Recent Amendments in Listing Regulations

Securities and Exchange Board of India has recently amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [Listing Regulations] and they have come into effect on the date of their publication in the Official Gazette i.e., from May 5, 2021. The Listing Regulations have been made gender savvy, adapted to changes in other applicable Acts, and amended in a big way. These regulations are considered as one of the most important regulation mandated by Securities and Exchange Board of India to foster transparency and fair disclosures by all listed entities in India. Let us discuss the nature and extent of some of the changes in the letter and the spirit of the Listing Regulations in a categorical way in order to analyse what has changed and how much.

SEBI (LODR) Regulations get Gender Savvy:

English speakers and writers have traditionally been taught to use masculine nouns and pronouns in situations where the gender of their subject(s) is unclear or variable, or when a group to which they are referring contains members of both sexes. For example, the US Declaration of Independence states that ” . . . all men are created equal . . .” Fortunately, SEBI decided to amend the male bias in language in the letter of the Listing Regulations and has made them gender savvy wherever there is a mention of he, his, him or himself with reference to a director, promoter, auditor or compliance officer in reference to listing obligations/disclosures replacing them by he/she, his/her, him/her or himself/herself respectively.

The gender savvy changes have been made with reference to Compliance Officer [Regulation 6], Independent Directors [Regulation 18(1) and 25 (1)], Employees /Key Managerial Personnel [Regulation 26(6)], Non-Executive Chairperson [Schedule II, Part E], Promoter [Regulation 3A (4)] and the Auditor [Regulation 33 (1) (d) and Schedule IV Part A (Para C)].

This gesture by SEBI can be considered as extremely apt as the number of women in executive positions and Boards has been increasing partly due to the mandatory provisions to have at least one woman director in all listed company’s boards and at least one independent woman director in the top 1000 listed companies (in terms of market capitalization) and partly due to more women qualifying as professionals and joining the corporate sector. Besides the women are also working as qualified auditors and company secretaries in the corporate sector. SEBI’s effort to make women presence felt in the letter of the Listing Regulations is laudable.

SEBI adapts to Amendments in Referenced Act/Regulations/Definitions

The erstwhile listing regulations contained definitions of certain terms with reference to how they are defined in some other Acts/ Regulations. Since some of those underlying / referenced Acts themselves were revamped or amended, a corresponding change in the Listing Regulations was considered as necessary.

Accordingly, the reference to the SEBI (Issue of Capital and Disclosure Requirements) Act, 2009 has been amended as SEBI (Issue of Capital and Disclosure Requirements) Act, 2018 in the definition of “main board” [Regulation 2(1)(r)]; “offer document” [Regulation 2(1)(v)]; “promoter” and “promoter group” [Regulation 2(1)(w)]; “small and medium enterprises” or “SME” [Regulation 2(1)(zi)]; “SME Exchange” [Regulation 2(1)(zj)]; “specified securities’’ [Regulation 2(1)(zl)] and “monitoring agency” [Regulation 32 (7)]. These definitions have now been revised and duly aligned with changes in SEBI (ICDR) regulations, 2018.

For instance, “main board” means main board as defined in clause (a) of sub-regulation (1) of regulation 106N of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 in the erstwhile listing Regulations, but now, “main board” means main board as defined in clause (ee) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

A new definition has been added as clause 2(1)(zn) for working days which means “working days of the stock exchange where the securities of the entity are listed.”

Rephrasing the erstwhile listing regulations to fine tune them

In regulation 3 the opening paragraph of the erstwhile Listing regulation was “Unless otherwise provided, these regulations shall apply to “the listed entity” who has listed any of the following designated securities on recognized stock exchange(s)”. This has been re-numbered as sub-regulation (1) and re-drafted as “Unless otherwise provided, these regulations shall apply to “a listed entity” which has listed any of the following designated securities on recognized stock exchange(s)…”
Similarly in clause (a) of newly numbered Regulation 3 (1) and proviso to Regulation 15 (1) the phrase “institutional trading platform” has been substituted by “Innovators Growth Platform”. Accordingly, the phrase “institutional trading platform” has been substituted by “Innovators Growth Platform” under non-applicability of Minimum Public Shareholding requirements to the later. [Regulation 38]
In Regulation 4(2)(d)(iv), and 22 (1) the phrase “whistle blower mechanism’’ has been re-inked as “effective vigil mechanism/whistle blower policy’’.
In regulation 17A, its reference to “this sub-regulation” has been changed to “this regulation”.
In Regulation 24A, the heading now is modified to include the “Secretarial Compliance Report” alongwith Secretarial Audit Report. Further, the existing clause 24A has been re-numbered as sub-regulation (1) and substituted by “Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial audit report given by a company secretary in practice, in such form as specified, with the annual report of the listed entity.” Further a new sub-regulation (2) has been inserted which says that “Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges, within sixty days from end of each financial year.”
In Regulation 24 (5), A listed entity shall not dispose of shares in its material subsidiary resulting in reduction of its shareholding (either on its own or together with other subsidiaries) to less than or equal to fifty percent (earlier it was less than fifty percent) or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting subject to the exceptions contained therein.
In regulation 25 (3), The independent directors of the listed entity shall hold at least one meeting in a financial year (earlier it was required once in a year), without the presence of non-independent directors and members of the management and all the independent directors shall strive to be present at such meeting.
In Regulation 29(1) (f) prior intimation of the proposal for declaration of bonus securities was not required to be given where such proposal is not communicated to the board of directors of the listed entity as part of the agenda papers as per the proviso to that regulation. Hence the line that such intimation is required where such proposal is communicated to the board of directors of the listed entity as part of the agenda papers has been omitted as it is but obvious to do so by virtue of the proviso in this regulation.
Under Regulation 30 (6), disclosure with respect to events specified in sub-para 4 of Para A of Part A of Schedule III are now required to be made within timelines specified therein (earlier -thirty minutes of the conclusion of the board meeting) as the schedule itself mentions the requirements as regards the timelines.
Under Regulation 37 (1) and 37 (2), the requirements for obtaining “observation letter” has been omitted under filings of any scheme of arrangement under sections 391-394 and 101 of the Companies Act, 1956 or under Sections 230-234 and Section 66 of Companies Act, 2013 ,whichever applicable, with any Court or Tribunal. However, the pre-condition of obtaining the No-objection letter from the stock exchange(s) shall continue.
Under Regulation 94 (2) and 94 (3) the stock exchanges are now required to submit the No-objection Letter on the draft scheme of arrangement to the Board and the listed entity, as the case may be, in accordance with the said regulations respectively. The requirement of submitting the “Objection Letter” or “Observation Letter” in both these regulations respectively has been omitted. In Regulation 94 (4), The stock exchange(s) shall bring the objections, to the notice of Court or Tribunal at the time of approval of the scheme of arrangement, and the words “Observations” and “as the case may be” have accordingly been omitted.
In Schedule III Para A , which is about events which shall be disclosed without any application of the guidelines for materiality as specified in sub-regulation (4) of regulation (30), under Clause 7(B), the word “auditor” has been replaced by “independent director” and it now reads as “Resignation of independent director including reasons for resignation…” which was necessary as this clause mentions the procedures to be followed in the case of a resignation from the independent director received as regards the intimation, details and submission deadlines to the stock exchanges. Clause 7A which deals with the procedure to be followed in the case of a resignation from the auditor remains intact.

Amendments that substitute/omit existing regulation or insert new ones

Sebi has made a number of changes in the Listing Regulations in the nature of giving relaxation in the existing regulations to the listed entities yet there are others that enhance the scope of these regulations for certain types of compliance or specified listed entities. Some of them are listed below:

1. Applicability of listing provisions on the basis of market capitalization

Under regulation 3 a proviso has been added that the provisions of these regulations which become applicable to listed entities on the basis of market capitalization criteria shall continue to apply to such entities even if they fall below such thresholds.
Risk Management Committee provisions [Regulation 21 (5) ]have been made applicable to top 1000 (earlier 500) listed entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year.
It is now mandatory for top 1000 (earlier 500) listed entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year, to formulate a “dividend distribution policy”, disclose it on the website of the listed entity and provide a web-link for the same in their annual reports [Regulation 43A]. Accordingly, there is no requirement of providing the text of the distribution policy in the annual report as only the web-link is to be provided. Other Companies, which may want to disclose their dividend distribution policy on their website on voluntary basis may also provide only a web-link in their annual reports.
The existing clause (f) of sub regulation (2) of Regulation 34 [Items to be contained in the Annual Report] has been substituted by “for the top one thousand listed entities based on market capitalization, a business responsibility report describing the initiatives taken by the listed entity from an environmental, social and governance perspective, in the format as specified by the Board from time to time: Provided that the requirement of submitting a business responsibility report shall be discontinued after the financial year 2021–22 and thereafter, with effect from the financial year 2022–23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report in the format as specified by the Board from time to time. Provided further that even during the financial year 2021–22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report. Provided further that the remaining listed entities including the entities which have listed their specified securities on the SME Exchange, may voluntarily submit such reports. An explanation says that for the purpose of this clause, market capitalization shall be calculated as on the 31st day of March of every financial year

2. Frequency of the Compliance Certificate by RTA and Compliance Officer of Listed entity

Under regulation 7(3), the listed entity shall submit a compliance certificate to the exchange, duly signed by both the compliance officer of the listed entity and the authorized representative of the share transfer agent, wherever applicable, within thirty days from the end of the financial year [earlier one month of end of each half of the financial year], certifying compliance with the requirements of sub-regulation (2).

3. Frequency of submission of a certificate from PCS under regulation 49 (9) reduced

Under the amended regulation 40(9), the listed entity has to ensure that the share transfer agent and/or the in-house share transfer facility, as the case may be, produces a certificate from a practicing company secretary within thirty days from the end of the financial year [earlier, it was within thirty days from the end of each half of the financial year] ,certifying that all certificates have been issued within thirty days of the date of lodgment for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies.

4. Applicability of Corporate Governance Provisions

Under clause (a) of Regulation 15 (2), a new clause “(t)”has also been made applicable in addition to existing clauses (b) to (i). Further an existing proviso has been fine tuned to accommodate the applicability of the newly inserted clause (t) in the Proviso to this regulation which says that once the provisions of regulations 17 to 27, clauses (b) to (i) and (t) of sub-regulation (2) of regulation 46 and para C, D and E of Schedule V become applicable to a listed entity at a later date, it shall ensure compliance with the same within six months from such date. A new proviso has been inserted which mandates that that once the above regulations become applicable to a listed entity, they shall continue to remain applicable till such time the equity share capital or the net-worth of such entity reduces and remains below the specified threshold for a period of three consecutive financial years.
Further corporate governance provisions which are not applicable to listed entities on the SME Exchange [Regulation 15 (2) (b) are also not applicable to other listed entities thereat which are not companies, but body corporate or are subject to regulations under other statues by virtue of the annexed proviso having been omitted.

5. Role of the Audit Committee and Review of Information by Audit Committee

A newly inserted clause 22 under Schedule II, in Part C (Paragraph A), the role of the Audit Committee has been expanded to also “consider and comment on rationale, cost-benefits and impact of schemes involving merger, demerger, amalgamation etc., on the listed entity and its shareholders”

6. Disclosures in the Corporate Governance Report

In Para C, clause 6 of Schedule V which requires disclosures about Stakeholders relationship committee has been shifted to Clause 5 (substituting erstwhile clause 5 which mentioned disclosure requirements about Remuneration of Directors). A newly inserted clause 5A requires the following disclosures in the Corporate Governance Report about Risk Management Committee:

(a) brief description of terms of reference;

(b) composition, name of members and chairperson;

Further, the newly inserted Clause 6 (substituting erstwhile clause 6 which mentioned disclosure requirements about SRC) mentions the following disclosure information about Remuneration to the Directors:

all pecuniary relationship or transactions of the non-executive directors vis-à-vis the listed entity;
criteria of making payments to non-executive directors. Alternatively, this may be disseminated on the listed entity‘s website and reference drawn thereto in the annual report;
disclosures with respect to remuneration: in addition to disclosures required under the Companies Act, 2013, the following disclosures shall be made:

all elements of remuneration package of individual directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc;
details of fixed component and performance linked incentives, along with the performance criteria;
service contracts, notice period, severance fees;
stock option details, if any and whether issued at a discount as well as the period over which accrued and over which exercisable

7. Submission deadline of corporate governance report

In Regulation 27(2) (a) , a listed entity can now submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognized stock exchange(s) within twenty one days (earlier – fifteen days) from the end of each quarter.

8. Amendments to Risk Management Committee

The composition of the Risk Management Committee (RMC) [regulation 21(2)] has been substituted by “The Risk Management Committee shall have minimum three members with majority of them being members of the board of directors, including at least one independent director and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Risk Management Committee shall comprise independent directors.”
The frequency of the meetings of the RMC has been increased to twice [earlier once] in a year. [Regulation 21 (3A).
A new sub-regulation (3B) inserted under regulation 21 which says that the quorum for a meeting of the Risk Management Committee shall be either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance.
A new sub-regulation (3C) inserted under Regulation 21 specifies that the meetings of the risk management committee shall be conducted in such a manner that on a continuous basis not more than one hundred and eighty days shall elapse between any two consecutive meetings.
As per regulation 24(4), the board of directors shall continue to define the role and responsibility of the Risk Management Committee. However, a new proviso mandates that the role and responsibilities of the Risk Management Committee shall mandatorily include the performance of functions specified in Part D of Schedule II.
The Proviso to regulation 21(5) shall now be applicable to top 1000 [earlier top 500] listed entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year.
The powers of the RMC have been enhanced by insertion of a new sub-regulation (6) under regulation 21. The Risk Management Committee shall have powers to seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.”

9. Relaxation for Disclosures in the Notice of Annual General Meeting

Regulation 26 (4) which required that the Non-executive directors have to disclose their shareholding, held either by them or on a beneficial basis for any other persons in the listed entity in which they are proposed to be appointed as directors, in the notice to the general meeting called for appointment of such director, has been omitted. However, as per the amended regulation 36 (3), in case of appointment /re-appointment of the Non-executive directors, the annual report shall include, in addition to information about shareholding in the listed entity, their shareholding as a beneficial owner.

10. Re-classification of status of a promoter/ person belonging to promoter group to public

(i) Application for re-classification

Under Regulation 31(3) (a) the erstwhile set of conditions have been replaced by a whole new set of conditions. The reclassification of status of a promoter to public shall now be permitted by the stock exchanges only upon satisfaction of the following conditions:

an application for reclassification has been made by the listed entity to the stock exchanges within thirty days from the date of approval by shareholders in general meeting after ensuring that the following procedural requirements have been fulfilled:
the promoter(s) seeking reclassification has made a request for reclassification to the listed entity along with a rationale for the same and a description as to how the conditions specified in clause (b) of sub-regulation (3) of this regulation are satisfied;
the board of directors of the listed entity has analyzed such request in the immediately next board meeting or within three months from the date of receipt of the request from its promoter(s), whichever is earlier and has placed the same before the shareholders in a general meeting for approval along with the views of the board of directors on the request.

Provided that there shall be a time gap of at least one month but not exceeding three months between the dates of the board meeting and the shareholders‘ meeting considering the request of the promoter(s) seeking reclassification.

the request of the promoter(s) seeking reclassification has been approved in the general meeting by an ordinary resolution in which the promoter(s) seeking reclassification and the persons related to him/her/it have not voted to approve such reclassification request:

Provided that the provisions of this sub-clause shall not apply in cases:

(a) where the promoter(s) seeking reclassification and persons related to the promoter(s) seeking reclassification, together, do not hold more than one percent of the total voting rights in the listed entity;

(b) where reclassification is pursuant to a divorce.”

(ii) Reclassification under IBC/Regulatory/Legal Cases

Sub-regulation 9 of the regulation 31 has been replaced as “The provisions of sub-regulations (3), (4) and clauses (a) and (b) of sub-regulation (8) of this regulation shall not apply if reclassification of promoter(s) is as per the resolution plan approved under section 31 of the Insolvency Code or pursuant to an order of a Regulator under any law subject to the condition that such promoter(s) seeking reclassification shall not remain in control of the listed entity”

(iii) Reclassification pursuant to an open offer or a scheme of arrangement

The newly added sub-regulation (10) under Regulation 31 says that in case of reclassification pursuant to an open offer or a scheme of arrangement, the provisions of clause (a) of sub-regulation (3) and clauses (a) and (b) of sub-regulation (8) of this regulation shall not apply if the intent of the erstwhile promoter(s) to reclassify has been disclosed in the letter of offer or scheme of arrangement:

Provided that the provisions of clause (c)(i) of sub-regulation (3) of Regulation 31 shall not apply in case of reclassification pursuant to an open offer. Thus the requirement of being compliant with the requirement for minimum public shareholding as required under regulation 38 of these regulations is not applicable in such cases.

11. Submission deadline for comments/reports from monitoring agency

As per the amended Regulation 32 (6) , any comments or reports received from the monitoring agency [which has been appointed to monitor the utilization of proceeds of a public or rights issue] shall have to be submitted by the listed entity to the stock exchange (s) within 45 days from the end of each quarter.

12. The statement on Impact of Audit Qualification

The statement on Impact of Audit Qualification shall not be reviewed by SE (s) for audit report with modified opinion since sub-regulation (6) of Regulation 33 has been omitted. Further, The erstwhile Regulation 53 (2) (d) which said that “The Statement on Impact of Audit Qualifications (for audit report with modified opinion and the accompanying annual audit report submitted in terms of clause (a) shall be reviewed by the stock exchange(s)” has also been omitted.

13. Provisions upon receipt of confirmation regarding name availability

Upon compliance with the conditions for change of name laid down in Companies Act, 2013 and rules made thereunder, the listed entity, in the explanatory statement to the notice seeking shareholders‘ approval for change in name, shall include a certificate from a practicing chartered accountant stating compliance with conditions provided in sub-regulation (1). The requirement to seek approval from Stock Exchange by submitting a certificate from chartered accountant stating compliance with conditions at sub-regulation (1) in such cases, has been omitted.

14. Dissemination of information on website about schedule of analyst or institutional investor meet and presentations made by the listed entity

Regulation 46 (2) (o) has been substituted by “Schedule of analysts or institutional investors meet and presentations made by the listed entity to analysts or institutional investors” with an explanation which says that “For the purpose of this clause _’meet’ shall mean group meetings or group conference calls conducted physically or through digital means”.

15. Audio or video recordings and transcripts of post earnings/quarterly calls to be hosted on the website

A new clause (2) (oa) has been inserted in regulation 46 which says that Audio or video recordings and transcripts of post earnings/quarterly calls, by whatever name called, conducted physically or through digital means, simultaneously with submission to the recognized stock exchange(s), the following be also applicable:

the presentation and the audio/video recordings shall be promptly made available on the website and in any case, before the next trading day or within twenty-four hours from the conclusion of such calls, whichever is earlier;
the transcripts of such calls shall be made available on the website within five working days of the conclusion of such calls:

Provided that—

The information under sub-clause (i) shall be hosted on the website of the listed entity for a minimum period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website.
The information under sub-clause (ii) shall be hosted on the website of the listed entity and preserved in accordance with clause (a) of regulation 9.

The requirement for disclosure(s) of audio/video recordings and transcript shall be voluntary with effect from April 01, 2021 and mandatory with effect from April 01, 2022.

16. Upload of separate audited/unaudited financial statements of each subsidiary of the listed entity

Under Regulation 46 (2) (s), separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year were required to be uploaded at least 21 days prior to the date of the annual general meeting which has been called to inter alia consider accounts of that financial year are required to be uploaded. A new proviso has been inserted which says that “Provided that a listed entity, which has a subsidiary incorporated outside India—

where such subsidiary is statutorily required to prepare consolidated financial statement under any law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial statement of such subsidiary is placed on the website of the listed entity;
where such subsidiary is not required to get its financial statement audited under any law of the country of its incorporation and which does not get such financial statement audited, the holding Indian listed entity may place such unaudited financial statement on its website and where such financial statement is in a language other than English, a translated copy of the financial statement in English shall also be placed on the website.”

17. More details/documents to be uploaded on the website

secretarial compliance report as per sub-regulation (2) of regulation 24A of these regulations [Regulation 46 (2) (t)]
disclosure of the policy for determination of materiality of events or information required under clause (ii), sub-regulation (4) of regulation 30 of these regulations [Regulation 46 (2) (u)];
disclosure of contact details of key managerial personnel who are authorized for the purpose of determining materiality of an event or information and for the purpose of making disclosures to stock exchange(s) as required under sub-regulation (5) of regulation 30 of these regulations [Regulation 46 (2) (v)];
disclosures under sub-regulation (8) of regulation 30 of these regulations; [Regulation 46 (2) (w)]
statements of deviation(s) or variation(s) as specified in regulation 32 of these regulations; [Regulation 46 (2) (x)]
dividend distribution policy by listed entities based on market capitalisation as specified in sub-regulation (1) of regulation 43A; [Regulation 46 (2) (y)]
annual return as provided under section 92 of the Companies Act, 2013 and the rules made thereunder. [Regulation 46 (2) (z)]

18. Intimations no more required to be given through publishing in the Newspaper

It is no more required to give advertisement in the newspapers of (i) the notice of meeting of the board of directors where financial results shall be discussed and (ii) the state deviation(s) or variation(s) as specified in sub-regulation (1) of regulation 32 on quarterly basis, after review by audit committee and its explanation in directors report in annual report

The erstwhile Regulation 47 (1)(a) and 47 (1)(a) have been omitted.

References/Disclaimer

This article presents a gist of the recent amendments of the SEBI (LODR) Regulations, 2015 based on the understanding of the author of the Securities and Exchange Board of India notification no. SEBI/LAD-NRO/GN/2021/22 dated 5^th May, 2021. For detailed, comprehensive and exact changes made and for compliance purposes, please refer to the SEBI (LODR) Regulations, 2015 as updated on the SEBI website.