Amendments to the disclosure requirements under SEBI LODR Regulation 30

Amendments to the Disclosure requirements under SEBI LODR

Introduction

In Nov 2022, SEBI had issued a Consultation Paper on Review of Disclosure Requirements for Material Events or Information, wherein it had invited public comments from various stakeholders. The Paper emphasised the need to review various aspects of the disclosure requirements prescribed under the SEBI (Listing Obligations and Disclosure Requirements) (LODR) Regulations, 2015, so as to keep pace with the changing market dynamics.  

SEBI had approved these amendments in its board meeting held on 29 March 2023. The amendments - SEBI (LODR) (Second Amendment) Regulations, 2023 were issued by SEBI on 14 June 2023 and published in the official Gazette on 15 June 2023. These amendments have been made effective from 30 days of publication, i.e., 14 July 2023. SEBI has also issued a Circular on 13 July 2023 for clarification on various amendments in the Regulations. The below article aims to summarise the major amendments that have been brought out and the likely impact of these amendments on the listed companies.

Overview of the SEBI amendments

1. Materiality thresholds have been specified

SEBI LODR Regulations, 2015 required that the listed entity shall frame a policy for determination of materiality based on criteria specified in this sub regulation, duly approved by its Board of Directors. Provided that the Board shall authorise one or more Key Managerial Personnel (KMP) for the purpose of determining materiality of an event or information.

SEBI LODR Regulations, 2023 provides that the omission of an event or information, whose value or the expected impact in terms of value, exceeds the lower of the following shall be considered material:

• 2% of turnover, as per the last audited consolidated financial statements of the listed entity;
• 2% of net worth, as per the last audited consolidated financial statements of the listed entity, except in case the arithmetic value of the net worth is negative;
• 5% of the average of absolute value of profit or loss after tax, as per the last three audited consolidated financial statements of the listed entity.

The regulations provide that such a policy for determination of materiality shall not dilute any requirement specified under the provisions of these regulations. Further, such a policy for determination of materiality shall assist the relevant employees of the listed entity in identifying any potential material event or information and reporting the same to the authorized KMP, for determining the materiality of the said event or information and for making the necessary disclosures to the stock exchange(s).

SEBI circular has clarified that the average of absolute value of profit or loss is required to be considered by disregarding the ‘sign’ (positive or negative) that denotes such value as the said value / figure is required only for determining the threshold for ‘materiality’ of the event and not for any commercial consideration.

The following illustration is provided in the SEBI circular in this regard for clarity on the calculation of average of absolute value of profit or loss after tax:

Further, it is clarified that in case a listed entity does not have a track record of three years of financials, say, in case of a demerged entity, the aforesaid average may be taken for the period/ number of years as may be available.

Likely impact of this amendment

This is one of the significant changes brought about by the SEBI LODR Regulations, 2023. Until issuance of this amendment, the decision of materiality was in the hands of the Company. This often led to different benchmarks being used by each Company. This amendment seeks to bring uniformity of disclosures being made by various companies and is likely to increase the quantum of disclosures to be made to the stock exchanges.

2. Timelines for disclosure have been redefined

SEBI LODR Regulations, 2015 provided that the listed entity shall first disclose to stock exchange(s) of all events, as specified in Part A of Schedule III, or information as soon as reasonably possible and not later than twenty-four hours from the occurrence of event or information.

SEBI LODR Regulations, 2023 provides that the listed entity shall first disclose to the stock exchange(s) all events or information which are material in terms of the provisions of this regulation as soon as reasonably possible and in any case not later than the following:

1. thirty minutes from the closure of the meeting of the board of directors in which the decision pertaining to the event or information has been taken;
2. twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity;
3. twenty-four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity:

In case of those events for which specific timelines have already been provided under Part A of Schedule III of LODR, disclosure of those events would be required to be done as per the said specified timelines.

The SEBI circular states that the listed entity may be confronted with the question as to when an event/information can be said to have occurred for making disclosures under regulation 30 read with Schedule III of the LODR Regulations. In certain instances, the answer to above question would depend upon the stage of discussion, negotiation or approval and in other instances where there is no such discussion, negotiation or approval required viz. in case of natural calamities, disruptions etc., the answer to the above question would depend upon the timing when the listed entity became aware of the event/information.

Likely impact of this amendment

The amendment seeks to address the need for quicker disclosure of certain events and information so as to reduce information asymmetry. It provides that the information that is emanating from within the listed entity itself must now be disclosed within 12 hours and not 24 hours and hence, will lead to more timely disclosure of events. If disclosure is later than the above timelines, the listed entity has to disclose the reason and provide the explanation for the delay.

3. New regulation on verification of market rumours

Regulation 30(11) has been added which provides that the top 100 listed entities (with effect from February 1, 2024*) and thereafter the top 250 listed entities (with effect from August 1, 2024*) shall confirm, deny or clarify any reported event or information in the mainstream media which is not general in nature and which indicates that rumours of an impending specific material event or information in terms of the provisions of this regulation are circulating amongst the investing public, as soon as reasonably possible and not later than twenty four hours from the reporting of the event or information. It further provides that if the listed entity confirms the reported event or information, it shall also provide the current stage of such event or information.

* Revised timelines as per the SEBI Circular dated 30 September 2023. These extended timelines will allow the entities to make the necessary preparations and procedures to effectively address market rumours and maintain transparency in their operations.

Explanation – The top 100 and 250 listed entities shall be determined on the basis of market capitalization, as at the end of the immediately preceding financial year.

“Mainstream media” shall include print or electronic mode of the following:

• Newspapers registered with the Registrar of Newspapers for India;
• News channels permitted by Ministry of Information and Broadcasting under Government of India;
• Content published by the publisher of news and current affairs content as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021; and
• Newspapers or news channels or news and current affairs content similarly registered or permitted or regulated, as the case may be, in jurisdictions outside India;

Likely impact of this amendment

Until now, the Companies used to clarify on market rumours to the stock exchanges, only in cases where the stock exchanges used to seek specific clarifications from Companies in respect of any circulating rumour pertaining to them. Now, the onus has been placed on Companies to themselves inform the stock exchange in all cases of market rumours.  The Consultation Paper stated that the verification of market rumours is essential to avoid establishment of a false market sentiment or impact on the securities of the entity. However, the coverage of mainstream media seems to be quite vast and the Companies will most likely need to take help of technology/third party consultants to ensure identification of relevant reporting from among the vast population of mainstream media.

4. Additions and modifications of disclosure of events under Para A and Para B of Part A of Schedule III

Part A of Schedule III of the LODR contains the list of events which are to be disclosed by the Company within the prescribed time period. Part A is further divided into two parts – Part A and Part B. Para A of Part A of the Schedule III are deemed to be material events which are required to be disclosed. Para B of Part A of Schedule III are to be disclosed on the basis of the materiality policy formulated by the listed entity.

SEBI LODR Regulations, 2023 has added disclosure requirements for certain new events and has modified certain existing events so as to make them clearer and more comprehensive. These events are as under:

• Acquisition and sale: Listed entities are now required to disclose acquisition, sale or disposal if the cost of acquisition or the price at which the shares are acquired or the amount of sale exceeds the quantitative materiality threshold specified in Regulation 30(4)(i)(c).
• Certain types of agreements: Agreements entered into by the shareholders, promoters, promoter group entities, related parties, directors, KMP, employees of the listed entity or of its holding, subsidiary or associate company, among themselves or with the listed entity or with a third party, solely or jointly, which, either directly or indirectly or potentially or whose purpose and effect is to, impact the management or control of the listed entity or impose any restriction or create any liability upon the listed entity, shall be disclosed to the Stock Exchanges, including disclosure of any rescission, amendment or alteration of such agreements thereto, whether or not the listed entity is a party to such agreements.
• Change in KMP: Senior management will now also be considered as a KMP for disclosing details of change in KMP under Part A.
• Resignation of KMP: In case of resignation of KMP, senior management, Compliance Officer or director other than an independent director; the letter of resignation along with detailed reasons for the resignation as given by the KMP, senior management, Compliance Officer or director shall be disclosed to the stock exchanges by the listed entities within seven days from the date that such resignation comes into effect.
• Unavailability of MD or CEO: In case the MD or CEO of the listed entity was indisposed or unavailable to fulfil the requirements of the role in a regular manner for more than forty-five days in any rolling period of ninety days, the same along with the reasons for such indisposition or unavailability, shall be disclosed.
• Voluntary revision of financial statements: Voluntary revision of financial statements or the report of the board of directors of the listed entity under section 131 of the Companies Act, 2013.
• New ratings: New ratings assigned from a credit rating agency to any debt instrument of the listed entity or to any fixed deposit programme or to any scheme or proposal of the listed entity involving mobilization of funds whether in India or abroad. In case of a downward revision in ratings, the listed entity shall also intimate the reasons provided by the rating agency for such downward revision. The above requirement to disclose rating shall also be applicable to the revision in rating even if it was not requested for by the listed entity or the request was later withdrawn by the listed entity, revision in rating outlook even without revision in rating score and ESG ratings by registered ESG rating providers.
• Frauds or defaults: Frauds or defaults by director, senior management or subsidiary or director of the listed entity whether occurred in India or abroad. Meaning of fraud and default has been clarified in the new regulations.
• Media announcements: Announcement or communication through social media intermediaries or mainstream media by directors, promoters, KMP or senior management of a listed entity, in relation to any event or information which is material for the listed entity in terms of regulation 30 of these regulations and is not already made available in the public domain by the listed entity.

Explanation – “social media intermediaries” shall have the same meaning as defined under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021.

• Actions by any regulatory, statutory, enforcement authority or judicial body (unless disclosure of such communication is prohibited by such authority): Action(s) initiated or orders passed by such bodies against the listed entity or its directors, KMP, senior management, promoter or subsidiary, in relation to the listed entity, in respect of search or seizure; or re-opening of accounts under section 130 of the Companies Act, 2013; or investigation under the provisions of Chapter XIV of the Companies Act, 2013 are to be disclosed. Further, action(s) taken or orders passed in respect of suspension; imposition of fine or penalty; settlement of proceedings; debarment; disqualification; closure of operations; sanctions imposed; warning or caution; or any other similar action(s) by whatever name called need to be disclosed. Following details will need to be disclosed:

1. name of the authority;
2. nature and details of the action(s) taken, initiated or order(s) passed;
3. date of receipt of direction or order, including any ad-interim or interim orders, or any other communication from the authority;
4. details of the violation(s)/contravention(s) committed or alleged to be committed;
5. impact on financial, operation or other activities of the listed entity, quantifiable in monetary terms to the extent possible.

Likely impact of this amendment

A significant number of new events have now been brought within the ambit of the disclosure requirements. These amendments have comprehensively covered additional areas under its scope and are likely to result in more transparency in the disclosures made by the corporates.

Conclusion

Through these amendments, SEBI has sought to address the complaints it had been receiving in the recent past regarding inadequate, inaccurate, misleading and delayed disclosures made by the listed entities.  There is no doubt that these amendments will lead to more uniformity in the disclosures being made and thus promote better corporate governance. However, at the same time, the Companies will also need to strengthen their systems and processes for capture of relevant information and provide adequate training to its employees involved in ensuring compliance with these regulations, so as to ensure compliance with law, both in letter and in spirit.

References

• SEBI Consultation Paper on Review of Disclosure Requirements for Material Events or Information dated 12 November 2022
• SEBI (LODR) (Second Amendment) Regulations, 2023 dated 14 June 2023
• SEBI Circular No. SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/123 dated 13 July 2023
• SEBI Circular No. SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/162 dated 30 September 2023