Open Access Research Article
AN ANALYSIS OF THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 BY: SINGH SHIVANI
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Article Details
AUTHORED BY: SINGH SHIVANI
Institution: Chanakya
National Law University, Patna
Abstract
This research paper titled
“An Analysis of the SEBI (Listing Obligation and Disclosure Requirements)
Regulations, 2015” deals with some of the major listing obligations that a
listed company or a company that wants to list itself on any of the stock
exchanges has to fulfill. The paper primarily focuses on the rationale behind
these requirements, and it thoroughly explains their practical relevance.
Additionally, the paper discusses some of the recent amendments made to enhance
investor-friendliness in the market.
Introduction
Listing of securities means the admission of
securities of a company to trading on a recognized stock exchange. The
securities may be of any public limited company, Central or State Government,
quasi governmental and other financial institutions/corporations,
municipalities, etc. “Section 2(p) of Securities and Exchange Board of India
(Listing Obligations and Disclosure Requirements) Regulations, 2015 defines
“listed entity" as
an entity which
has listed, on a recognized stock exchange(s), the designated securities
issued by it or designated securities issued under schemes managed by it, in
accordance with the listing agreement entered into between the entity and the recognized
stock exchange(s)”.
In accordance with Section
24 of the Companies Act of 2013, any company that has securities listed on a
recognized stock exchange or intends to do so will be subject to SEBI
regulations regarding the issuance, transfer, and nonpayment of dividends.
According to Section 21 of the Securities Contracts (Regulation) Act of 1956,
any person who applies to have securities listed on a recognized stock exchange
must abide by the terms of the listing agreement with that stock exchange.
By section 11, section 11A
(2) and section 30 of the Securities and Exchange Board of India Act, 1992 read
with section 31 of the Securities Contracts (Regulation) Act, 1956, the Securities
and Exchange Board of India makes
regulations for listing obligations and disclosure requirements.
By sending circulars,
recommendations, instructions, and notifications to the listed firms and stock
exchanges, SEBI enforces compliance to the LODR. As part of its oversight over
the listed entities' disclosures and filings, SEBI also takes necessary action
in the event of any infractions or noncompliance. Among the steps that SEBI may
take are: Imposing fines, penalties, or the return of illegal gains. the
suspension or revocation of a security's listing or trade, preventing or
restricting access to the securities market for the directors, promoters, or
key executive staff, starting the investigation or legal action by sending the
case to further regulatory or enforcement authorities.
If the government makes a
case for the disinvestment in listed businesses, SEBI has the authority to
soften the tight implementation of the LODR regulations. Any company which
wants to list its securities on a stock exchange must first achieve certain
requirements and comply with certain steps. The minimum issued capital, the
minimum public shareholding, the track record of profitability or net worth,
and compliance with corporate governance standards are some of the
requirements. The process entails submitting an application to the stock
market, paying listing fees, providing the necessary documentation, and getting
listing permission.
Benefits of Listing
So, now one may ask that
what is the benefit of listing if the company has to do so much? The answer is
simple, it can access a larger pool of investors and raise money in the market.
Once it gets listed, it can borrow money on the basis of its shares. It provides present shareholders with a
chance to sell their shares or diversify their holdings. This increases the
marketability and liquidity of the securities. It guarantees openness and
disclosure of corporate data. The benefit for investors is that it makes their
holdings more liquid. They are able to sell the securities whenever they wish
as per the price prevailing in market. Investors can keep track of price
fluctuations in the securities they own or hold by following the stock market.
Investors benefit from the greatest possible protection for their holdings
because the Exchange's rules and regulations were developed with this goal in
mind. Listing gives added value to securities held by investors, as banks have
loans and advances when they take listed securities.
Requirement of a Compliance Officer
The listed entity is
responsible for ensuring compliance with any duties or obligations, if any,
given to key managerial people, directors, promoters, or anyone else working
with the listed organization under these laws. The compliance officer must be
chosen by a listed firm from among the competent company secretaries. The
listed entity's compliance officer is accountable for:
(a) ensuring that the
regulatory provisions that apply to the listed entity are followed in letter
and spirit;
This
requirement makes sure that the compliance part is done by a competent officer
which will benefit not only the company in the long run but will be in the
interest of all the stakeholders such as the creditors, shareholders, etc.
(b) coordinating with and
informing the Board, the recognized stock exchange(s), and the depositories
about compliance with rules, regulations, and other instructions from these authorities;
The compliance
officer is responsible for making the company comply with all the requirements
and in doing so, it acts like a bridge between different entities.
(c) ensure that correct
procedures are followed to ensure the accuracy, reliability and completeness of
information, declarations and reports submitted by listed companies pursuant to
these regulations.
Listed Companies to Have
a Share Transfer Agent
The listed entity must
appoint a share transfer agent or manage the facility in-house, maintaining all
activities related to the facility. A compliance certificate must be submitted
to the exchange, signed by both the entity's compliance officer and the agent's
representative. If a new agent is appointed, a tripartite agreement must be
entered into, informing stock exchanges within seven days. The agreement must
be placed in the board's meeting.
To keep track of who owns
their stocks and bonds and how they are held, as well as to handle transactions
like transfers, dividends, and corporate actions, listed firms are required to
employ a share transfer agent. A share transfer agent assists the business in
communicating with its shareholders and offering them a range of services. A
share transfer agent can be either an internal division of the firm or an
external institution like a bank or trust company. Share transfer agents are
subject to regulations set forth by the “Securities and Exchange Board of India
(SEBI)”, which also establishes their eligibility standards, registration
procedures, codes of conduct, and compliance obligations.
Some advantages of having a
share transfer agent includes lowering the administrative burden on the
business and ensuring accuracy and effectiveness in record keeping and
transaction processing as the company or its officers cannot do each and
everything themselves. By offering prompt and competent services, such as
issuing certificates, updating the contact information of the shareholders, and
resolving issues, it increases investor confidence and satisfaction. Along with
safeguarding shareholder interests, it makes it easier for the business to
comply with its legal and regulatory duties.
Co-Operation With Intermediaries Registered with The Board
To make sure that listed firms promptly and accurately
disclose information to stock exchanges and the general public is one of SEBI
LODR's goals. For this reason, SEBI LODR mandates that listed entities work in
tandem with intermediaries including credit rating companies, debenture
trustees, bankers to an issue, registrars to an issue, share transfer agents,
etc. Cooperation with intermediaries enables listed businesses to adhere to
SEBI LODR's disclosure and listing responsibilities. For instance, a listed
corporation issuing non-convertible securities is required to appoint a credit
rating agency to rate its securities and a debenture trustee to safeguard the
interests of such securities' holders.
Obligations Of a Listed Entity Which Has Listed Its Specified
Securities and Non-Convertible Debt Securities
·
Every listed company must have an independent “audit committee” that is
both qualified and competent. There must be a minimum of three directors on the
audit committee. The audit committee must have at least two-thirds independent
directors. The audit committee has the authority to look into any action that
falls under its purview, to ask any employee for information, to seek outside
legal or other professional advice, and, if required, to secure the attendance
of outsiders with pertinent experience. The audit committee will meet at least
four times per year, with no more than 120 days elapsing between meetings. The
major goals of having an audit committee are to preserve the interests of
shareholders and other stakeholders, to maintain the integrity and transparency
of the financial information, and to strengthen the credibility and
dependability of the audit process. The management, statutory auditors, and
board of directors are all connected by the audit committee.
·
In order to specifically consider various aspects of interest of
shareholders, debenture holders, and other security holders, the listed firm
shall establish a “Stakeholders Relationship Committee”. This committee's chairperson must be a
non-executive director. The Stakeholders
Relationship Committee must have at least three directors, with at least one of
them being an independent director. If a listed entity has outstanding SR
equity shares, at least two-thirds of the Stakeholders Relationship Committee
must be made up of independent directors. At the annual general meetings, the
chair of the stakeholder relations committee must be present to respond to
questions from security holders. At least once a year, the stakeholders
relationship committee must meet. The committee’s duties include resolving
security holders' grievances, reviewing shareholder voting rights, ensuring
adherence to service standards, reducing unclaimed dividends, and ensuring
timely receipt of dividend warrants and annual reports. They also oversee
shareholder engagement and communication plans, ensuring their views and
concerns are highlighted to the board and addressed promptly.
·
The “Risk Management Committee”, a component of the board of directors,
must have at least three members, including at least one independent director.
At least two-thirds of the committee must be independent directors if a listed
firm has outstanding SR equity shares. Senior executives may also serve on the
committee, although only the chairperson must be a board member. Meetings must
be held at least twice a year, with a quorum of two or one-third of the
committee members present, including the board member. The board, which may
delegate monitoring and evaluating of the risk management strategy,
specifically addressing cyber security, defines the committee's function and
responsibilities. High-value debt listed entities as well as the top 1000
listed entities are subject to the requirements. The risk management
committee's duties and responsibilities include developing a thorough risk
management policy that includes a framework for identifying the internal and
external risks that the listed entity is exposed to, reviewing and assessing
the appropriateness and effectiveness of the risk management policy and
processes, monitoring and supervising the implementation of the risk management
policy and plan, and reporting on the status of risk to the board of directors.
·
The listed entity must develop a “whistleblower policy and vigil mechanism”
to encourage directors and employees to raise legitimate concerns. The vigil
system must offer sufficient protections against victimization of any
directors, employees, or other users of the mechanism, as well as direct access
to the audit committee chairperson in necessary or extraordinary circumstances.
The main goals of having a vigil mechanism are to encourage accountability and
transparency in the way the listed entity operates, to safeguard the interests
of shareholders, creditors, and other stakeholders, to prevent and deter fraud,
corruption, and other wrongdoing in the listed entity, and to empower directors
and employees to voice legitimate concerns and grievances without fear of
retaliation or victimization. The listed entity's audit committee is
responsible for monitoring the vigil mechanism and will periodically assess its
performance.
·
A policy on dealing with “related party transactions”, including clear
threshold limits duly approved by the board of directors, must be developed by
the listed entity. This policy must be reviewed by the board of directors at
least once every three years and updated as necessary. A related party
transaction (RPT) policy is a written document that specifies the guidelines
and tactics to be used when handling transactions between a listed firm and its
related parties. The main purposes of a related party transaction policy are
to: ensure that RPTs are conducted fairly, transparently, and in the best
interests of the listed entity and its shareholders; prevent conflicts of
interest or the undue influence of any related parties on the listed entity's
decision-making; ensure compliance with applicable laws and regulations; avoid
any regulatory action or penalty; and provide a mechanism for dispute
resolution.
·
Prior to issuing securities, the listed firm must receive “in-principal
approval” from a recognized stock exchange(s). Where securities are only listed
on recognized stock exchange(s) with nationwide trading terminals, from all
such stock exchange(s). Where the securities are not listed on any recognized
stock exchange with national trading terminals, from all stock exchange(s)
where the issuer's securities are intended to be listed. Where securities are
listed on recognized stock exchange(s) with nationwide trading terminals as
well as recognized stock exchange(s) without nationwide trading terminals, from
all recognized stock exchange(s) with nationwide trading terminals. The 'in
principle approval' assures that the issuer meets the eligibility criteria and
disclosure standards for offering securities, and that no stock exchanges
object to the planned issue.
·
The listed firm must notify the stock exchange of a board meeting at
which proposals for financial results, stock buybacks, voluntary delisting,
capital raising, dividend declarations, convertible securities, and bonus
securities are due. Annual general meetings, special general meetings, and
postal ballots for shareholder approval should all be announced. Any intended
issuance methods, such as convertible debentures or debentures with equity
share subscription rights, or the declaration of bonus securities, must also be
reported to the stock exchange.
Obligations Of Listed Entity Which Has Listed Its Non-Convertible Securities
·
The listed entity must promptly inform the stock exchange(s) of any
information affecting its performance, price-sensitive information, or actions
affecting interest or dividend redemption of non-convertible securities. The
disclosure should be made within 24 hours of the event or receipt, and if made
after 24 hours, the entity must provide an explanation. The listed entity having
non-convertible securities shall also make disclosures as specified in Part B
of Schedule III. All disclosures must be hosted on the listed entity's website
for a minimum of five years, and thereafter as per the entity's archival
policy.
·
According to the terms of the offer document, information memo, and/or
debenture trust deed, the listed entity must maintain 100% "security
cover" or higher security cover for its secured listed non-convertible
debt securities, which is sufficient to pay off the principal amount and
interest on the non-convertible debt securities issued at all times. The listed
firm must inform the stock exchange of the extent and kind of security created
and maintained with regard to its secured listed non-convertible debt
securities in quarterly, half-yearly, year-to-date, and annual financial
statements, as appropriate. Along with its financial results, the listed firm
must report the security protection provided in the event of non-convertible
debt securities in the manner prescribed by the Board.
·
A credit rating agency registered by the Board shall examine each rating
received by the listed entity with respect to non-convertible securities at
least once per year.
·
The listed entity must provide the debenture trustee with the following
documents: an annual report, auditor's certificate, notices, resolutions,
circulars, intimations regarding new issue of non-convertible debt securities,
meetings of holders, revisions in ratings, defaults in interest or redemption,
failure to create charge on assets, covenants of the issue, and a half-yearly
certificate regarding maintenance of 100% security cover or higher security
cover as per the terms of offer document/ Information Memorandum and/or
Debenture Trust Deed, along with financial results specified by the Board. The
listed entity must also disclose all material events and information related to
interest, principal, issue and terms of non-convertible debt securities, rating,
creation of charge on the assets, notices, resolutions, and meetings of holders
of non-convertible debt securities to the debenture trustee. The listed entity
must also forward any information sought and provide access to relevant books
of accounts as required by the debenture trustee. The listed entity may send
the information stipulated in electronic form/fax, subject to the debenture
trustee's consent.
·
Within one working day of the due date, the listed firm must provide a
certificate to the stock exchange detailing the status of interest, dividend,
repayment, or redemption of the principle of non-convertible instruments.
·
The listed entity shall deliver physical copies of the statement
containing key information and hard copies of the annual reports to anybody who
requests them, as well as full annual reports to non-convertible security
holders who have provided their email addresses. Additionally, the company must
notify holders of non-convertible debt securities and non-convertible
redeemable preference shares of upcoming meetings, mentioning that Section 105
of the Companies Act, 2013's proxy appointment procedures apply. Additionally,
the corporation must submit proxy forms for holders to vote for or against each
resolution.
·
The listed entity is required to not forfeit unclaimed
interest/dividend/redemption amounts. If the amount is not claimed within
thirty days of the due date, the entity must transfer it to an escrow account
within seven days. Unclaimed amounts for less than seven years will remain in
the account for up to seven years. Any unclaimed amount for seven years will be
transferred to the "Investor Education and Protection Fund". For
listed entities not classified as companies, any unclaimed amount will be
transferred to the "Investor Protection and Education Fund."
Major
Recent Amendments
Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015.
Some
of the key amendments are:
·
Regulation 25(2A) now includes a proviso stating that
shareholders must approve the appointment, reappointment, or removal of an
independent director of a listed firm through a special resolution. Regulation
25(2A) of SEBI LODR outlines the process for appointing, re-appointing, or
removing an independent director (ID) of a listed entity. It requires
shareholder approval through a special resolution, but an alternative mechanism
allows a simple majority of shareholders to appoint or remove an ID, subject to
certain conditions. These conditions include votes cast in favor of the
resolution exceeding those cast against it, votes cast by public shareholders
in favor of the resolution exceeding those cast against it, and the ID must be
removed if the votes cast meet these criteria. The intent of this regulation
was to enhance the independence and role of IDs in listed entities and to
provide a safeguard for minority shareholders.
·
The "SEBI (LODR) (Second Amendment) Regulations,
2021"
Regulation 4(2)(d)(iv) requires the listed entity to create a
whistleblower policy that effectively enables stakeholders to voice their
concerns about illegal or unethical practices.
Regulation 7(3)- Compliance Certificate attesting to the upkeep of the
physical and electronic transfer facility: Within one month after the fiscal
year's conclusion, the aforementioned certificate must be lodged with the
exchange. Earlier, the same had to be completed within 30 days of each
half-year's conclusion.
·
In 2023, the “Grievance Redressal Mechanism” was revised.
Investor complaints must be resolved by the listed entity as soon as possible,
but no later than 21 calendar days after the complaint has been received, and
in any other way the Board may specify. An earlier clause obliged the listed
firm to take appropriate action for a prompt resolution of investor grievances.
There wasn't a deadline.
·
“Zero Coupon Zero Principal Instruments” added within the
ambit of “designated securities” under regulation 2(h) in 2023.
·
To deal with spreading of rumors and to facilitate easy
transfer of information , the concept of “mainstream media” has been added
under Regulation 2(ra) in 2023 and now as per regulation 30(11) the top 100
listed companies, followed by the top 250, are required to respond as soon as
reasonably possible and no later than twenty-four hours after the event or
information is reported in the mainstream media to confirm, deny, or clarify
any reported event or information that is not of a general nature and that
suggests that rumors of an impending specific material event or information
under the terms of this regulation are circulating among the investing public.
·
Scope of “related party” under Regulation 2 (zb) has been
widened by 2021 amendment.
·
Any vacancy in the office of the Compliance Officer must be
filled by the listed company as soon as possible, but in no event later than
three months from the date of such vacancy, according to the updated regulation
6 as per the 2023 amendment. However, unless the appointment is made in
accordance with the laws applicable in the event of a new appointment to such
office and the obligations under such laws are made applicable to such person,
the listed company shall not fill such vacancy by appointing a person in an
interim capacity. This modification highlights the significance of having a
designated compliance professional who assures compliance with legal
obligations and supports ethical corporate behavior.
·
A new clause, 17(1D), that lays the path for the elimination
of permanent board seats is introduced by the modified Regulation 17. Starting
on April 1, 2024, the shareholders of a listed corporation must approve the
continuance of a director's service on the board of directors at least once
every five years. This amendment encourages board responsibility, openness, and
a cyclical assessment of director performance.
There are numerous other amendments which have been added since the
inception of SEBI LODR, 2015 regulations.
Conclusion
Significant improvements in compliance and reporting
obligations for listed businesses are brought about by the LODR amendments.
Improving investor trust and establishing stronger corporate governance
procedures are the goals of the tougher disclosure deadlines, improved
governance standards, and increased transparency. Listed entities must assess
their current procedures and practices to make sure they are in conformity with
the new regulations. They must establish reliable processes for the prompt and
correct disclosure of significant events and information, and they must select
a Compliance Officer within the allotted time limit. Along with improving board
review procedures, businesses should concentrate on getting periodic shareholder
support for director reappointments. Listed entities can strengthen their
stakeholder communication, their governance frameworks, and their ability to
inspire confidence and credibility among investors and shareholders by
complying with the LODR revisions. As the economy will grow, more changes will
be needed to protect the interest of several stakeholders and to make the
corporate governance more transparent and smoother.
Article Information
AN ANALYSIS OF THE SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015 BY: SINGH SHIVANI
Authors: SINGH SHIVANI
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/05
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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