Recently the Securities and Exchange Board of India (SEBI) has announced 3rd amendment in the Listing Regulations, which govern the regulatory framework in which Listed entities operate in India. The major changes in the Listing Regulations can be discussed in the following categories:
Definition of Half Year
The definition of “half year’ as given in Regulation 2 (1) (k) has been omitted. The term “half year” meant the period of six months commencing on the first day of April or October of a financial year. It may indicate that probably, the format of the quarterly financial results, related party transactions and the corporate governance reports may be changed for the half year ended as at 30th September and 31st March of every financial year.
Related Party Transaction Exemption List expanded
Under the first proviso to in sub-regulation (1) of Regulation 2, clause (zc), following two transactions are added in the list of transactions not to be treated as Related Party Transactions:
(a) acceptance of current account deposits and saving account deposits by banks in compliance with the directions issued by the Reserve Bank of India or any other central bank in the relevant jurisdiction from time to time including payment of interest on these and fixed deposits which are already exempt under this proviso.
(b) retail purchases from any listed entity or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.”
Scope of Securities Laws redefined
The term securities laws wherever used in the SEBI (LODR) Regulations shall now be referred to as “the Securities Contracts (Regulation) Act, 1956, the Depositories Act, 1996 and the rules and regulations made thereunder and the general or special orders, guidelines or circulars made or issued by the Board thereunder and the provisions of the Companies Act, 2013 or any previous company law and any subordinate legislation framed thereunder, which are administered by the Board”. This definition has been so amended under clause (zf) of Regulation 2(1). The new definition will give enhanced supervisory scope to the SEBI.
Definition of SR equity shares
A new definition is inserted by the III amendment to the Listing Regulations in respect of the “SR equity shares” which means the equity shares of a listed entity having superior voting rights compared to all other equity shares issued by that listed entity.
General obligation of compliance.
A proviso has been added to Regulation 5 which requires that the listed entity shall ensure that key managerial personnel, directors, promoters or any other person dealing with the listed entity, complies with responsibilities or obligations, if any, assigned to them under these regulations provided that they shall disclose to the listed entity all information that is relevant and necessary for the listed entity to ensure compliance with the applicable laws. The implication of this change is that now on the KMPs, Directors, Promoters and others dealing with the listed entity can be held accountable if they fail to disclosed all relevant information to the listed entity for the purpose of fulfilment of its obligation of compliance with the applicable provisions of Securities Laws.
Compliance Officer and his/her Obligations
As per existing regulation 6(1), a listed entity shall appoint a qualified company secretary as the compliance officer. The third amendment to the Listing Agreement defines the Compliance officer as an officer, who is in whole time employment of the listed entity, not more than one level below the board of directors and shall be designated as a Key Managerial Personnel.
One new proviso has been added to regulation 6 (1A) which provides that any vacancy in the office of the Compliance Officer of such listed entity in respect of which a resolution plan under section 31 of the Insolvency Code has been approved, shall be filled within a period of three months of such approval and that, in the interim, such listed entity shall have not less than one full-time key managerial personnel managing its day-to-day affairs.
Compliance Certificate under regulation 7(3)
The requirement of submitting a compliance certificate under sub-regulation (3) of Regulation 7 that the listed entity has ensured that all activities in relation to share transfer facility are maintained either in house or by Registrar to an issue and share transfer agent registered with the Board has been omitted. This reduces the compliance burden on the listed entity to some extent.
Filing of information.
According to amended regulation 10 (1A), SEBI may enable integrated filing of periodic reports, statements, documents and any other information required to be filed by a listed entity under the Act or the regulations made thereunder in the format and within the timelines as may be specified. So it appears that listed entities may have to file fewer but more detailed information in the new formats and timelines to be notified by SEBI/Stock exchanges.
Grievance Redressal Mechanism.
The listed entity shall continue to file a statement detailing the redressal of investor grievances under regulation 13 (3), with the recognized stock exchange(s) on a quarterly basis as per the format and timelines as may be notified by SEBI.
Non-Applicability of Corporate Governance Conditions
The corporate governance provisions specified under Regulation 15(2), which are not applicable to a listed entity having paid up equity share capital not exceeding rupees ten crore and net worth not exceeding rupees twenty five crore, as on the last day of the previous financial year will now include regulation 26A which states that any vacancy in the office of Chief Executive Officer, Managing Director, Whole Time Director or Manager of Chief Financial Officer shall be filled by the listed entity at the earliest and in any case not later than three months from the date of such vacancy. This regulation was inserted in the year 2023 already.
Also, it has been so amended that once the corporate governance provisions as specified in 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, they shall continue to remain applicable till such time the equity share capital and (here the word ‘or’ has been replaced by ‘and’) the net worth of such entity reduces and remains below the specified threshold for a period of three consecutive financial years.
Regulation 15(2A) provides that the provisions as specified in regulation 17 shall not be applicable during the insolvency resolution process period. A new proviso has been added here such that listed entity shall ensure compliance with regulation 17 within a period of three months of approval of resolution plan under section 31 of the Insolvency Code.
Regulation 15(2B) provides the provisions as specified in regulation 18, 19, 20 and 21 shall not be applicable during the insolvency resolution process period. A new proviso has been added here such that listed entity shall ensure compliance with the said regulations within a period of three months of approval of resolution plan under section 31 of the Insolvency Code.
Amendment in the definition of material subsidiary and senior management
The definition of “material subsidiary” as given under regulation 16 (1) (c), has been revised to mean a subsidiary, whose turnover (earlier: income) or net worth exceeds ten percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.
The definition of “senior management” as given under regulation 16 (1) (d) has been amended to mean “senior management” shall mean the officers and personnel of the listed entity who are members of its core management team, excluding the Board of Directors, and shall also comprise all the members of the management one level below the Chief Executive Officer or Managing Director or Whole Time Director or Manager (including Chief Executive Officer and Manager, in case they are not part of the Board of Directors) and shall specifically include the functional heads, by whatever name called and persons identified and designated as key managerial personnel, other than the board of directors, by the listed entity.
Appointment of a non-executive director above 75 years of age
According to regulation 17 (1A), no listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of seventy five years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person. now a new proviso has been added which contemplates that the listed entity shall ensure compliance with this sub-regulation at the time of appointment or re-appointment or any time prior to the non-executive director attaining the age of seventy- five years.
Appointment of Directors
The existing sub-regulation (1C) of Regulation 17 has been substituted by the new sub-regulation (1C) mainly on account of the amendments in provisos, interalia, to provide that if an appointment or re-appointment of a person to the board of directors or as a manager is subject to approval of regulatory, government or statutory authorities, then the time taken to receive such approvals shall be excluded for the purposes of this clause which stipulates that the listed entity shall ensure that approval of shareholders for appointment or re-appointment of a person on the Board of Directors or as a manager is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier.
Vacancy in the office of a director
Sub-regulation (1E) of regulation 17 states that any vacancy in the office of a director shall be filled by the listed entity at the earliest and in any case not later than three months from the date such vacancy. Now, a new proviso has been inserted before the first proviso to sub-regulation 1(E) of Regulation 17 which provides that “if the vacancy in the office of a director results in non-compliance with the provisions of sub-regulation (1) of regulation 18, sub-regulation (1) or (2) of regulation 19, sub-regulation (2) or (2A) of regulation 20 or sub-regulation (2) or (3) of regulation 21, the listed entity shall ensure compliance at the earliest and in any case not later than three months from the date of such vacancy.”
The existing first proviso shall move to become the second proviso which is so amended that that if the vacancy in the office of a director results in non-compliance with the provisions of sub-regulation (1) of regulation 17, sub-regulation (1) of regulation 18, sub-regulation (1) or (2) of regulation 19, sub-regulation (2) or (2A) of regulation 20 or sub-regulation (2) or (3) of regulation 21, due to expiration of the term of office of any director, the resulting vacancy shall be filled not later than the date such office is vacated.
Accordingly, the second proviso has been modified to provide further that that this sub-regulation shall not apply if the listed entity fulfils the requirement under sub-regulation (1) of sub-regulation (1) of regulation 17, sub-regulation (1) of regulation 18, sub-regulation (1) and (2) of regulation 19, sub-regulation (2) and (2A) of regulation 20 and sub-regulation (2) and (3) of regulation 21 without filling the vacancy.
Related party transactions
According to regulation 23 (2), all related party transactions and subsequent material modifications require prior approval of the audit committee of the listed entity. The following clauses have been added to the list of provisos given thereunder:
- remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of promoter or promoter group, shall not require approval of the audit committee provided that the same is not material in terms of the provisions of sub-regulation (1) of this regulation.
- The members of the audit committee, who are independent directors, may ratify related party transactions within three months from the date of the transaction or in the immediate next meeting of the audit committee, whichever is earlier, subject to the following conditions:
(i) the value of the ratified transaction(s) with a related party, whether entered into individually or taken together, during a financial year shall not exceed rupees one crore;
(ii) the transaction is not material in terms of the provisions of sub-regulation (1) of this regulation;
(iii) rationale for inability to seek prior approval for the transaction shall be placed before the audit committee at the time of seeking ratification;
(iv) the details of ratification shall be disclosed along with the disclosures of related party transactions in terms of the provisions of sub-regulation (9) of this regulation;
(v) any other condition as specified by the audit committee:
Provided that failure to seek ratification of the audit committee shall render the transaction voidable at the option of the audit committee and if the transaction is with a related party to any director, or is authorised by any other director, the director(s) concerned shall indemnify the listed entity against any loss incurred by it.
As per regulation 23 (3), Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the certain conditions specified therein. The amended regulation 23 (3) shall be applicable to the subsidiaries of the listed entities as well.
The listed entity is required to formulate a policy on materiality of related party transactions and on dealing with them as specified under Regulation 23 (1). The listed entity is also required to submit to the stock exchanges disclosures of related party transactions in the format as specified by the Board from time to time, and publish the same on its website under regulation 23(9), which is now amended to exclude disclosure about the remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel or senior management, except who is part of promoter or promoter group under this sub-regulation provided that the same is not material in terms of the provisions of sub-regulation (1) of regulation 23.
Corporate governance requirements with respect to subsidiary of listed entity
As per regulation 24 (6), selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal[, or under a resolution plan duly approved under section 31 of the Insolvency Code and such an event is disclosed to the recognized stock exchanges within one day of the resolution plan being approved. Now, a new non-obstante clause has been inserted such that “Nothing contained in this sub-regulation shall be applicable if such sale, disposal or lease of assets is between two wholly-owned subsidiaries of the listed entity.”
Obligations with respect to employees including senior management, key managerial personnel, directors and promoters.
No employee including key managerial personnel or director or promoter of a listed entity shall enter into any agreement for himself herself or on behalf of any other person, with any shareholder or any other third party with regard to compensation or profit sharing in connection with dealings in the securities of such listed entity, unless prior approval for the same has been obtained from the Board of Directors as well as public shareholders by way of an ordinary resolution. Provided further that if the Board of Directors approve any such agreement, the same shall be placed before the public shareholders for approval by way of an ordinary resolution in the first general meeting held after listing and all interested persons involved in the transaction covered under the agreement shall abstain from voting in the (said) general meeting.
Appointment of Secretarial Auditor
The amendment Regulation 24A has completely replaced its sub-regulation (1) about inclusion of the secretarial audit report in the listed entity’s annual report. Now it has been expanded to provide that every listed entity and its material unlisted subsidiaries incorporated in India shall undertake Secretarial Audit by a Secretarial Auditor:
- A secretarial auditor has to be a Peer Reviewed Company Secretary and shall annex a Secretarial Audit Report in such form as specified, with the annual report of the listed entity
- On the basis of recommendation of board of directors, a listed entity shall appoint or re-appoint: an individual as Secretarial Auditor for not more than one term of five consecutive years; or a Secretarial Audit firm as Secretarial Auditor for not more than two terms of five consecutive years, with the approval of its shareholders in its Annual General Meeting.
- A cooling off period shall be required in both cases of 5 years for appointment by the listed entity as Secretarial Auditor after completing their term as specified under the said sub-regulation.
- However, nothing contained in these regulations shall prejudice the right of the entity to remove Secretarial Auditor with the approval of its shareholders in its Annual General Meeting or the right of the Secretarial Auditor to resign from such office of the listed entity.
- Further, the casual vacancy arising out of resignation, death or disqualification of a Secretarial Auditor shall be filled by the board of directors of the listed entity within a period of three months and the secretarial auditor so appointed shall hold office till the conclusion of the next annual general meeting. Further, as per new sub-regulation 24A (1A) specifies the eligibility conditions for appointment as Secretarial Auditor.
- As per new sub-regulation 24A (1B), the secretarial auditor appointed under these regulations shall provide to the listed entity only such other services as are approved by the board of directors, but which shall not include any services as specified by the Board in this behalf.
- As per new sub-regulation 24A (2), these provisions shall become applicable from April, 1, 2025 and any association of the individual or the firm as the Secretarial Auditor of the listed entity before March 31, 2025 shall not be considered for the purpose of calculating the tenure as provided for under applicable clause under sub-regulation (1) of regulation 23.
Filling up vacancy due to resignation or removal of an independent director
Proviso under existing regulation 25 (6) has been omitted. Earlier, it provided that an independent director who resigns or is removed from the board of directors of the listed entity shall be replaced by a new independent director by listed entity at the earliest but not later than three months from the date of such vacancy: Provided that where the listed entity fulfils the requirement of independent directors in its board of directors without filling the vacancy created by such resignation or removal, the requirement of replacement by a new independent director shall not apply.
Submission of Quarterly Corporate Governance Report
The requirement of submitting quarterly compliance report on corporate governance in the prescribed format within 21 days from the end of each quarter in pursuance to regulation 27 (2) is so amended as to indicate that a new format and a new timeline is seeming likely to be announced soon. Further, the requirement to disclose details of all material transactions with related parties has been dispensed with.
Conditions for re-classification of any person as promoter / public
Regulation 31 (A) (2) which required that the re-classification of the status of any person as a promoter or public shall be permitted by the stock exchanges only upon receipt of an application from the listed entity along with all relevant documents subject to compliance with conditions specified in these regulations has now been omitted including the proviso thereunder. However, regulation 31 (A) (3) has been suitably modified to specify the conditions for the re-classification of the promoter/promoter groups, subject to the fulfilment of the requirements given under the said regulation.
Under regulation 31 (A) (5), if any public shareholder seeks to re-classify itself as promoter, it shall be required to make an open offer in accordance with the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and the intention to get reclassified as a promoter shall be disclosed in the letter of offer shall be inserted.
Disclosure of events or information
The listed entity is required to first disclose to the stock exchange(s) all events or information which are material in terms of the provisions of this regulation as soon as reasonably possible However, for certain type of disclosures, there is a limit specified for making disclosure of certain material information. For example, it is thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken. However, a new proviso has been added and this provides that in case the meeting of the board of directors closes after normal trading hours of that day and closes any time but not more than three hours before the beginning of the normal trading hours of the next trading day, the listed entity can disclose the decision pertaining to the event or information, within three hours from the closure of the board meeting.
Also, the time limit for making disclosures continues to be within twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity and twenty four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity.
Another provision has been added to provide that if all the relevant information, in respect of claims which are made against the listed entity under any litigation or dispute, other than tax litigation or any litigation(s) or dispute(s) the outcome thereof which may have an impact on the listed entity, the disclosure with respect to such claims shall be made to the stock exchange(s) within seventy-two hours of receipt of the notice by the listed entity.
Financial Results
Under clause (a) of regulation 33 (3) of the listing regulations, the listed entity is required to submit quarterly and year-to-date financial results to the stock exchange within 45 of first three quarters respectively and within 60 days of the end of the last quarter. Now as per the new amendment, if a resolution plan under section 31 of the Insolvency Code has been approved in respect of any listed entity, it will have to disclose its financial results within 90 days from the end of the quarter in which such resolution plan was approved and within 120 days of the end of the quarter if such resolution plan was approved in the last quarter of the financial year.
Annual Report
As per the existing provisions, a copy of the annual report is required to be sent to the shareholders along with the notice of the annual general meeting not later than the day of commencement of dispatch to its shareholders. Now this has been so amended that a copy of the annual report can be sent to the shareholders along with the notice of the annual general meeting on or before the day of commencement of dispatch to its shareholders. This simply provides a better expression for the intent of this regulation.
Documents & Information to shareholders
The requirement for sending the hard copy of statement containing the salient features of all the documents, as prescribed in Section 136 of Companies Act, 2013 or rules made thereunder to those shareholder(s) who have not registered their e-mail Ids either with the listed entity or a depository under Regulation 36. (1) has been amended. The phrase “Hard Copy” has been replaced by “A letter providing the web-link, including the exact path, where complete details of the Annual Report is available”. However, as per SEBI Circular issued dated 3rd October, 2024, the requirement of sending physical copies of annual reports to shareholders whose e-mail Ids are not so registered. It is to be seen whether the listed entities may also not be required to send the letter providing the web-link, including the exact path, where complete details of the Annual Report is available in the current financial year.
Regulation 36 (2) which required the listed entity to send annual report referred to in regulation 36 (1), to the holders of securities, not less than twenty-one days before the annual general meeting has now been omitted.
Things to include in the Explanatory Statement to the Notice of the AGM
The notice being sent to shareholders for an annual general meeting, where the statutory auditors / secretarial auditor(s) are proposed to be appointed/re-appointed is now required to include the disclosures as a part of the explanatory statement the proposed fees payable to them along with terms of appointment and in case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change and also, the basis of recommendation for appointment including the details in relation to and credentials of the statutory auditor(s) proposed to be appointed. Now, this is going to be little ticklish. According to Companies Act, 2013, Explanatory Statement is required only in respect of the resolutions placed in the Notice of the AGM/EGM under special business. The ordinary resolution for the appointment / re-appointment of Statutory Auditors is placed under Ordinary Business and therefore no explanatory statement is required and so all necessary details are imbibed in the resolution itself. Now, it may seem practical to have two categories of explanatory statements – one under section 102(1) of the Companies Act, 2013 and another under regulation 36(5) of the SEBI (LODR) Regulations, 2015.
Also, the Companies Act, 2013 does not provide the manner of appointment and removal of Secretarial Auditor for the purpose of conducting secretarial audit under section 204.
Even secretarial compliance report, which is required to be filed by the listed entities under the amended regulation 24A, can only be signed by either a secretarial auditor or by a Peer Reviewed Company Secretary who satisfies the conditions mentioned in sub-regulations (1A) and (1B) of regulation 24A.
Hence it may be interesting to note how the difference in the provisions for the appointment of secretarial auditor for the purpose of carrying out secretarial audit under the Companies Act, 2013 and the listing regulations may be resolved by the listed entities.
Record Date or Date of closure of transfer books.
Under regulation 42 (2) of the listing regulations, the listed entity is now required to give notice in advance of at least 3 working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date. Further, in the case of corporate actions through schemes of arrangement covered under regulation 37, the listed entity shall be required to give such notice in advance of at least 7 working days (excluding the date of intimation and the record date).
Meetings of shareholders and voting
A proviso has been inserted in regulation 44 (4) such that the requirement to send proxy forms to holders of securities in all cases mentioning that a holder may vote either for or against each resolution shall not be applicable to general meetings held only through electronic mode.
Things to disclose on the website of the Listed entity
Things to display on the website of the listed entity under regulation 46 (2) will now also include:
- Memorandum of Association and Articles of Association and a brief profile of board of directors including directorship and full-time positions in body corporates.
- 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 presentations prepared by the listed entity for analysts or institutional investors meet, post earnings or quarterly calls prior to beginning of such events within the time limits prescribed under the applicable amended sub-regulations.
- Employee Benefit Scheme Documents, excluding commercial secrets and such other information that would affect competitive position of the listed entity, framed in terms of the provisions of Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021: Provided that redaction of information from the Employee Benefit Scheme document shall be approved by the board of directors of the listed entity and shall be in compliance with guidelines as may be specified by SEBI.
Advertisements in Newspapers
The listed entity is now required to publish an advertisement in the newspaper, within forty eight hours of conclusion of the meeting of board of directors at which the financial results were approved, containing a Quick Response code (QR code) and the details of the webpage where complete financial results of the listed entity, as specified in regulation 33, along-with the modified opinion(s) or reservation(s), if any, expressed by the auditor, is accessible to the investors. The listed entity, if it so chooses, can also publish the financial results in terms of regulation 33 along-with the modified opinion(s) or reservation(s), if any, expressed by the auditor in the newspaper as per the format specified within 48 hours of conclusion of the meeting of the board of directors at which the financial results were approved. Accordingly, the erstwhile sub-regulation (2) and (3) of regulation 47 have been omitted under the 3rd amendment of the listing regulations.
Transfer or transmission or transposition of securities
Sub-regulation (2), (3), (6), (8), (9) and (10) of Regulation 40 have been omitted. It is to be noted that requests for effecting transfer of securities already not allowed to be processed unless the securities are held in the dematerialised form with a depository and that transmission or transposition of securities held in physical or dematerialised form shall be effected only in dematerialised form.
Disclaimer: The materials provided herein are based on Author’s own understanding and is shared solely for information purposes. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from a competent authority. For complete details refer the above-mentioned SEBI (LODR) (3rd Amendment) Regulations, 2015 at www.sebi.gov.in under the link “LEGAL > Regulations”.