AMENDMENTS TO SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENT) REGULATIONS, 2015

[Mr. M. GOVINDARAJAN]

Regulations

Securities and Exchange Board of India (‘SEBI’ for short), in exercise of its powers conferred by Section 11, Section 11A(2) and Section 30 of Securities and Exchange Board of India Act, 1992 read with Section 31 of Securities Contracts (Regulation) Act, 1956 made the SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015.  The Regulations have been structured to provide ease of reference by consolidating into one single document across various types of securities listed on the Stock exchanges.  The main features of these regulations are-

• Common obligations applicable to all listed entities;
• Obligations applicable to specified type of securities;
• Single document;
• Obligations of stock exchanges and provisions in case of default;
• Ease of reference;
• Streamlining and segregation of initial issuance/listing obligations;
• Changes from Merger and amalgamations with regard to related parties;
• Shortened version of listing agreement.

Amendments

The said regulations have been amended from time to time.  Recently the said regulations have been amended vide Notification No. SEBI/LAD-NRO/GN/2022/103, dated 14.11.2022.  

SEBI in its Board meeting held on 30.09.2022 discussed several proposals including the agenda to review the process for independent directors, appointment, re-appointment or removal, introducing the monitoring agency for overseeing of the utilization of the issues proceeds from the preferential issue and the Qualified Institutional Placements and requirement of obtaining NoC for scheme of arrangements involving such companies which have listed their non convertible securities and several other changes dealing with disclosures and financial results for NCS listed entities. The said proposals were incorporated in the sixth amendment rules.

Independent directors

Regulation 25 provides certain obligations on the part of independent directors.  Regulation 25 (2A) provides that the appointment of independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.

The amendment inserted two new provisos to Regulation 25(2A).  The newly inserted first proviso provides that where a special resolution for the appointment of an independent director fails to get the requisite majority of votes but the votes cast in favor of the resolution exceed the votes cast against the resolution and the votes cast by the public shareholders in favor of the resolution exceed the votes cast against the resolution, then the appointment of such an independent director shall be deemed to have been made under sub-regulation (2A).

The second proviso provides that an independent director appointed under the first proviso shall be removed only if the votes cast in favor of the resolution proposing the removal exceed the votes cast against the resolution and the votes cast by the public shareholders in favor of the resolution exceed the votes cast against the resolution.

Comments on reports of monitoring agency

Regulation 32(6) requires that if the listed entity has appointed a monitoring agency to monitor utilization of proceeds of a public or rights issue the listed entity shall submit to the stock exchange(s) any comments or report received from the monitoring agency within 45 days from the end of each quarter.

Regulation 32(7) provides that if the listed entity has appointed a monitoring agency to monitor the utilization of proceeds of a public or rights issue the monitoring report of such agency shall be placed before the audit committee on a quarterly basis, promptly upon its receipt.

The amendment requires to substitute the words ‘public issue or rights issue or preferential issue or qualified institutions placement’ for the words ‘public or rights issue’.

Financial results

The amendment made many amendments (12 amendments) to Regulation 52 which deals with the financial results.  Regulation 52 provides the following after incorporation of all amendments-

Financial Results

52(1). The listed entity shall prepare and submit un-audited or audited quarterly and year to date standalone financial results on a quarterly basis in the format as specified by the Board within 45 days from the end of the quarter, other than last quarter, to the recognized stock exchange(s):

Provided that for the last quarter of the financial year, the listed entity shall submit un-audited or audited quarterly and year to date standalone financial results within 60 days from the end of the quarter to the recognized stock exchange(s):

Provided further that in case of entities which have listed their debt securities, a copy of the financial results submitted to stock exchanges shall also be provided to Debenture Trustees on the same day.

(2) The listed entity shall comply with following requirements with respect to preparation, approval, authentication and publication of annual and quarterly financial results:

1. Un-audited financial results on quarterly basis shall be accompanied by limited review report prepared by the statutory auditors of the listed entity, in the format as specified by the Board:

Provided that in case of issuers whose accounts are audited by the Comptroller and Auditor General of India, the report shall be provided by any practising Chartered Accountant

2. The quarterly results shall be taken on record by the board of directors and signed by the managing director / executive director.
3. The audited results for the year shall be submitted to the recognized stock exchange(s) in the same format as is applicable for quarterly financial results.
4. The annual audited standalone and consolidated financial results for the financial year shall be submitted to the stock exchange(s) within 60 days from the end of the financial year along with the audit report:

Provided that issuers, which are required to be audited by the Comptroller and Auditor General of India under applicable law, shall submit:

1. un-audited financial results along with the limited review report issued by the Comptroller and Auditor General of India or an auditor appointed by the Comptroller and Auditor General of India or a Practising Chartered Accountant, to the stock exchange(s), within sixty days from the end of the financial year; and
2.  the financial results, audited by the Comptroller and Auditor General of India, to the stock exchange(s), within nine months from the end of the financial year.

5. Modified opinion(s) in audit reports limited review reports that have a bearing on the interest payment/ dividend payment pertaining to non-convertible securities/ redemption or principal repayment capacity of the listed entity shall be appropriately and adequately addressed by the board of directors while publishing the accounts for the said period.

Provided that in case of entities which have listed their equity shares and debt securities, a copy of the financial results submitted to stock exchanges shall be provided to Debenture Trustees on the same day the information is submitted to stock exchanges.

(2A) The listed entity shall submit a statement of assets and liabilities and statement of cash flows as at the end of every half year, by way of a note, along with the financial results.

(3) (a) The annual audited financial results shall be submitted along with the annual audit report and Statement on Impact of Audit Qualifications applicable only for audit report with modified opinion.

Provided that, in case of audit reports with unmodified opinion, the listed entity shall furnish a declaration to that effect to the Stock Exchange(s) while publishing the annual audited financial results.

(b) & (c) - omitted

(d) The applicable format of Statement on Impact of Audit Qualifications (for audit report with modified opinion) shall be in the manner as specified by the Board.

(4) The listed entity, while submitting quarterly and annual financial results, shall disclose the following line items along with the financial results:

1. debt-equity ratio;
2. debt service coverage ratio;
3. interest service coverage ratio;
4. outstanding redeemable preference shares (quantity and value);
5. capital redemption reserve/debenture redemption reserve;
6. net worth;
7. net profit after tax;
8.  earnings per share;
1. current ratio;
10. long term debt to working capital;
11. bad debts to Account receivable ratio;
50. current liability ratio;
1000.  total debts to total assets;
14. debtors’ turnover;
15. inventory turnover;
16. operating margin percent;
17. net profit margin percent:

Provided that if the information mentioned in sub-regulation (4) above is not applicable to the listed entity, it shall disclose such other ratio/equivalent financial information, as may be required to be maintained under applicable laws, if any.

(5) Omitted

(6) The listed entity which has listed its non convertible redeemable preference shares shall make the following additional disclosures as notes to financials:

1. Omitted;
2.  free reserve as on the end of half year;
3. securities premium account balance (if redemption of redeemable preference share is to be done at a premium, such premium may be appropriated from securities premium account);

Provided that disclosure on securities premium account balance may be provided only in the year in which non convertible redeemable preference shares are due for redemption;

4. track record of dividend payment on non convertible redeemable preference shares:

Provided that in case the dividend has been deferred at any time, then the actual date of payment shall be disclosed;

5. breach of any covenants under the terms of the non convertible redeemable preference shares:

Provided that in case a listed entity is planning a fresh issuance of shares whose end use is servicing of the non convertible redeemable preference shares (whether dividend or principle redemption), then the same shall be disclosed whenever the listed entity decided on such issuances.

(7) The listed entity shall submit to the stock exchange(s), along with the quarterly financial results, a statement indicating the utilization of the issue proceeds of nonconvertible securities, in such format as may be specified by the Board, till such proceeds of issue have been fully utilized or the purpose for which the proceeds were raised has been achieved.

(7A) The listed entity shall submit to the stock exchange(s), along with the quarterly financial results, a statement disclosing material deviation(s) (if any) in the use of issue proceeds of non-convertible securities from the objects of the issue, in such format as may be specified by the Board, till such proceeds have been fully utilized or the purpose for which the proceeds were raised has been achieved.

(8) The listed entity shall, within two working days of the conclusion of the meeting of the board of directors, publish the financial results and the line items referred to in sub-regulation (4), in at least one English national daily newspaper circulating in the whole or substantially the whole of India:

Provided that if the listed entity has submitted both standalone and consolidated financial results, to the stock exchange(s), it shall publish consolidated financial results along with the line items referred to in sub-regulation (4), in the newspaper.

Draft scheme of arrangement

The amendment inserted a new Regulation 59A.  The newly inserted Regulation 59A provides that-

• The listed entity that has listed nonconvertible debt securities or non-convertible redeemable preference shares, intends to undertake a scheme of arrangement or is involved in a scheme of arrangement under sections 230-234 and section 66 of the Companies Act, 2013, shall file the draft scheme of arrangement with the stock exchange(s), along with a non-refundable fee as specified in Schedule XI, for obtaining the No-objection letter, before filing of such scheme with the National Company Law Tribunal, in terms of the requirements specified by the Board or stock exchange(s) from time to time.
• The listed entity shall place the No-objection letter of the stock exchange(s) before the National Company Law Tribunal at the time of seeking approval for the scheme of arrangement in the manner as may be specified by the Board from time to time.
• The validity of the No-objection letter of the stock exchange(s) shall be 6 months from the date of issuance.
• Upon sanction of the Scheme by the National Company Law Tribunal, the listed entity shall submit such documents, to the stock exchange(s), as may be specified by the Board and/ or stock exchange(s) from time to time.

The requirements as specified Regulation 59A and 94A shall not apply to a restructuring proposal approved as part of a resolution plan by the National Company Law Tribunal under section 31 of the Insolvency Code, subject to the details being disclosed to the recognized stock exchanges within one day of the resolution plan being approved.

Unclaimed non convertible securities

Regulation 61A provides that the listed entity shall not forfeit unclaimed interest/dividend/redemption amount.  If the said amount has not been claimed within 30 days from the due date of interest/ dividend / redemption payment, a listed entity shall within 7 days from the date of expiry of the said period of 30 days, transfer the amount to an escrow account to be opened by the listed entity in any scheduled bank.  Any amount transferred to the escrow account that remains unclaimed for 7 years shall be transferred to the ‘Investor Education and Protection Fund’ constituted in terms of section 125 of the Companies Act, 2013.

The amendment inserted a proviso to Regulation 61A (3).  This proviso provides that the listed entities which do not fall within the definition of ‘company’ under the Companies Act, 2013 and the Rules made there under, any amount in the escrow account that remains unclaimed for 7 years shall be transferred to the Investor Protection and Education Fund created by the Board in terms of section 11 of the Act.

Insertion of Regulation 94A

The amendment inserted a new Regulation 94A dealing with draft scheme of arrangement in case of entities that have listed their non-convertible debt securities or non-convertible redeemable preference shares. 

According to Regulation 94A-

• The designated stock exchange shall forward the draft scheme of arrangement to the Board, in such manner as may be specified by the Board.
• The stock exchange(s) shall submit to the Board its No-Objection Letter on the draft scheme of arrangement, after ascertaining whether the draft scheme of arrangement is in compliance with securities laws, within the timelines as may be specified by the Board from time to time.
• The stock exchange(s) shall bring the objections to the notice of National Company Law Tribunal at the time of approval of the scheme of arrangement by the National Company Law Tribunal.
• Upon sanction of the Scheme by the National Company Law Tribunal, the stock exchange shall forward its recommendations to the Board on the documents submitted by the listed entity in terms of sub-regulation (4) of regulation 59A.

Fees

The amendment substituted the Schedule XI dealing with the fee payable in respect of draft scheme arrangement.  The fee payable is-

• An entity with listed specified securities, or listed specified securities and listed nonconvertible debt securities or non-convertible redeemable preference shares, shall remit a fee at the rate of 0.1% of the paid-up share capital of the listed/ transferee/ resulting company, whichever is higher, post the sanction of the scheme by the National Company Law Tribunal, subject to the maximum of Rs. 5 lakhs.

An entity with only listed non-convertible debt securities or non-convertible redeemable preference shares, shall remit a fee at the rate of 0.1% of the amount of outstanding debt of the listed/ transferee/ resulting company, whichever is higher, post the sanction of the scheme by the National Company Law Tribunal, subject to the maximum of Rs.5 lakhs.