SEBI LODR Amendments (Dec 2024)- Strengthening Compliance

Key Objective of the Amendment 

With the goal of fostering enhanced transparency, fairness and promoting accountability in the administration and governance, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Amendments (December 2024) were done by Securities and Exchange Board of India  using the power conferred to it under Section 30(1) along Section 11(2) and Section 12 of Securities and Exchange Board of India Act,1992(15 of 1992).

The lack of accountability, consistency, fairness had substantially decreased with the increase of non-transparent and only profit oriented approach of listed entities in India which led to a gap in the compliance guidelines for disclosure requirements and corporate governance obligations. With the flow of time, this gap turned into a loophole by the entities to bypass the compliance requirements which paved the way for the Amendment in Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations by the Securities and Exchange Board of India.   

Understanding SEBI LODR Regulations 

Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations are essentially the paramount requirement and obligations which are by law requisite to be followed by all the listed companies and entities in India. The basic set of rules and guidelines which govern the functioning of all listed entities in India are known as Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations. The compliance and disclosure obligation of a listed  company in India are governed by this structure of guidelines. The backbone behind the disclosure requirements and standards of corporate governance required for fair, transparent, well timed, upright, precise along with accountable and consistent  treatment of the shareholders  are these regulations. 

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Major Changes and Impact of the Amendment 

• Separation of roles of Chairperson Of Board and the Managing Director (MD) / Chief Executive Officer (CEO) 

By the Insertion of Regulation 17(1D), now the roles of Chairperson Of Board and the Managing Director (MD) / Chief Executive Officer (CEO) won’t be held anymore by the same individual in the top 100 listed entities based on the capitalisation of the market. 

Earlier, there wasn’t any expressly laid provision which stated for the separate roles of the Chairperson Of Board and the Managing Director (MD) / Chief Executive Officer (CEO). This has been done to ensure better regulatory oversight along with improved balance of power in the corporate governance. Along with this, it more importantly aims to elect a non-executive Chairperson of the Board which ultimately reduces conflict between the management and governance sector of the company. 

• Stricten Timeline for Shareholder Approval 

By the Amendment to Regulation 17(1C), the timeline for the shareholder approval which is required to appoint the Director or the Manager has been now either at the next general meeting or within 3 months from the appointment of Director or the Manager whichever is earlier. 

Earlier, there was leniency in the timeline which allowed the approval by the shareholders at the next general meeting only. This amendment ensures a more well rounded approach to make sure to protect the shareholder’s interest and role in the decision making. This new improved stricten timeline is made to ensure compliance and shareholder oversight and limits any arbitrary appointment to be done by the board. 

• Increasing need to understand Materiality of events 

By the  Amendment to Regulation 30(4) , the word ‘material’ has now been explained as to what constitutes material disclosure as anything likely to affect investments decisions of reasonable investors and likely to cause significant price movement in the securities. 

Earlier, the vague definition as to what is materiality was a significant challenge for the disclosure in corporate governance.  The  ambiguity earlier when there was a lack of definition or explanation to what constitutes materiality has now been changed and improved with this amendment.. Now, with the clear picture of what constitutes material events, the ambiguity has significantly reduced which creates an atmosphere for a more clear, focused, objective driven test for disclosure.

• Substantiating the Market Rumours 

By the Introduction of Regulation 30A, the top 250 entities will now have to compulsorily confirm/ deny/ clarify the market rumours surrounding them in the mainstream media within 24 hours of the publication. With the legal obligation to comment on the market rumours aims to diminish the scope of the insider trading speculative trading and escalated market volatility.  

Earlier, there was no such provision to confirm/ deny/ clarify any market rumors which led to challenges for both the companies as well as the stakeholders especially the investors. This gives a fair chance to the entities to put their foot forward and protect themselves as well as gives the investors a chance to not trade based on market rumors and it predominantly reduces the scope of market volatility.

• Increased Oversight over Reclassification of Promoters 

By the  Amendment to Regulation 31A, the conditions for reclassification of the promoters has been made rigorous to ensure that the promoters don’t just leave without any consequences anymore. Now, for the reclassification of the promoters it requires detailed disclosures along with approval of the shareholder and the board. No more exits of the promoters based on mere technicalities and irrelevant grounds.    

Earlier, due to lack of norms and guidelines, there was an easy and trouble free way for the promoters to just take exits based on their own profitability and what suited them the best. The implications of this amendment now increases the Securities and Exchange Board of India (SEBI) oversight, heightened scrutiny for promoters and no more escaping of regulatory responsibilities.    

• Widening the sphere of Disclosure Requirements  

  
  

By the  Amendment to Regulation 46, the scope of the disclosures have been remarkably expanded and now the entities must provide and disclose information such as shareholder agreement, rationale behind credit rating, video recording, audio recording, transcripts of investor calls, etc.

Earlier, the disclosure requirements for the entities were static and finite which were bare minimum for the compliance requirements. There was only a basic list of disclosure essentials which were by the law required by the entities to be published in order to meet the compliance guidelines like financial statements, code of conduct, company policy, etc.. With the new and increased list of disclosures, the process has become more fair and transparent and it also makes the process of holding the entities liable for their actions more streamlined. As well as, it increases the scope of market information which will be beneficial to both the public as well as the stakeholders.  

The  changes in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations might be little demanding and exhausting for the listed entities to comply with initially but with the passage of time, these are what will benefit them in the long run. There is no doubt that keeping the shareholders more content will be beneficial to the companies only but at the same time there are challenges in the implementation of these changes which might be a roadblock that probably could pace down the current growth rate of the entities. Despite what challenges come our way, these changes show the commitment and dedication of the Securities and Exchange Board of India towards public service and this is the only way forward. The effective and successful execution of SEBI LODR Amendments (Dec 2024) will foster growth of corporate governance and disclosure requirements in India. 

Author: Ms. Garima Agarwal, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

References

1. https://www.sebi.gov.in/legal/regulations/dec-2024/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-third-amendment-regulations-2024_89956.html

2. https://www.sebi.gov.in/legal/regulations/jul-2024/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-july-10-2024-_84817.html