstream media” has been introduced vide the Amendment Regulations. Mainstream media includes publications made in print or published online by domestic newspapers, news channels, online papers, news aggregators, and their overseas counterparts. As a result of this definition, the top 100 listed companies (from 01 October 2023) and subsequently, the top 250 listed companies (from 01 April 2024) will be obligated to provide clarity on specific rumours pertaining to a material event reported in mainstream media. The timelines so indicated have been changed by way of a subsequent amendment to the LODR Regulations.
The identification of top 100 and 250 listed companies will be based on the market capitalisation of companies of the previous financial year. If a listed company confirms the rumours, it will be obligated to report on the current developments of such event. Prior to the Amendment Regulations a listed company had the discretion to either confirm or deny any information that has been reported to the stock exchange. The Amendment Regulations have also introduced a standard which can be used by listed companies to gauge whether an event / information is material with respect to making of a disclosure. The criteria to determine materiality is based on the market reaction that the omission of information may result in, the impact of such omission on turnover, net worth and absolute value of profit or loss of the company among other factors.
2. Directorship made subject to shareholder approval once every 5 years
The Amendment Regulations provide that where a director continues to be on the board of a listed entity, such directorship will be subject to shareholders’ approval at least once every 5 years. It has been further clarified that shareholders’ approval will not be required for directors who are retiring as per the applicable provisions of the Companies Act, 2013. Directorships which are exceptions to shareholders’ approval include court or tribunal appointed directors, government appointed nominee directors in a listed company and nominee directors appointed by a financial sector regulator.
3. Disclosure of agreements that are binding on listed entities
Any agreement entered into by a shareholder, or promoter, or director, or key managerial personnel which affects the mode of control or creates any restriction or liability on a listed company shall be disclosed to the stock exchange. Such an agreement must be reported irrespective of whether the listed company was a party to such an agreement.
4. Periodic review of special rights conferred to shareholders
Prior to the Amendment Regulations, any special rights which may have been conferred on a specific class of shareholders in the first general meeting of a company would continue to exist in perpetuity. However, the Amendment Regulations provide that all special rights conferred in the first general meeting shall be subject to shareholders' review after every 5 years. This change addresses concerns of public institutional shareholders’ against granting perpetual special rights to the promoters and founders of companies that have been listed.
5. Alienation of assets outside a scheme of arrangement
SEBI identified that alienation of a company’s assets, by way of sale or lease or otherwise is only possible if it was approved by a special resolution. However, prior to the Amendment Regulations, asset alienation outside a scheme of arrangement did not need to be approved by the National Company Law Tribunal. Further, there was no framework to protect the interest of the minority shareholders. To plug this regulatory vacuum, the Amendment Regulations mandates that any alienation of a listed company’s asset will require a special resolution. A disclosure must also be provided by the listed company explaining the rationale for undertaking such alienation. Additionally, the special resolution can only be acted upon if a majority of the public shareholders approve the resolution.
6. Filling of vacancy in the office of the compliance officer
The LODR Regulations lays down that a qualified company secretary shall be appointed as a compliance officer in every listed company. The compliance officer is responsible for ensuring that the listed company is complying with the applicable laws, following the appropriate procedures, co-ordinating and reporting to the stock exchanges among other activities. Vide the Amendment Regulations, an additional requirement has been inserted that if any vacancy were to arise in the office of the compliance officer, such vacancy shall be filled within 3 months from the date of the vacancy.
7. Filling of vacancies in the office of Key Managerial Personnel
Provisions have been introduced by way of the Amendment Regulations to provide for filling up of vacancies in the offices of chief executive officer, chief financial officer, managing director and whole-time director within a period of 3 months from the date of such vacancy. It has also been clarified that such vacancies cannot be filled by appointing persons on an interim basis.
The Amendment Regulations have attempted to augment corporate governance standards and disclosure requirements of listed companies. Multiple contemporary and other pressing issues faced by listed companies have been addressed vide these Amendment Regulations. The changes introduced can be considered as a step in the right direction as it has the effect of empowering the common shareholders of listed companies.
Authors: Souvik Ganguly, Shrishti Mishra and Krishna Nair
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