SEBI vide its Notification dated 17th January 2023 has notified the following regulations to further amend the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 namely:
- In regulation 15, in sub-regulation (1A), Explanation (4) shall be omitted.
- In regulation 15, after sub-regulation (1A), the following sub-regulation shall be inserted, namely:
“(1B) Notwithstanding anything contained in this regulation, in case of an Infrastructure Investment Trust (“INVIT”) registered under the provisions of the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, the governance norms specified under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 shall be applicable.”
- In regulation 15, after sub-regulation (1B), the following sub-regulation shall be inserted, namely:
“(1C) Notwithstanding anything contained in this regulation, in the case of a Real Estate Investment Trust (“REIT”) registered under the provisions of Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014, the governance norms specified under the Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014 shall be applicable.”
SEBI vide its amendment notification dated January 17, 2023, exempted Corporate Governance requirements to INVIT and REIT that have listed their Non-Convertible Debentures (NCDs) of Rs 500 crore or more [hereinafter referred to as ‘High-Value Debt Entities’ or ‘HVD Entities’]. SEBI has exempted the provisions of Regulation 15 and Regulation 17(1A) of SEBI LODR to HVD entities. SEBI vide its earlier amendment dated September 2021 had made Corporate Governance provisions of SEBI LODR applicable to INVIT and REIT that have listed their NCDs exceeding the outstanding value of 500 crores or more [High-Value Debt Listed Entities]. Now SEBI has stated that these provisions will be exempted for High-Value Debt Listed Entities with effect from April 1, 2023. Till April 1, 2023, these provisions were on comply or explain basis for High-Value Debt Listed Entities, and w.e.f. April 1, 2023, they were going to become compulsory. These provisions are exempted for HVD entities from April 1, 2023, because SEBI is going to make changes pertaining to Corporate Governance norms for REITs and INVITs in their respective regulations. So, all High-Value Debt Listed Entities need not comply with SEBI LODR Corporate Governance Norms w.e.f. April 1, 2023.
The amendments in Regulation 15 shall come into force with effect from April 1, 2023.
- In Chapter IV, in regulation 16 titled “Definitions”, in sub-regulation (1), clause (d) shall be substituted with the following clause (d), namely:
“(d) “Senior Management” shall mean the officers and personnel of the listed entity who are members of its core management team, excluding the Board of Directors, and shall also comprise all the members of the management one level below the Chief Executive Officer or Managing Director or Whole Time Director or Manager (including Chief Executive Officer and Manager, in case they are not part of the Board of Directors) and shall specifically include the functional heads, by whatever name called and the Company Secretary and the Chief Financial Officer.”
Change in definition of Senior Management: SEBI has amended the definition of ‘Senior Management’ SEBI LODR specified under Explanation (d) to Reg. 16 (1)(b). The definition of ‘Senior Management’ is now brought in line with the definition of ‘Senior Management’ as per the Companies Act as prescribed under Explanation to Section 178(8). This is done by adding the term ‘Functional heads’ also brought under the head of ‘Senior management’ w.e.f. January 17, 2023. Now ‘Senior Management’ under both Companies Act 2013 and SEBI LODR would comprise of the following, members of the core management team, members of management one level below CEO/MD/ WTD/ Manager, CFO, CS, CEO/manager in case they are not part of the board of director and all functional heads. ‘Senior Management’ would continue to exclude the Board of Directors
So, a code of conduct that is required to be affirmed by senior management personnel as per SEBI LODR will now be required to be given by the ‘functional heads’ of the organization. So, the question arises what all compliances would now be required to be done by senior management? These compliances will be effective from FY? Also, what shall be mentioned in this regard in the ‘Corporate Governance Report’ that will be required to be submitted for FY March 2023? Further, it also needs to be thought of if revised disclosure is required to be taken from Independent Directors as well?
- In regulation 17, in sub-regulation (1C), after the words “for appointment” and before the words “of a person”, the words “or re-appointment” shall be inserted.
- in regulation 17, after sub-regulation (1C), the following proviso shall be inserted, namely:
“Provided that a public sector company shall ensure that the approval of the shareholders for appointment or re-appointment of a person on the Board of Directors or as a Manager is taken at the next general meeting:”
- In regulation 17, after sub-regulation (1C), in the existing first proviso, after the word “provided” and before the words “that the appointment”, the word “further” shall be inserted.
Exemption from provisions of Regulation 17(1C) of SEBI LODR: Regulation 17(1C) of SEBI LODR provides that on the appointment of an individual on the board of directors of an entity or as a manager is done the approval of shareholders shall be taken within a period of three months or at the next general meeting whichever is earlier. From this, it was not clear whether the above-referred provisions will also be applicable for re-appointment to the Board of directors or re-appointment as a Manager?
Now SEBI has clarified this by adding the words ‘re-appointment’. As per the revised provision now re-appointment on the board of directors or as a manager shall be approved by shareholders within a period of three months or at the next general meeting whichever is earlier. SEBI has further added a new proviso to Regulation 17(1C) whereby the minimum time period of three months for approval of shareholders is not made applicable to public sector companies. So, Public Sector Company can take the approval of shareholders for appointment to the board of directors or as a manager at the next general meeting. This amendment is effective from January 17, 2023.
- In regulation 26, in the heading, the words “key managerial persons” shall be substituted with the words “key managerial personnel”.
- In regulation 31A, sub-regulation (3), in clause (b), in sub-clause (v), the words “key managerial person” shall be substituted by the words “key managerial personnel”.
- In Schedule III, Part A, in paragraph A, in sub-paragraph 16, in Item (l), in point (ix), the words and symbols “key managerial persons(s)”, shall be substituted by the words “key managerial personnel”.
- in Schedule V, in Paragraph C, in sub-para (10), the following clause shall be inserted after clause (m), namely:
“(n) Details of material subsidiaries of the listed entity; including the date and place of incorporation and the name and date of appointment of the statutory auditors of such subsidiaries.”
Enhanced Disclosure requirements: Disclosures required to be given in the annual report by listed entities are prescribed by SEBI in Schedule V of SEBI LODR. SEBI has now Vide amendment notification dated January 17, 2023, has amended Schedule V of SEBI LODR. Vide this amendment SEBI has prescribed additional disclosure under Section C: ‘Corporate Governance Report’.
SEBI has now stated that “Details of material subsidiaries of the listed entity; including the date and place of incorporation and the name and date of appointment of the statutory auditors of such subsidiaries “will now be required to be disclosed as a part of the Corporate Governance Report. This disclosure is required to be given by listed entities in their annual report that will be published for FY 2022-23.
Companies need to identify material subsidiaries (both Indian and Foreign) for FY 2022-23 in their board meetings that will be held for approval of financial statements for FY 2022-23. Further companies need to appoint statutory auditors and name them in the annual reports of listed entities as per the requirements given above. Question also arises whether a newly incorporated company viz, in the month of May 2022 will be considered as a material subsidiary for the FY 2022-23?
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