Consultation Paper On Strengthening Corporate Governance At Listed Entities By Empowering Shareholders – Amendments To The SEBI (LODR) Regulations, 2015


1.1. This consultation paper seeks comments/views/suggestions from the public on proposals to strengthen corporate governance at listed entities by empowering the shareholders to address the following issues:

1.1.1. Agreements binding listed entities

1.1.2. Special rights granted to certain shareholders

1.1.3. Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework and

1.1.4. ‘Board Permanency’ at listed entities.

The highlights of this Consultation Paper dated February 21, 2023 are as follows:-
  1. Agreements binding Listed Entity:

Existing Regulation: The LODR Regulations require disclosure of material events or information to the Stock Exchanges by listed entities. In terms of regulation 30(6) read with clause 5 of para A of Part A of Schedule III of the LODR Regulations, agreements which are binding and not in the normal course of business have to be disclosed by a listed entity. 2.2. The aforesaid requirement includes disclosure of shareholder agreements, joint venture agreements, family settlement agreements (to the extent that it impacts management and control of the listed entity), agreements with media companies etc. Revisions or amendments and termination of such agreements too have to be disclosed.

Issues: There have been instances wherein promoters have entered into binding agreements with third parties having an impact on the management or control of a listed entity or such agreements have placed certain restrictions on the listed entity, however, these facts were not disclosed to the listed entity and its shareholders. Non-disclosure of material information creates information asymmetry and results in significant market reaction when it is known to the public at large at a later stage.

Apart from the above, there is a need to mandate disclosure of all agreements that intend to restrict or create any liability on a listed entity as it is a material information for the shareholders. Therefore, to overcome the challenges posed by such agreements entered into by the promoters or controlling shareholders with third parties, with / without the knowledge or consent of the listed entity, there is a need to modify the existing provisions in the LODR Regulations for better clarity and adequate disclosures of such types of agreements. Further it was also highlighted that There have been certain recent instances of promoters of listed entities entering into shareholder agreements with the listed entity and in turn with third parties that had placed certain restrictions on the listed entity. These restrictions, particularly when imposed without due process of approval by / within the listed entity, and with no benefit to the listed entity are not in the interest of the listed entity and its shareholders.


  1. Agreements which, either directly or indirectly 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 listed entity shall be disclosed to the Stock Exchanges, whether or not the listed entity is a party to such agreements is proposed should  be disclosed in a new clause  5A in para  A  of  part  A  of  Schedule  III  of  the  LODR  Regulations. Provided further that revision(s) or amendment(s) and termination(s) of such agreements shall also be disclosed.
  2. Disclosure in annual reports: Additionally, the details of such agreements shall form part of Annual Report from FY 2023-24 onwards. If any such agreement is existing and subsisting as on March 31, 2023 then disclosure of same shall be made in annual report of FY 2023 also.
  3. Disclosure of agreements where listed entity is not party: If the listed entity is not a party to the agreement, then such party to the agreement shall inform the listed entity in 2 working days form the date of entering into agreement which would in turn be disclosed by listed entity to stock exchange in 2 working days of receipt of information. For existing and subsisting agreements as on March 31, 2023 disclosure shall be required to be made by June 30, 2023.
  4. Obligations with respect to future agreements, if any: Any  future  agreement, whether  or  not  the  listed  entity  is  party  to  such  an  agreement  but  excluding agreements entered into the  normal  course  of  business by  a  listed  entity, imposes  or  has  the  effect  of imposing any restriction or liability on a listed entity, the Board of Directors shall provide its opinion, along with detailed rationale, as to whether such an agreement is in the economic interest  of  the  listed entity and place before shareholders while seeking approval through special resolution and ‘majority of minority’. It is also proposed that If the listed entity is not a party to any existing and subsisting agreement imposing or having the effect of imposing any restriction or liability on a listed entity, the same shall be placed before the Board of Directors for consideration. All such existing and subsisting agreements have to be placed before the shareholders in the first general meeting (AGM or EGM) of the listed entity held after April 1, 2023, for ratification and the future obligations arising out of such agreements shall be contingent upon ratification by the shareholders.
  1. Review of special rights conferred to certain shareholders as per the AOA of a listed entity:

Generally, to attract investments in a company prior to listing, special rights are offered by the company to its pre-IPO investors and the promoters. These special rights are included in the SHAs executed between the company and the pre-IPO investors / promoters. The range of these special rights varies across companies and depends on the specific requirement of the investor(s). Some of the common types of special rights are Nomination Rights, Veto Rights / Affirmative voting, Information Rights, Anti-Dilution Rights, Right of First Refusal, Tag Along Rights, Divestment Rights, etc. However, if any shareholder enjoys special rights and privileges, the same should have been agreed upon by all the other shareholders of a company. Further, such rights and privileges must be in proportion to one’s holding in the company. Once a public company gets listed, the special rights available to shareholders are put up for approval of the shareholders in the first general meeting, post-listing. It is also observed that the SHAs are drafted in such a way that those special rights (nomination rights) would continue to be available even after significant dilution of their holding in those entities. This permits the shareholders to enjoy such special rights perpetually, which is against the principle of rights being proportional to one’s holding in a company. Hence a proposal is now floated whereby these rights would be subject to periodic review.

It is proposed that any special right (existing / proposed) granted to a shareholder of a listed entity shall be subject to shareholder approval once in every 5 years from the date of grant of such special rights. Further, the existing special rights available to shareholders shall be renewed within a period of 5 years from the date of notification of the amendments to the LODR Regulations.

  1. Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework:

Slump sale executed outside the scheme of arrangement framework to safeguard the interest of minority shareholders and to align with the requirement, as applicable, under scheme of arrangement, the following proposals are made:

  • Introducing provisions in LODR Regulations
  • Mandating disclosure of the objects and commercial rationale for such sale, disposal or lease, to the shareholders;
  • Such sale, disposal or lease of whole or substantially the whole of one or more undertaking of the listed company, can be acted upon only if the ‘majority of public shareholders’ approve in addition to the requirement to pass a Special Resolution as provided in the Companies Act.
  1. Addressing the issue of board permanency in listed entities
  • Recently, the issue of few promoters of listed entities enjoying permanency on the board thereby giving them an undue advantage, prejudicial to the interest of the public shareholders, was highlighted in the media. It was stated in the media report that “A permanent seat on the company’s board can be detrimental to investor interest. When the companies’ performance deteriorates, promoters hang on to their seats making it harder for investors to effect management change, and arrest value destruction….”
  • A combined reading of the provisions of the Companies Act and the extant practices being followed by companies leads to the following conclusion on appointment of directors: a) Not all directors serving on the board of listed entity may be subject to ‘retirement by rotation’. b) There may be some directors who are appointed to the board of a listed entity without a defined tenure and not liable to ‘retirement by rotation’. c) In addition to the above, by virtue of the provisions of the AoA of a company, a person can be appointed as a director on a “permanent- basis”. Such director, so appointed on the basis of the provisions of AoA, serves as a “permanent director” on the board of the company. So it is seen that certain individuals go into grave as directors.

Hence following proposal is floated for consideration of market participants:

  • As on March 31, 2024, if there is any director serving on the board of a listed entity without his / her appointment or re-appointment being subject to shareholders’ approval during the last 5 years i.e., from April 1, 2019, the listed entity shall take shareholders’ approval in the first general meeting to be held after April 1, 2024, for his / her continuation on the board of the listed entity. From April 1, 2024, subject to the other applicable provisions of law, the listed entity shall ensure that the directorship of all directors serving on the board or appointed to the board is put up to shareholders for approval at least once in every 5 years. (Not be applicable on Court or Tribunal  appointed director).

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