Taxmann's Analysis | SEBI LODR Amendments for Listed Entities by Taxmann

[Analysis] SEBI LODR Amendments for Listed Entities

1. Introduction

On December 12, 2024, the Securities and Exchange Board of India (SEBI) introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These amendments aim to improve corporate governance, streamline compliance processes, and enhance transparency for listed entities. The changes address key aspects of corporate operations, including related party transactions, compliance officer norms, board meeting frequencies, audit committee oversight and secretarial audits. The key highlights of the amendments are as follows:

2. ‘Acceptance of Deposits by Banks’ and ‘Retail Purchases by Directors or Employees’ will not be considered as RPT – [Regulation 2(1)(zc)]

SEBI has introduced amendments to the definition of ‘related party transactions’, and the following two new exceptions have been added to the exclusion list:

(a) Acceptance of current account deposits and savings account deposits by banks in compliance with the directions issued by the Reserve Bank of India or any other central bank.

(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.

Comments

The amendment simplifies compliance for banks and listed entities by excluding routine transactions like bank deposits and retail purchases by employees and directors, reducing regulatory burden while ensuring transparency.

3.

Strengthening the

Position of

Compliance

Officer for Listed Entities – [Regulation 6(1) and 26A]

SEBI has notified key changes in Regulation 6 relating to the ‘Compliance Officer and his/her obligations’. As per the amended norms, a Compliance Officer must now be a whole-time employee of the listed entity, the rank of Compliance Officer should not be more than one level below the board of directors, and he/she must be designated as a Key Managerial Personnel (KMP). Earlier, the Compliance Officer was required to be only a qualified company secretary.

Further, any vacancy in the office of the Compliance Officer or in the office of CEO, MD, WTD or manager of such a listed entity in respect of which a resolution plan has been approved must be filed within a period of 3 months of such approval.

Also, such a listed entity must have at least one full-time key managerial personnel to manage its day-to-day affairs.

Comments

The amendments strengthen governance by ensuring that the Compliance Officer holds a significant position within the organisation as a KMP. For entities under resolution, the requirement to fill key vacancies within 3 months and the presence of a full-time KMP to manage day-to-day affairs ensure seamless operations and compliance during critical transitions.

4. Clarification on Appointment/Reappointment of Non-executive Director on Attaining Age of 75 Years – [Regulation 17(1A)]

A new proviso has been inserted into Regulation 17(1A), which clarifies that a special resolution is moved before the shareholders prior to the non-executive directors attaining the age of 75 and not after the directors have attained the said age.

5. Streamlining Shareholders’ Approval for Appointment/Reappointment of Individuals on the Board – [Regulation 17(1C)]

SEBI has introduced amendments to the provisions governing shareholders’ approval for the appointment or reappointment of individuals to the Board of Directors or as a manager under Regulation 17 (1C).

Under the existing norms, the listed entity must ensure that approval of shareholders for the appointment or reappointment of individuals on the Board of Directors or manager is taken at the next general meeting or within 3 months from the date of appointment, whichever is earlier.

As per the amended norms, if such appointments or reappointments are subject to the approval of the regulatory, government, or statutory authorities, then the time taken to obtain such approvals will be excluded from the specified period of ‘three months or the next general meeting, whichever is earlier’.

Further, the requirements to obtain shareholders’ approval do not apply to appointments or reappointments of individuals nominated by a financial sector regulator, Court, or Tribunal to the board of a listed entity.

Comments

The amendments provide greater flexibility and clarity for listed entities in managing board appointments and reappointments. By excluding the time taken for regulatory, government, or statutory approvals from the prescribed timeline, SEBI ensures a more streamlined process. Further, exempting appointments nominated by regulators, Courts or Tribunals from shareholders’ approval requirements promotes efficient decision-making and adherence to legal or regulatory mandates.

6. Enhanced Clarity on Frequency of Board Meetings and Audit Committee Meetings for Listed Entities – [Regulation 17(2),

18(2), 19(3A), 20(3A), and 21(3A)]

SEBI has amended the provisions governing the frequency of board meetings and audit committee meetings for listed entities. Under the existing norms, the Board of Directors is required to meet at least four times a year, with a maximum time gap of 120 days between any two meetings.

As per the revised norms, SEBI has clarified that the Board of Directors must meet at least four times in a ‘financial year’, with a maximum time gap of 120 days between any two ‘consecutive’ meetings.

Further, SEBI has clarified that the meetings of the Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee must be held at least once during each ‘financial’ year.

Comments

The amendment brings clarity to the frequency of board meetings and audit committee meetings by aligning the requirement with the financial year and emphasising compliance within a maximum gap of 120 days between consecutive meetings. This ensures improved governance and greater precision in scheduling board meetings.

7. Exemption from Audit Committee Approval and Ratification of Related Party Transactions –

[Regulation 23(2) and 23(3)]

SEBI has introduced amendments to Regulation 23 governing ‘Related Party Transactions’. Under the existing norms, all related party transactions and subsequent material modifications must require the approval of the audit committee of the listed entity.

The amended norms introduce new clauses to the second proviso of the Regulation. These states that remuneration and sitting fees paid by the listed entity or its subsidiary to its director, KMP, or senior management (excluding promoter or promoter group members) will not require the approval of the audit committee. The condition is that these payments are not material as per the policy on the materiality of related party transactions.

Further, members of the audit committee, who are independent directors, are empowered to ratify the related party transactions within three months from the date of the transaction or in the immediate next audit committee meeting, whichever is earlier, subject to certain conditions. The conditions are as follows –

(a) 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 Rs 1 crore;

(b) the transaction is not material in terms of policy on the materiality of related party transactions;

(c) rationale for the inability to seek prior approval for the transaction must be placed before the audit committee at the time of seeking ratification;

(d) the details of ratification must be disclosed along with the disclosures of related party transactions;

(e) any other condition as specified by the audit committee.

Also, the Audit Committee may now grant omnibus approval for related party transactions proposed to be entered into by the listed entity or its subsidiary.

Comments

The amendment provides greater flexibility in handling related party transactions by allowing independent directors on the audit committee to ratify such transactions within three months or at the next meeting. This reduces procedural delays while ensuring that the transactions remain within defined limits and are adequately disclosed.

8. Mandatory Peer-Reviewed Secretarial Audits to Enhance Corporate Governance in Listed Entities –

[Regulation 24A]

Regulation 24A of the SEBI (LODR) Regulations, 2015 governs the ‘Secretarial Audit and Secretarial Compliance Report’. It mandates that every listed entity and its material unlisted subsidiaries must undertake a secretarial audit and annex a secretarial audit report prepared by CS in practice with the annual report.

SEBI has now amended these regulations to mandate that every listed entity and its material unlisted subsidiaries incorporated in India undertake a secretarial audit conducted by a Peer-Reviewed Company Secretary and annex a secretarial audit report in a specified format along with the annual report of the listed entity.

8.1. Definition of the Terms ‘Secretarial Auditor’ and ‘Peer Reviewed Company Secretary’

‘Secretarial Auditor’ means a Company Secretary in Practice or a firm of Company Secretary(ies) in practice appointed to conduct the Secretarial Audit.

‘Peer Reviewed Company Secretary’ means a Company Secretary in practice who is either practising individually or as a sole proprietor or as a partner of a Peer-Reviewed Practice Unit, holding a valid certificate of peer review issued by the Institute of Company Secretaries of India.

8.2. Appointment and Tenure of Secretarial Auditor

The listed company must appoint a Secretarial Auditor on the recommendation of the Board of Directors of the company. An individual as Secretarial Auditor may be appointed for one term of five consecutive years, and a Secretarial Audit firm as Secretarial Auditor may be appointed for two terms of five consecutive years, with the approval of its shareholders in its Annual General Meeting.

Further, any association of an individual or firm as the Secretarial Auditor of a listed entity before March 31, 2025, will not be considered for calculating the tenure of 5 years.

8.3. Cooling off Period for Reappointment of Secretarial Auditor

An individual Secretarial Auditor who has completed his or her term shall not be eligible for reappointment as a Secretarial Auditor in the same entity for five years from the completion of his or her term.

Further, a Secretarial Audit firm that has completed its term shall not be eligible for reappointment as Secretarial Auditor in the same entity for five years from the completion of such term.

Further, no Secretarial Audit firm that shares a common partner or partners with another Secretarial Audit firm whose tenure has expired in the listed entity immediately preceding the financial year shall be appointed as the Secretarial Auditor of the same entity for a period of 5 years.

8.4. Casual Vacancy Arising out of Resignation, Death or Disqualification of Secretarial Auditor

Any casual vacancy arising out of the resignation, death or disqualification of a Secretarial Auditor must be filled by the Board of Directors of the listed entity within a period of three months, and the secretarial auditor so appointed must hold office till the conclusion of the next annual general meeting.

8.5. Eligibility, Qualifications and Disqualifications of Secretarial Auditor

A person shall be eligible for appointment as a Secretarial Auditor of the listed entity only if such a person is a Peer-Reviewed Company Secretary and has not incurred any of the disqualifications as specified by the Board.

Further, where a firm, including an LLP, is appointed as Secretarial Auditor of the listed entity, only the partners who are Peer-Reviewed Company Secretaries must be authorised to act and sign on behalf of the firm.

Also, where a person appointed as Secretarial Auditor of the listed entity incurs any of the disqualifications as specified by the Board, such person must vacate the office as Secretarial Auditor.

8.6. Removal or Resignation of Secretarial Auditor

The listed entity may remove the Secretarial Auditor with the approval of its shareholders in its Annual General Meeting, or the Secretarial Auditor may resign from his office before the completion of the term as a Secretarial Auditor.

8.7. Submission and Signing Requirements for Secretarial Compliance Report

As per Regulation 24A(2) of SEBI (LODR) Regulations, 2015, every listed entity is required to submit a secretarial compliance report to the stock exchanges within 60 days from the end of each financial year.

A new proviso has been inserted into this Regulation, stating that the Secretarial Compliance Report submitted to the stock exchanges on an annual basis is signed only by the Secretarial Auditor or by a Peer-Reviewed Company Secretary.

Comments

The amendments represent a significant step towards strengthening the accountability and quality of secretarial audits for listed entities. By mandating the appointment of Peer-Reviewed Company Secretaries, imposing tenure limits, and introducing cooling-off periods for reappointment, the regulations aim to ensure higher standards of corporate governance.

Further, the requirement that the Secretarial Compliance Report be signed only by a qualified professional enhances the credibility and reliability of compliance reports submitted to stock exchanges.

9. Removal of a 3-month Timeline to Fill the Vacancy in the Office of Independent Director – [Regulation 25(6)]

As per the existing norms, an independent director who resigns or is removed from the Board of Directors of a listed entity must be replaced by a new independent director as soon as possible but not later than 3 months from the date of vacancy. SEBI has now removed this requirement. This amendment represents a shift towards greater flexibility in board management.

10. Approval Requirements for Compensation or Profit-Sharing Agreements of Listed Entities –[Regulation 26]

Regulation 26 of the SEBI (LODR) Regulations governs ‘Obligations w.r.t employees including senior management, KMP, directors and promoters.

Regulation 26(6) states that no employee, including key managerial personnel, director, or promoter of a listed entity, must enter into any agreement with any shareholder or any third party regarding compensation or profit sharing in connection with dealings in the securities of a listed entity unless prior approval has been obtained from the Board of Directors and public shareholders.

As per the amended norms, all interested persons involved in the transaction covered under the agreement must abstain from voting in the general meeting. Further, any subsisting agreement that continues after the listing must be placed for approval before the Board of Directors in the forthcoming Board meeting.

Also, if the Board of Directors approves such an agreement, the same must be placed before the public shareholders for approval by way of an ordinary resolution in the first general meeting held after the listing.

Comments

The requirement enhances transparency and accountability by mandating prior approval from the Board and public shareholders for any compensation or profit-sharing agreements related to a listed entity’s securities. This measure helps to prevent conflicts of interest, ensures fair decision-making, and aligns such agreements with the broader interests of all stakeholders.

11. Timely Disclosure of Decisions and Financial Results Post Board Meetings – [Regulation 30(6)]

Regulation 30 deals with the ‘disclosure of events or information’. It states that every listed entity must disclose any events or information which, in the opinion of the board of directors of the listed company, is material.

Regulation 30(6) states that the listed entity must first disclose to the stock exchanges all events or information that are material as soon as reasonably possible and, in any case, not later than 30 minutes from the closure of the meeting of the Board of Directors in which decision pertaining to event or information has been taken.

A new proviso has been inserted into the Regulation, which states that, in case the board meeting closes after normal trading hours but more than three hours before the beginning of normal trading hours of the next trading day, the listed entity must disclose the decision within 3 hours from the closure of the board meeting.

Further, in case the board meeting lasts for more than one day and financial results are discussed, the company must disclose the financial results either within 30 minutes or three hours, depending on the situation, from the closure of the meeting for that particular day when the results were considered.

11.1. Timely Disclosure of Claims Against Listed Entity

In case a listed entity receives any notice about a claim against it (except for tax-related disputes), and if the details of these claims are maintained in a structured digital database as required by SEBI’s Insider Trading Regulations, the company must disclose the claim to the stock exchange within 72 hours of receiving the notice.

Comments

The amendments mandate the prompt disclosure of key board decisions, financial results and claims, thereby enhancing transparency, compliance, and investor confidence. Further, they align these disclosures with SEBI’s governance and insider trading regulations.

12. Timelines for Financial Disclosures by Listed Entities under Approved IBC Resolution Plans – [Regulation 33(3)(a)]

Regulation 33(3)(a) states that the listed entity must submit quarterly and year-to-date standalone financial results to the stock exchanges within 45 days of the end of each quarter other than the last quarter.

A new proviso has been inserted mandating the listed entity, with respect to which a resolution plan u/s 31 of the IBC has been approved, to disclose its financial results within 90 days from the end of the quarter in which such resolution plan was approved.

Further, a listed entity in respect of which a resolution plan u/s 31 of the IBC has been approved during the last quarter of a financial year must disclose its annual audited financial results within 120 days from the end of such financial year. The amendment ensures timely financial disclosures by entities with approved IBC resolution plans, enhancing transparency for stakeholders.

13. Clarification on Timeline for Submitting Annual Report and AGM Notice to Stock Exchange – [Regulation 34(1)(a)]

As per the existing norms, the listed entity must submit a copy of the annual report along with the notice of AGM to the stock exchange not later than the day of dispatch to its shareholders.

SEBI has now clarified that the listed entity must submit a copy of the annual report along with the notice of AGM to its shareholders on or before the commencement of dispatch.

14. Replacement of Hard Copy Requirement with Web-Link for Accessing Annual Report Details – [Regulation 36(1)]

Regulation 36(1)(b) states that the listed entity must send a hard copy of the statement containing the salient features of all the documents as prescribed in section 136 of the Companies Act, 2013, or rules to shareholders who have not registered.

SEBI has now replaced the requirement for a “hard copy of the statement containing the salient features of all the documents”, as prescribed under Section 136 of the Companies Act, 2013, with a more digital approach. The revised provision now mandates that a “letter providing the web link, including the exact path, where complete details of the Annual

Report are available” be provided instead. The amendment simplifies disclosure by replacing physical statements with a web link, enabling faster digital access to company information.

15. Exemption from Regulation 37 for Draft Schemes of Arrangement Involving Writeoff of Accumulated Losses and Reserves –[Regulation 37(6)]

Regulation 37 requires the listed entity to file the draft scheme of arrangement with the stock exchange for approval before submitting it to any Court or Tribunal, along with a non-refundable fee. Now, the requirement of adhering to Regulation 37 has been done away with in the case draft scheme, which:

(a) Solely provide for the merger of a wholly owned subsidiary with its holding Company or;

(b) Solely provide for writing off the accumulated losses against the share capital of the listed entity applied uniformly across all shareholders on a pro-rata basis or against the reserves of the listed entity.

However, such a draft scheme shall be filed with recognised stock exchanges for the purpose of disclosure.

16. Reduction in Timeline for Giving Notice to Stock Exchange for ‘Record Date’ –[Regulation 42(2) and 42(4)]

SEBI has amended the notification requirements for the record date. The timeline for advance notice to stock exchanges has been reduced from “seven working days” to “three working days” (excluding the date of intimation and the record date).

Additionally, in the proviso, the scope has been revised to include “corporate actions through schemes of arrangement covered under regulation 37” instead of “rights issues,” with the advance notice requirement increased from “three working days” to “seven working days” for such cases. Further, the listed entity must ensure a time gap of at least five working days between two record dates.

Comments

The amendment streamlines the notification process by reducing the advance notice period for general record dates to three working days, enhancing efficiency. However, it increases the notice period to seven working days for corporate actions under schemes of arrangement, ensuring sufficient time for stakeholders to be informed about significant changes.

17. Enhanced Transparency and Disclosure Requirements for Listed Entities on Key Corporate Information – [Regulation 46(2)]

The following new clauses have been inserted to enhance transparency and disclosure practices for listed entities, ensuring better access to key corporate information for stakeholders.

17.1. Dissemination of MOA, AOA and Brief Profile of Board on the Website of the Listed Entity

Every listed entity must disseminate its Memorandum of Association and Articles of Association on its website. A brief profile of the board of directors, including directorship and full-time positions in body corporates, must also be uploaded to the listed entity’s website.

17.2. Availability of Audio Recordings, Video Recordings, and Transcripts of Post-Earnings/Quarterly Calls

All audio recordings, video recordings (if any), and transcripts of post-earnings or quarterly calls, whether conducted physically or through digital means, will be made available as follows:

(a) Audio recordings will be posted on the website by the next trading day or within 24 hours of the call, whichever is earlier.

(b) Video recordings (if any) will be posted on the website within 48 hours of the call.

(c) Transcripts will be posted on the website and sent to recognised stock exchanges within five working days after the call.

The information under points number (a) and (b) must be hosted on the website of the listed entity for a minimum period of two years, and the information under point number (c) must be hosted on the website for 5 years. Thereafter, all this information must be preserved as per the listed entity’s preservation policy.

17.3. Disclosure of Employee Benefits Scheme Documents and Redaction Guidelines

Documents related to the Employee Benefits Scheme, excluding sensitive commercial information that could harm the competitive position of the company, must be framed according to the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

In case any information needs to be removed from these documents for privacy or competitive reasons, the company’s board of directors must approve the redaction, and it must follow the guidelines set by the regulatory authority.

Comments

The requirement for listed entities to publish their Memorandum of Association, Articles of Association, and Board profiles on their websites promotes transparency and informed decision-making. Similarly, the timely dissemination of audio, video recordings, and transcripts of post-earnings calls ensures stakeholders are promptly informed. With specified retention periods and preservation policies, these measures enhance corporate governance, transparency, and investor confidence.

18. Publication of

Financial

Results and

Auditor’s

Opinion – [Regulation 47]

The listed company must publish an advertisement within 48 hours of board approval of financial results, including a QR code linking to the full results and auditor’s comments. However, the requirement to include a reference in the newspaper publication to the links of its website and the stock exchange(s) where more details are available and publication of the information in the newspaper at the same time it submits it to the stock exchange(s) has been done away with.

Comments

The amendment simplifies the disclosure process by allowing listed companies to include a QR code linking to financial results and auditor’s comments in the newspaper advertisement. This reduces procedural burdens while ensuring timely access to critical financial information for investors.

19. Disclosures to Stock Exchanges in XBRL Format – [Regulation 50]

The listed company must submit its disclosures to the stock exchanges in XBRL format, following the guidelines set by the stock exchanges as updated from time to time.

20. Approval and Signing of Quarterly Financial Results – [Regulation 52]

The quarterly financial results submitted by a listed entity must now be approved by its board of directors before they are made public. Further, the financial results submitted to the stock exchange must be signed by the chairperson, managing director, or a wholetime director. If none of them are available, the results may be signed by another director who is authorised by the board to sign the financial results.

Comments

Requiring the board of directors to approve quarterly financial results ensures accuracy and accountability in financial reporting. Additionally, having the results signed by senior executives, such as the chairperson, managing director or an authorised director, further strengthen transparency and trust with investors and stakeholders.

21. Independent Directors of Top 2000 Listed Entities to Hold Biannual Meetings for Enhanced Corporate Governance – [Schedule II -Part E]

The independent directors of the top 2000 listed entities, based on market capitalisation, should aim to hold at least two meetings each financial year without the presence of nonindependent directors or management. All independent directors should try to attend these meetings. This requirement will help to ensure unbiased decision-making and improve corporate governance.

22. Amendment to the definition of ‘Acquisition’ –[Schedule III Part A]

The term ‘acquisition’ has been amended as follows:

Acquiring control, either directly or indirectly; or acquiring or agreeing to acquire shares or voting rights in a company, whether existing or to be incorporated, either directly or indirectly, such that:

(a) The listed entity holds 20% or more of the shares or voting rights in the company or

(b) There is a change in the holding since the last disclosure, and this change exceeds 5% of the total shareholding or voting rights in the company or

(c) The cost of acquisition or the price at which the shares are acquired exceeds the threshold specified in regulation 30, sub-regulation (4), clause (i), sub-clause (c).

23. Relaxation in a Timeline for Reporting of Outcome of the Board Meeting to the Stock Exchanges – [Schedule III Part A]

The listed entity must now disclose to the Exchange the outcome of the board meeting held to consider the following matters without adhering to the strict 30-minute timeline.

(a) dividends recommended or declared or the decision to pass any dividend and the date on which the dividend shall be paid/dispatched;

(b) any cancellation of dividend with reasons thereof;

(d) decision on proposed fundraising through securities issuance, including public offer, rights issue, debt, or preferential issue;

(e) increase in capital by issue of bonus shares through capitalisation, including the date on which such bonus shares shall be credited/dispatched;

(f) reissue of forfeited shares or securities, or the issue of shares or securities held in reserve for future issue or the creation in any form or manner of new shares or securities or any other rights, privileges or benefits to subscribe to;

(g) short particulars of any other alterations of capital, including calls;

(h) financial results;

(i) decision on voluntary delisting by the listed entity from the stock exchange.

Comments

Removing the 30-minute timeline will offer flexibility but could lead to delays in important disclosures, impacting investor confidence and market responsiveness. While it may improve the quality of the information provided, it could also diminish the timeliness of key corporate announcements.

24. Conclusion

The recent amendments to SEBI’s (LODR) Regulations mark a significant step towards strengthening corporate governance, enhancing transparency, and improving compliance for listed entities. By refining key areas such as related party transactions, board and audit committee operations, financial disclosures, and secretarial audits, SEBI has achieved a balance between simplifying regulatory processes and ensuring strong supervision. These changes demonstrate a progressive approach aimed at ensuring accountability, protecting stakeholder interests, and promoting sustainable corporate practices.