SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. -LODR
Disclaimer: Based on queries/
comments received from market participants, these FAQs have been prepared to
provide guidance on the provisions of SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 ("the Regulations", "Listing
Regulations", "LR") and circulars issued there under. For full
particulars of laws governing continuous disclosure requirements, please refer
to the Acts/Regulations/Guidelines/Circulars etc. appearing under the Legal Framework
Section of SEBI website i.e., www.sebi.gov.in and the websites of
respective recognized stock exchanges.
A.Definitions
Q1. Regulation 2(1)(b) of LR defines an ‘associate company’ to mean any
entity which is an associate under the Companies Act, 2013 or under the
applicable accounting standards. Whether both conditions have to be met or
either of the two?
Answer: The definition of associate company should
be viewed under the Companies Act, 2013 as well as Accounting Standards. If the
condition is met under either of the two, then such entity should be classified
as an associate company.
Q2. Regulation 2(1)(zb) of LR defines the term ‘Related party’ to mean
related party under the Companies Act, 2013 or under the applicable Accounting
Standards. Whether both conditions have to be met or either of the two?
Answer: The definition of related party should be
viewed under the Companies Act,
2013 as well as Accounting Standards. If the condition
is met under either of the two, then such party should be classified as a
related party.
B. Common Obligations of Listed
Entities
Q3. Regulation 9 requires a listed entity to frame a policy for preservation
of documents approved by its board of directors, classifying them into the
documents that can be preserved permanently or can be preserved for a period of
not less than eight years after completion of the relevant transactions. What
types of documents are covered under this regulation?
Answer: The documents preserved in terms of
Regulation 9 includes document
required to be preserved by a listed entity in terms
of securities laws defined under
Regulation 2(1) (zf) and other laws and statutes
applicable to such listed entity.
C. Corporate Governance
Q4. Regulation 17(8) of LR requires a compliance certificate to the Board of
directors by Chief Executive Officer (CEO) and Chief Financial Officer (CFO).
Whether the Managing Director or Whole Time Director may certify the compliance
certificate, when the company has not designated a CEO?
Answer: Such certificates may be signed by the
officials who hold powers, duties and
responsibilities of a CEO/ CFO irrespective of their
designations.
Q5. Regulation 23 (4) provides that all material related party transactions
shall require approval of the shareholders through resolution and the related
parties shall abstain from voting on such resolutions whether the entity is a related
party to the particular transaction or not. In this regard, whether only those
related parties who are related to the concerned transaction/ contract should
abstain from voting or whether related parties should altogether abstain from
voting?
Answer: The requirement under Regulation 23(4), is
applicable for listed entities subject to the provisions of Regulation 15.
Hence, for applicable entities, the regulation clearly provide that all
material related party transactions shall require approval of the shareholders
through resolution and the related parties shall abstain from voting on such
resolutions whether the entity is a related party for the particular
transaction or not.
Q6. Regulation 23(8) requires all existing material related party contracts
or arrangements entered into prior to the date of notification of these
regulations and which may continue beyond such date shall be placed for
approval of the shareholders in the firstGeneral Meeting subsequent to
notification of these regulations. Whether the listed entity requires to take a
fresh shareholders approval in case it has already taken an approval prior to
implementation of these regulations?
Answer: The listed entity need not take fresh
approval of shareholders in case the entity has already fulfilled the
requirement of the regulations.
Q7. Regulation 24(1) prescribes having at least one independent director of
the listed entity as a director on the board of directors of 'unlisted material
subsidiary
incorporated
in India'. Sub-regulations (2), (3) and (4) to the same regulation refer to 'unlisted
subsidiary'. Whether such sub-regulations (2), (3) and (4) are applicable to
all unlisted subsidiaries or only material unlisted subsidiaries incorporated
in India?
Answer: Listed entities may be guided by the
provisions of Regulation 24. Wherever
'unlisted material subsidiary 'and 'unlisted
subsidiary' have been distinctly mentioned in a particular sub-regulation, such sub-regulation shall
be applicable to material unlisted subsidiaries or all unlisted subsidiaries as
the case may be.
Q8. Regulation 24 (4) requires that the management of the unlisted
subsidiary shall
periodically
bring to the notice of the board of directors of the listed entity, a
statement
of all significant transactions and arrangements entered into by the
unlisted
subsidiary. Whether the requirement is applicable only to the material
unlisted
subsidiary?
Answer: The requirement is applicable to all
unlisted subsidiaries.
Q9. Regulation 26(1) stipulates that a director shall not be a member in
more than ten committees or act as chairperson of more than five committees
across all listed
entities.
Clause (a) to the aforesaid sub-regulation requires membership on
committees
that a director serves in all public limited companies, whether listed or
not,
to be included for determining the count of committee membership/
chairmanship
for sub-regulation (1) and excludes membership on committees of
private
limited companies, foreign companies and companies under Section 8 of the Companies
Act, 2013. Whether a director can be committee member for ten listed entities
only or the same includes unlisted public companies as well?
Answer: A director of a listed entity can be
member in maximum ten committees and chairperson of more than five committees
of listed entities and unlisted public limited companies put together.
D. Disclosure of Events or Information
Q10. Regulation 30(8) of LR requires posting of disclosures on the listed
entity’s website for a minimum period of five years. Whether the said provision
is prospective from December 1, 2015 and pertains to disclosures relating to
events happening thereafter?
Answer: The disclosures made under Regulation 30(8)
shall be made w.e.f. December 01, 2015, i.e., the listed entity shall disclose
on its website all such events or information which has been disclosed to stock
exchange(s) under this regulation on or after the said date, and such
disclosures shall be hosted on the website of the listed entity for a minimum
period of five years from the date of disclosure to the stock exchange.
Q11. Regulation 30(9) of LR requires disclosure of all events and information
with respect to subsidiaries which are material. If both parent and subsidiary
are listed entities, would it be sufficient compliance if the listed subsidiary
has made a disclosure or whether same disclosure be made by the parent listed
entity also.
Answer: Both the parent and material subsidiary in
their own right as Listed Entities
have to make disclosure separately as applicable under
Listing Regulations.
Q12. Regulation 16 (1)(c) defines material subsidiary as - “material
subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty
percent of the consolidated income or net worth respectively, of the listed entity
and its subsidiaries in the immediately preceding accounting year.” The Explanation
to Regulation 16 (1)(c) states that the listed entity shall formulate a policy
for determining material subsidiary. Can the listed entity adopt a different criteria
for determining material subsidiary for the purpose of Regulation 30 (9)?
Answer: The definition of 'material subsidiary'
under regulation 16(1)(c) defines a
subsidiary that is material to the listed entity.
Further, the explanation to the aforesaid provision allows the listed entity to
formulate a policy for the same, i.e., a listed entity can develop criteria
that is stricter than what has been provided in the Regulations.
Regulation 30(9) requires the listed entity to disclose
all events or information with
respect to subsidiaries which are material for the
listed entity. The said sub-regulation places stress on materiality of the
events or information. Therefore, disclosure would be required in cases where
the event or information originating from a subsidiary is material to the
listed entity, irrespective of whether such a subsidiary is material or not as
per the definition provided at regulation 16(1)(c)
Q13. Schedule III Part A, Para A, item 1(ii)(a) requires disclosures on
acquisition or
agreements
to acquire shares or voting rights in a company, whether directly or
indirectly,
such that the listed entity holds shares or voting rights aggregating to five per
cent or more of the shares or voting rights in the said company. Whether the disclosure
is with respect to acquisition of shares or voting rights when the target company
is a listed entity only or whether it is applicable to unlisted entities also?
Answer: The Schedule refers to the listed entity’s
acquisition of shares or voting rights in the company. Such target company can
be listed or unlisted
Q14. Schedule III Para A of Part A, item 4 (d) on deemed material events
mentions that a listed entity shall disclose within 30 minutes of the closure
of the meeting the decision with respect to fund raising proposed to be undertaken.
What all methods of fund raising are covered under the same?
Answer: The listed entity may be guided by
Regulation 29(1) (d) which stipulates the
types of fund raising an entity is required to intimate
to Stock Exchange.
E. Other Clarifications
Q15. Under Regulation 33(3), for submission of financial results for the last
quarter,
whether
Unaudited Results can be submitted to the Exchanges?
Answer: Regulation (33)(3)(d) clearly states that
the listed entity shall file audited
annual results in 60 days from the end of the last
quarter. Therefore, the financial
statements for the last quarter shall necessarily be
audited. The said provision was also there in the erstwhile Listing Agreement.
Q16. Regulation 33 (3)(d) requires a company to submit audited standalone
financial results for the financial year, within sixty days from the end of the
financial year along with the audit report and either Form A (for audit report
with unmodified opinion) or Form B (for audit report with modified opinion).
However for listed entities having subsidiaries whether two sets of Form A or
Form B have to be prepared for standalone and consolidated results?
Answer: A company having subsidiaries will prepare
two sets of Form A and/or Form B, one for standalone results and another for
consolidated results based on the respective audit report.
Q17. Regulation 34 (2) (f) requires Annual Report to contain Business
Responsibility Report (BRR). Since when this requirement will be applicable?
Answer: Presently Regulation 34 requires top
hundred listed entities based on market capitalization(calculated as on March
31 of every financial year) to compulsorily and other than top hundred listed
entities to voluntarily include BRR in their Annual Report.
Subsequent to amendment in SEBI (Listing Obligations
and Disclosure Requirements) Regulation 2015 notified on December 22, 2015, the
requirement of mandatory reporting of BRR in Annual Report has been raised from
hundred to five hundred listed entities which will be effective from April 1,
2016 and hence it will form a part of the Annual Report for the financial year
2016-17.
Q18. Regulation 35 requires the listed entity to submit to the stock
exchange(s) an Annual Information Memorandum in the manner specified by the
Board from time to time. Since the Regulations do not currently specify the applicable
date and the manner, is the said provision currently applicable?
Answer: As mentioned, in the regulation, the said
requirement will become applicable as and when Annual Information Memorandum is
specified by SEBI.
Q19. Regulation 40(3) requires that the listed entity shall register
transfers of its securities in the name of the transferee(s) and issue certificates
or receipts or advices, as applicable, of transfers; or issue any valid
objection or intimation to the transferee or transferor, as the case may be,
within a period of fifteen days from the date of such receipt of request for
transfer. It provides that the listed entity shall ensure that transmission
requests are processed for securities held in dematerialized mode and physical
mode within seven days and twenty one days respectively, after receipt of the
specified documents and that proper verifiable dated records of all correspondence
with the investor shall be maintained by the listed entity. In this regard, how
would a company ensure compliance in an era where companies have no role to
play in processing of transmission of securities held in dematerialized mode?
Answer: The provision in Regulation 40(3) may be
read in context with Regulation 7(1) which states that the listed entity shall
appoint a share transfer agent or manage the share transfer facility in-house.
In cases where the listed entity is managing the share transfer in-house, such
compliance may be ensured. In this regard, the share transfer agent is an agent
of the listed entity and it is imperative that the listed entity as a principal
shall supervise the activities of its agent. Further, Regulation 8 provides
that the listed entity, wherever applicable, shall co-operate with and submit
correct and adequate information to the intermediaries registered with the
Board including registrar to an issue and share transfer agents.
Q20. Regulation 40 (8) requires the listed entity that has not effected
transfer of securities within fifteen days or where the listed entity has
failed to communicate to the transferee(s) any valid objection to the transfer,
within the stipulated time period of fifteen days to compensate the aggrieved
party for the opportunity losses caused during the period of the delay. Sub
regulation (9) of the aforesaid regulation states that the listed entity shall
ensure that the share transfer agent and/or the in-house share transfer
facility, as the case may be, produces a certificate from a practicing company
secretary within one month of the end of each half of the financial year, certifying
that all certificates have been issued within thirty days of the date of lodgement
for transfer, sub-division, consolidation, renewal, exchange or endorsement of
calls/allotment monies. The matter needs to be clarified.
Answer: It is clarified that the listed entity
may seek such reports from share transfer
agents as they may require, so as to ensure compliance
with the time period of 15 days for transfer of securities as stipulated in
sub-regulation (8).
Q21. As per Regulation 46(2)(n), the listed entity is required to disseminate
on its website details of agreements entered into with the media companies
and/or their associates, etc. In this regard, should the listed entity disclose
all agreements entered into with media companies/ their associates including
ordinary agreements or disclose only such agreements that are not in the normal
course of business as required under item 5 of paragraph A of part A of
Schedule III of LR?
Answer: It is clarified that only such agreements
that are not in the normal course of business shall be disclosed. Listed
entities may refer to SEBI Press
Release No. 200/2010 dated August 27, 2010 and Press Council of India Press Release No.
PR/3/10-11-PCI dated August 02, 2010 wherein concerns related to
'private treaties' and their disclosures have been discussed in detail.
Q22. Regulation 46 (3) requires listed entity to update any change in the
content of its website within two working days from the date of such change in
content. Whether change in the content of website means any change on the
website?
Answer: Regulation 46(2) prescribes the list of
information to be disseminated by a
listed entity on its website. Regulation 46 (3) refers
to the update of any change in the content which is provided as per the
requirements of Regulation 46 (2).
F. Miscellaneous
Q23. The regulations do not define 'working days'. Whether the same can be
clarified?
Answer: 'Working days' means working days of the
stock exchange where the securities of the entity are listed.
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