Sebi enacts significant changes to disclosure and RPT regulations

Ex-WTM S K Mohanty-led expert panel laid the groundwork for these reforms

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The Securities and Exchange Board of India (Sebi) has notified a raft of changes to the listing obligation and disclosure requirements (LODR) regulations in areas such as related party transactions (RPTs), promoter reclassification, and secretarial audit.

 

The amendments to LODR also include several ease-of-doing-business measures, such as an extended timeline for certain disclosures and the disclosure of tax disputes based on materiality and thresholds.

 

“Fraud by senior management, other than those who are promoters, directors, or key managerial personnel, shall be required to be disclosed only if it is in relation to the listed entity,” says the notification dated December 12.

 

Sebi has also provided certain exemptions in the definition of RPT, such as corporate actions by subsidiaries of a listed entity and corporate actions received by the listed entity or its subsidiaries, which are uniformly applicable or offered to all shareholders in proportion to their shareholding.

 

Further, the payment of remuneration and sitting fees to directors, key executives, and senior management — except those part of the promoter group — will be exempt from the requirement of audit committee approval under the RPT norms.

 

Sebi has also brought in conditions under which independent directors who are members of the audit committee can provide post-facto ratification of RPTs within three months from the transaction or in the immediate next meeting, whichever is earlier.

 

The market regulator has specified conditions for the reclassification of promoters to ‘public shareholders’. Promoters seeking reclassification will have to submit a request to the listed company along with the rationale. The board of directors will provide their views within two months, and the company will have to seek a no-objection from the exchanges. The stock exchanges will have 30 days to decide, and the decision will then have to be approved by the shareholders.

 

Sebi had first proposed these changes in June, based on a report by a committee chaired by S K Mohanty, the former whole-time member, and approved them in its September board meeting. 

 

Under the new norms, companies will also have to provide audio recordings of post-earnings or quarterly calls before the next trading day.

 

The market regulator has added that the appointment or reappointment of a person, including a managing director, who was earlier rejected by the shareholders in a general meeting will require prior approval of the shareholders and a detailed explanation and justification for recommending the name.

 

Sebi has also introduced several changes regarding the appointment and filling of key positions and vacancies in the office of the compliance officer.

 

For secretarial audit, Sebi has introduced a cooling-off period of five years. A secretarial audit firm or an individual secretarial auditor that has completed its term will not be eligible for reappointment in the same entity for five years from the completion of the term.

 

The new norms also direct listed companies ranked from 1,001 to 2,000 to have at least one woman independent director. Until now, this was applicable only to the top 1,000 companies.