Regulatory updates

Exemptions to the definition of related party transaction (Regulation 2(1)(zc)): Following items have been proposed to be exempt from the definition of RPT:

• Corporate actions by the subsidiaries of the listed entity and the subsidiaries of listed entities
• Savings accounts and current account transactions in case of banking companies
• Routine transactions at arm’s length pricing may be exempted from the related party norms, provided such transactions are in the ordinary course of business.

Approval of RPTs by the audit committee of the listed entity (Regulation 23(2)): As per existing regulations, prior approval of the audit committee of the listed entity is required for all RPTs to which the listed entity is a party. It has been proposed to exclude from the purview of RPTs the remuneration to Directors and Key Managerial Personnel (KMP), except those KMP who are part of the promoter/promoter group. Further, it is proposed to permit ratification of transactions which exceed the omnibus approval limit, within a specified timeline.

Omnibus approval (Regulation 23(3)): RPTs of subsidiaries can now obtain omnibus approval of the audit committee of the holding listed company.

Single filing system (Regulation 10): A system that automatically disseminates the filing done on one stock exchange to the other stock exchanges using an API-based integration has been proposed.

Periodic filings (Regulation 10B): To minimize the number of periodic filings that are required to done by a listed entity, it is recommended to merge the periodic filings under the LODR Regulations into two broad categories:

• Integrated Filing (Governance) – comprising of corporate governance report, statement on redressal on investor grievance. The timeline for Integrated Filing (Governance) should be within 30 days from the end of the quarter.
• Integrated Filing (Financial) – comprising of financial results, statement of deviation in use of proceeds, related party transactions etc. The timeline for Integrated Filing (Financial) should be within 45 days (60 days for the last quarter) from the end of the quarter.

System driven disclosures of certain filings (Regulation 31 and Para A of Part A of Schedule III of the LODR Regulations) : The process of disclosure of shareholding pattern and new or revised credit ratings should eventually be completely automated.

Website links (Regulation 46(2)): The information/data provided by listed entities is hosted on the website of stock exchanges. It has been proposed to provide curated links to the information/data on their own websites instead of duplicating the whole data again.

Newspaper advertisements (Regulation 47): The requirement of publishing detailed advertisements in newspapers for financial results is proposed to be made optional for listed entities. Further, it has been proposed to provide a small section with details of QR code and weblink of the page where detailed financial results of the listed entity have been put up.

Additional timeline for disclosure of events in some cases:

• For the disclosure of outcome of the board meeting that concludes after close of trading hours an increased timeline of three hours instead of 30 minutes has been proposed under regulation 30(6) and Para A of Part A of Schedule III of the LODR Regulations.
• In case of litigations or disputes wherein claims are made against the listed entity, an increased timeline for disclosure to 72 hours has been proposed from the existing 24 hours under Para B of of Part A of Schedule III of the LODR Regulations

Acquisitions by listed entities (Para A of Part A of Schedule III of the LODR Regulations): It is proposed that a listed entity should disclose details of acquisition made by the listed entity, whether directly or indirectly, where such a listed entity holds shares or voting rights in a company, whether listed or unlisted, aggregating to 20 per cent (increased from 5 per cent at present) or there has been any subsequent change in holding in the company exceeding 5 per cent (increased from 2 per cent at present). However, acquisition of shares or voting rights in an unlisted company, aggregating to 5 per cent or any subsequent change in holding exceeding 2 per cent, shall be disclosed in the specified format on a quarterly basis as part of the Integrated Filing (Governance) as described in point II above.

Disclosure of tax litigations and disputes (Para B of Part A of Schedule III of the LODR Regulations): It is proposed that a listed entity should disclose tax litigations / disputes including tax penalties based on application of criteria for materiality. It has been proposed that a listed entity should provide:

• Disclosure of new tax litigations or disputes within 24 hours
• Quarterly updates, as part of the Integrated Filing (Governance), on existing tax litigations or dispute
• Tax litigations or disputes, the outcomes of which are likely to have a high correlation, should be cumulated for determining materiality.

Vacancies in board committees (Regulation 17(1E)): The existing regulations provide no specific timeline to fill up vacancies in Board Committees arising as a result of vacancy in the office of a director. In order to provide adequate time to listed entities, a timeline of three months has been proposed to fill up vacancies in Board Committees, which result in non-compliance with the composition prescribed under specified regulations.

Timeline for obtaining shareholders’ approval for appointment/re-appointment of director (Regulation 17(1C)): As per regulation 17(1C) of the LODR Regulations, approval of shareholders for any person appointed on the board of a listed entity should be taken within a period of 3 months or the next general meeting, whichever is earlier. It has been proposed to exclude the time taken for regulatory or statutory or government approvals for appointment or reappointment of a person as a director for determining the time limit under regulation 17(1C) of the LODR Regulations.

Framework for reclassification of promoter/promoter group entities (Regulation 31A): Regulation 31A of the LODR Regulations lays down the procedure to be followed for reclassification of an entity belonging to promoter or promoter group as a public shareholder. The consultation paper has proposed changes to the framework for reclassification of promoter or promoter group entities as public under the LODR Regulations.

Obligation for disclosure of information to the listed (Regulation 5): Under the existing regulation there is no specific obligation on promoter(s), directors, KMP to make specified disclosures to the listed entity. The report proposes to cast obligation on the promoters, directors and KMPs to disclose all information that is relevant and necessary for the listed entity to ensure compliance with applicable laws.

Annual reports (Regulation 36(2)): The requirement of sending physical copies of annual reports to shareholders whose email ids are not available has been proposed to be removed. Such shareholders should be sent a letter with a link from which the annual report can be downloaded. Annual reports need to be submitted to the stock exchange on or before commencement of its dispatch to the shareholders.

Subsidiary related compliance requirements (Regulation 24(6)): The requirement of shareholders’ approval under regulation 24(6) for sale, disposal or lease of assets of a material subsidiary has been proposed to be removed in case such a transaction takes place between two wholly owned subsidiaries of the listed entity.

Corporate governance at listed entities (Part E of Schedule II of the LODR Regulations): The board has proposed to extend the applicability of the following provisions to the top 2000 listed entities:

• Appointment of one woman independent director on the board
• Constitution of a risk management committee
• Mandating more annual meetings of independent directors

Currently, the above mentioned provisions are applicable to the top 1,000 listed entities.

Virtual and hybrid shareholder meetings (Regulation 44(4)): It is proposed to hold permanent virtual and hybrid general meetings, with the notice period for such meetings reduced from 21 days to seven days. Further it has been proposed to remove the requirement of proxy forms for general meetings.

To access the text of the consultation paper please click here