SEBI revises LODR regulations for better corporate governance and transparency

The Securities and Exchange Board of India (SEBI) has made amendments in the Listing Obligations and Disclosure Requirements (‘LODR’) Regulations on May 9, 2018.  SEBI has accepted the propositions set by the committee constituted under the chairmanship of Mr. Uday Kotak which aims at making compliances and disclosures even more tranparent. Though this notification is applicable from April 1, 2019, some items have immediate applicability, some amendments are effective from October 1, 2018 while a few others are applicable from April 2019 / 2020 based on market capitalisation criteria . Some of the key amendements:

SEBI, time and again has always made intitiaves for promoting better corporate governance and  transparency in order to protect interests of investors and other stake holders. Some of the amendments are made to align them with the provisions contained in Companies Act 2013. Overview of some of  the key amendments:

Amendment connected to stakeholders relationship

SEBI has widened the scope of the stakeholders relationship committee which hitherto was limited to redressal of grievances of the shareholders, debenture holders etc. The scope has been enhanced to look into various other aspects of interests of stakeholders such as measures taken for effective exercise of voting rights, services related to R&T agent, review of various measures for reducing the quantum of unclaimed dividends etc. 

Disclosures related - resignation of independent directors / auditors, related party

SEBI amendments are also aimed at robust disclosures.  Listed companies are now required to make disclosures for resignation of auditor/ independent director and mention the reasons thereof with the stock exchanges. Also, the related party transactions within 30 days of publication of half yearly results as also credit ratings obtained by the company are to be published on website in addition to being intimated to stock exchange. “Promoters or promoter group” which hold more than 20% of the listed company will now be considered as related party.

Amendements related to enhancement of role of audit committee, quarterly results

The role of the audit committee has been enhanced to include the review of utilization made by the subsidiary company out of loans and/ or advances /investment made by the holding company. The threshold will be applied in cases where the aggregate amount exceeds  rupees 100 crore or 10% of the asset size of the subsidiary, whichever is lower & will include existing loans / advances / investments existing as on the date of coming into force of this provision. In case company has subsidiaries it will be mandatory to publish quarterly consolidated financial statements with a condition that atleast eighty percent of consolidated revenue, assets and profits should have been audited or reviewed. Moreover, in the last quarter of the financial year, if material adjustments have been made which relate to earlier period will have to be disclosed. Cash flow statements are required to be made and disclosed as part of its standalone and consolidated financial results every six months.

Amendment- Secreterial report for material Indian Subsidiaries, auditor’s role

Under the revised regulation, secretarial audit report of its material unlisted Indian companies is required to be annexed along with the  annual report.  SEBI has also amplified auditors responsibilities where by statutory auditor has to undertake limited review for all the subsidiary of the company whose accounts are consolidated with the company. 

Changes in respect of directors and directorship

Significant changes have been made in regard to directors. An Independent director will not be permitted to appoint an alternate director and after 1^st October 2018, the alternate director will be deemed to vacate office. For appointment or continuance of any non executive director after such person has attained an age of 75 years or more will have to be approved by shareholders by way of special resolution. Currently as per Companies Act 2013, only appointment of executive directors who are above age of 70 years has to be with special resolution. SEBI has also mandated that in respect of top 500 listed entities, chairperson of the board shall be a non-executive director and should not be related to the Managing Director or the Chief Executive Officer. Further a person shall not be a director in more than 8 listed entities with effect from April 1, 2019 and in not more than 7 listed entities with effect from April 1, 2020. Currently person is allowed to serve as a director in 10 public companies. Atleast one of the Independent director will have to be appointed on board of unlisted material subsidiary. The Board of Directors to list  core  skills/expertise/competencies required  in  the  context  of  its business(es)  and  sector(s)  for  it  to  function  effectively and those actually available with the board and also name the directors possessing such skills.

Conclusion

Amendments in the LODR regulations is primarily intended to establish a framework in various matters concerning corporate governance, disclosure and transparency, eligibility and role of independent directors, investor participation, accounting and audit related matters and is a welcome move as it will boost investors’ confidence.