Regulatory updates

SEBI, vide a notification dated 7 September 2022 had issued amendments to the LODR Regulations, thereby making the corporate governance norms, as specified in the LODR Regulations become applicable to a High Value Debt Listed Entity (HVDLE)¹⁸A listed entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of INR500 crore and above.. Such entities would be required to ensure compliance with the corporate governance provisions within six months from the date of such trigger. The said provisions were made applicable on a ‘comply or explain’ basis until 31 March 2023 and on a mandatory basis thereafter.

In this regard, SEBI received various concerns of the companies impacted by the aforementioned provisions. Accordingly, on 8 February 2023, SEBI issued a Consultation Paper on review of Corporate Governance norms for a HVDLE (the consultation paper), summarising the concerns raised and the related clarifications specified. Some of the issues addressed include:

Issue: In cases wherein most of the shareholders are related parties, how should the companies ensure compliance with the provisions of the LODR Regulations for related party transactions? Clarification: SEBI clarified that in certain cases, wherein the shareholding includes 90 per cent or more of related parties, the HVDLE must first get the approval of the debenture holders, following which it should obtain the approval of the shareholders. Further, the approval of debenture holders should be vetted by the Company Secretary

Issue: In cases where the amount of debt falls below the prescribed threshold for classification of a HVDLE, what would be the period of applicability of the corporate governance provisions? Clarification: SEBI clarified that the corporate governance provisions, as prescribed in the LODR Regulations would continue to apply till the time the outstanding value of listed non-convertible debt securities of such an entity reduces and remains below the specified threshold for a period of three consecutive financial years.

The comment period ended on 22 February 2023.

To access the text of the consultation paper, please click here

Based on the inputs received from various stakeholders, SEBI is in the process of reviewing certain provisions of the NCS Regulations.

In this regard, on 9 February 2023, SEBI issued a Consultation paper on proposal for introduction of the concept of General Information Document (GID) and Key Information Document (KID), mandatory listing of debt securities of listed issuers and other reforms under the NCS Regulations (the consultation paper). The purpose of the consultation paper is two-fold which is:

1. To ensure parity between initial disclosures required to be made in a prospectus for public issuance of debt securities/NCRPS and a placement memorandum for private placement of NCS proposed to be listed¹⁹ In order to ensure parity between the two requirements, it is proposed to integrate the requirements of the present schedule I of the NCS Regulations ‘disclosures for public issue of debt securities and non-convertible redeemable preference’ shares and the present Schedule-II of NCS Regulations ‘disclosures for private placement of non-convertible securities. However, there are few disclosures which will apply solely to public issues or private placements. Annex-I to the consultation paper gives the proposed revised set of disclosures. , and
2. To introduce the concepts – GID²⁰ A GID for private placement of NCS proposed to be listed, containing the information and disclosures, as specified shall be filed with the stock exchange(s) at the time of the first issuance. The GID would be valid for a period of one year, which shall commence from the date of opening of the first offer of non-convertible securities under that GID. 21 For subsequent private placements of NCS and Commercial Paper within the validity period, only a KID shall be required to be filed with the stock exchange(s) and KID²¹ For subsequent private placements of NCS and Commercial Paper within the validity period, only a KID shall be required to be filed with the stock exchange(s) for private placement of NCS and Commercial Paper proposed to be listed.

The comment period ended on 24 February 2023.

To access the text of the consultation paper, please click here

In May 2022, SEBI had constituted the ESG Advisory Committee to make recommendations for streamlining the regulatory framework for ESG disclosures, ratings and investing. In this regard, on 20 February 2023, SEBI issued a Consultation paper on ESG Disclosures, Ratings and Investing (the consultation paper). The consultation paper is based on the recommendations of the ESG Advisory Committee and internal deliberations. It is divided into three parts –

• Part A – ESG Disclosures,
• Part B – ESG Ratings, and
• Part C – ESG Investing

The consultation paper has proposed assurance on Business Responsibility and Sustainability Report (BRSR) in the manner discussed below:

1. FY 2022-23: Assurance not a mandatory requirement
2. FY 2023-24: Reasonable assurance on BRSR mandatory for top 250 companies
3. FY 2024-25: Reasonable assurance on BRSR mandatory for top 500 companies
4. FY 2025-26: Reasonable assurance on BRSR mandatory for top 1000 companies

The consultation paper has also proposed to introduce a limited set of ESG disclosures for the supply chain of companies in a gradual manner. The implementation is proposed as below:

1. F.Y. 2024-25: ESG disclosures for supply chain of top 250 companies (Assurance not mandatory)
2. F.Y. 2025-26: ESG disclosures for supply chain of top 250 companies (Assurance on comply or explain basis).

From an ESG rating perspective, the consultation paper also proposes broad parameters which if adopted by ESG Rating Providers (ERPs), would make ESG ratings comprehensive and contextual.

The comment period ended on 6 March 2023.

To access the text of the consultation paper, please click here

On 20 February 2023, SEBI issued a Consultation paper on Streamlining Disclosures by Listed Entities and Strengthening Compliance with LODR Regulations (the consultation paper). The consultation paper proposes to amend the LODR Regulations in order to address the following issues:

1. Submission of first financial results by newly-listed entities: It has been proposed that a newly-listed entity may be required to disclose its first financial results post its listing, for the period immediately succeeding to the periods for which financial statements were disclosed in its offer document for initial public offer, within 15 days from the date of listing or as per the applicable timeline under LODR Regulations, whichever is later²² These proposals have been made in order to address the issues that there is: - absence of adequate time period for disclosure of financial results post listing and absence of the requirement to submit financial results for the previous quarter if the listing date happens to fall immediately after the statutory timeline prescribed for submission of the financial results. .
2. Timeline to fill up vacancy of directors, compliance officer, Chief Executive Officer (CEO) and Chief Financial Officer (CFO) in listed entities: It has been proposed that any intermittent vacancy of a director should be filled-up by the listed entity at the earliest but not later than three months from the date of such vacancy. In case the listed entity has become non-compliant with the requirement under Regulation 17(1) of the LODR Regulations due to appointment of a non-independent director or change in designation of an existing director or cessation of an existing director due to completion of his/her tenure, the vacancy of director so created shall be filled-up by the listed entity not later than the date of such vacancy. Further, any vacancy of a Compliance Officer/Chief Financial Officer (CFO)/CEO/MD/WTD/manager shall be filled-up by the listed entity at the earliest but not later than three months from the date of such vacancy.
3. Freezing of demat accounts of the managing director(s), Whole-Time Director(s) (WTD) and CEO(s) of a listed entity for continuing non-compliance with the LODR Regulations and/or non-payment of fines by a listed entity: It is proposed that the demat account of the WTDs, including the MD, and CEO(s) may be frozen, in addition to the demat account(s) of the promoters, for continuing non-compliance and/or non-payment of fines by a listed entity. This may result in timely compliance and/or payment of outstanding fines by listed entities and would ensure that the MD, WTD, CEO are held accountable for non-compliance or non-payment of fines by listed entities.

The comment period ended on 6 March 2023.

To access the text of the consultation paper, please click here

On 21 February 2023, SEBI issued a Consultation paper on Strengthening Corporate Governance at Listed Entities by Empowering Shareholders – Amendments to the LODR Regulations (the consultation paper). The consultation paper aims to strengthen the corporate governance mechanism of listed entities by enabling the shareholders to address following issues:

1. Agreements binding listed entities
2. Special rights granted to certain shareholders
3. Sale, disposal or lease of assets of a listed entity outside the ‘scheme of arrangement’ framework, and
4. ‘Board permanency’ at listed entities.

The comment period ended on 7 March 2023.

To access the text of the consultation paper, please click here

On 22 February 2023, SEBI issued a Consultation paper on certain amendments to SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations), with the objective of increasing transparency and streamlining certain processes (the consultation paper). The consultation paper proposes following amendments to the ICDR Regulations:

• Underwriting for public issue (IPO and FPO)
• Precondition for announcing bonus issue by a listed entity and issuance of bonus issues in dematerialised form
• Inclusion of pension funds sponsored by entities which are associate of the lead manager, to participate in anchor investor category in a public issue
• Inclusion of following requirements in respect to disclosures made in the offer document:

1. Providing access to list of material contracts and material documents for inspection through online means apart from inspection at the registered office
2. Providing complete industry report in the list of material documents for inspection
3. Hosting draft offer document and offer document(s) on website of issuer company.

The comment period ended on 8 March 2023.

To access the text of the consultation paper, please click here

On 24 January 2022, SEBI had published a consultation paper on ESG Rating Providers (ERPs) for securities market, specifying proposals on regulation/accreditation of ERPs. Based on the responses received, discussions held with various stakeholders, and other global regulatory developments, SEBI had proposed to introduce a regulatory framework for the ERPs.

Further, in May 2022, SEBI had constituted an ESG Advisory Committee, wherein ESG disclosures, ratings and investing were deliberated in an integrated manner. It was proposed that ERPs may register with SEBI under the SEBI (Credit Rating Agencies) Regulations, 1999 (CRA Regulations) and amend the CRA Regulations to include a chapter on ERPs.

In this regard, on 22 February 2023, SEBI issued a Consultation Paper on Regulatory Framework for ERPs in Securities Market (the consultation paper). The consultation paper comprises of two parts:

• Part A: Regulatory framework for ERPs
• Part B: Proposals regarding ESG ratings based on recommendations of the SEBI ESG Advisory Committee

The comment period will close on 15 March 2023.

To access the text of the consultation paper, please click here

To access the text of the circular extending the comment period of the consultation paper, please click here

In order to keep pace with the evolving market dynamics, the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) have been amended from time to time. In 2021, SEBI had also issued certain FAQs to explain the various requirements of the PIT Regulations.

In this regard, recently SEBI has revised and updated the aforementioned FAQs, particularly w.r.t. structured digital database and contra-trade.

To access the text of the revised FAQs, please click here

Recently, SEBI issued a circular on disclosure of material events/information by listed entities under Regulation 30 and 30A of the LODR Regulations. The circular consists of following four annexures w.r.t. disclosure requirements specified under Regulation 30 and 30A:

• Annexure I: Details to be provided while disclosing events given in Part A of Schedule III of the LODR Regulations
• Annexure II: Timeline for disclosing events
• Annexure III: Guidance on when an event/information can be said to have occurred
• Annexure IV: Guidance on the criteria for determination of materiality of events/information

The circular came into force w.e.f. 15 July 2023.

This circular is in complement to the recent amendments issued to the LODR Regulations on disclosure of material events.

To access the text of the circular, please click here