Introduction
LODR is one of the most
important regulation mandated by Securities and Exchange Board of India to
enable transparency and fair disclosures by all listed entities in India.
Under
regulation 30 of SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (‘SEBI LODR Regulations’) a listed entity shall disclose to
stock exchange(s) all events or information, which are material, as soon as
reasonably possible and not later than twenty four hours from the occurrence of
event or information.
Amongst many regulation’s on various topics have been incorporated in this LODR Compliance requirements, one of them which has quite a substantial impact is Regulation 30 relating to Disclosure of events or information. The clauses covered under the same are as follows:
30.(1) Every listed entity
shall make disclosures of any events or information
which, in the opinion of the board of directors of the listed company, is
material.
Disclosures which are
considered as material can be understood with the help of few circulars issued
by SEBI/ NSE. Few of them are as follows-
1. Disclosures by listed
entities of defaults on payment of interest/ repayment of principal amount on
loans from banks / financial institutions and unlisted debt securities vide its
Circular dated 21.11.2019.
Observation
Since any default by
listed entities on payment of either interest/ repayment does lead to increase
in NPA’s being reported by banks / financial
institutions and also question the sustainability of the entity, hence this
disclosure will provide investors about the update on the repayment
capabilities of the entity under consideration and accordingly decide on their
investment. It should be highlighted here that there is no limit which has been
prescribed for default purpose. So any immaterial amount as may be the case,
the same needs to be disclosed.
Such disclosure shall be
made promptly, but not later than 24 hours from the 30th day of
such default in the prescribed format provided by SEBI.
2. Disclosure of
divergence in the asset classification and provisioning by banks dated
31.10.2019.
In consultation with RBI, SEBI has stated that all the listed banks shall make disclosures of divergences and provisioning beyond specified threshold, as mentioned in aforesaid RBI notifications, as soon as reasonably possible and not later than 24 hours upon receipt of the Reserve Bank’s Final Risk Assessment Report (‘RAR’), rather than waiting to publish them as part of annual financial statements. The disclosures are to be made in either or both of the following cases:
a. the
additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the
reported profit before provisions and contingencies for the reference period,
and
b. the additional gross NPAs identified by RBI exceed 15 per cent of the published incremental Gross NPAs for the reference period.
Observation
Since
divergence and provisioning does have direct impact on the profitability and
thereby the Price/ Earnings ratio, any such circumstance would have an impact
on the share price and therefore mandated to be disclosed to provide investors
the updated health of the financial statements.
3. Disclosure
of Default / Inter Creditor Agreement (ICA) vide the NSE Circular
dated 24.09.2019.
Listed entities shall
promptly disclose to the Exchange regarding the ‘material’ developments
pertaining to default and/or Inter Creditor Agreement (ICA), in terms of
Regulation 30(1) and 30(2) of the SEBI (Listing Obligations and Disclosure
Requirements) Regulations 2015 and all amendments and circulars issued
thereunder. Inter Creditor Agreement (ICA) is an agreement entered by various
lenders of a single entity to decide on the resolution plan in respect of
borrowers with credit facilities from more than one lender.
Observation
Any development on the
default in repayment of dues or ICA being executed does indicate that the company
is headed either towards restructuring/ insolvency, since the entity is not
able to meet its dues on time. Hence a relevant factor for investors/ analysts.
4. NSE Circular regarding
filing of information on electronic platform via NEAPS dated 22.03.2019.
For the
benefit of investors and market, the announcement filed on subjects like
Corporate insolvency resolution process, preferential issue, etc shall also be
disseminated directly on NEAPS without Exchange intervention.
Observation
NEAPS i.e. NSE
Electronic Application has been in place by NSE which does help in getting
relevant information from the listed entities. This is a fantastic move since
the dissemination of information is fast and can be accessed by investors to
make their information decision.
5. NSE Circular regarding
Misuse of Exchange Platform provided for Corporate Announcements vide Circular
dated 19.12.2018.
Observation
The platform of NEAPS by
NSE is only meant to provide information which is required as per Regulation 30
of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,
i.e., every listed entity is required to make disclosures of any events
or information which in the opinion of the board of directors of the listed
company, is material. However was noted that the entities started using the
platform to publish immaterial or general matters as well. Hence this circular
addresses the issue.
6. NSE Circular
dated 06.06.2018 regarding Compliance and Disclosure requirements for listed
companies undergoing Corporate Insolvency Resolution Process (CIRP)
SEBI has
advised, all listed companies are required to promptly inform the Stock
Exchanges, regarding the events pertaining to the IRP process (where companies
are involved) as laid down under the SEBI (Listing Obligations and Disclosure
Requirements) Regulations 2015 and all amendments made from time to time and
the IBC including all the necessary material disclosures promptly to the
exchanges as required under the said regulations.
Observation
Investors at any point of
time should know whether any CIRP is running for any company whom they would be
interested in investing. Hence this disclosure would help in making informed
decisions.
(2) Events
specified in Part A of Schedule III. are deemed to be material events
and listed entity shall make disclosure of such events.
LODR – SCHEDULE III Part
A
PART A: DISCLOSURES OF
EVENTS OR INFORMATION: SPECIFIED SECURITIES
[See Regulation 30]
The following shall be
events/information, upon occurrence of which listed entity shall make
disclosure to stock exchange(s):
A. Events which
shall be disclosed without any application of the guidelines for materiality as
specified in sub-regulation (4) of regulation (30):
1. Acquisition(s)
(including agreement to acquire), Scheme of Arrangement
(amalgamation/ merger/ demerger/restructuring), or sale or disposal of any
unit(s), division(s) or subsidiary of the listed entity or any other
restructuring. Explanation.- For the purpose of this sub-para, the word
‘acquisition’ shall mean,-
(i) acquiring
control, whether directly or indirectly; or,
(ii) acquiring or
agreeing to acquire shares or voting rights in, a company, whether directly or
indirectly, such that –
(a) the listed
entity holds shares or voting rights aggregating to five per cent or more of
the shares or voting rights in the said company, or;
(b) there has been a
change in holding from the last disclosure made under sub-clause (a) of clause
(ii) of the Explanation to this sub-para and such change exceeds two per cent
of the total shareholding or voting rights in the said company.
2. Issuance or
forfeiture of securities, split or consolidation of shares, buyback of
securities, any restriction on transferability of securities or alteration in
terms or structure of existing securities including forfeiture, reissue of
forfeited securities, alteration of calls, redemption of securities etc.
3. Revision in
Rating(s).
4. Outcome of
Meetings of the board of directors: The listed entity shall disclose to the
Exchange(s), within 30 minutes of the closure of the meeting, held to consider
the following:
(a) dividends and/or
cash bonuses recommended or declared or the decision to pass any dividend and
the date on which dividend shall be paid/dispatched;
(b) any cancellation
of dividend with reasons thereof;
(c) the decision on
buyback of securities;
(d) the decision
with respect to fund raising proposed to be undertaken
(e) increase in
capital by issue of bonus shares through capitalization including the date on
which such bonus shares shall be credited/dispatched;
(f) reissue of
forfeited shares or securities, or the issue of shares or securities held in
reserve for future issue or the creation in any form or manner of new shares or
securities or any other rights, privileges or benefits to subscribe to;
(g) short
particulars of any other alterations of capital, including calls;
(h) financial
results;
(i) decision on
voluntary delisting by the listed entity from stock exchange(s).
5. Agreements (viz.
shareholder agreement(s), joint venture agreement(s), family settlement
agreement(s) (to the extent that it impacts management and control of the
listed entity), agreement(s)/treaty(ies)/contract(s) with media companies)
which are binding and not in normal course of business, revision(s) or
amendment(s) and termination(s) thereof.
6. Fraud/defaults by
promoter or key managerial personnel or by listed entity or arrest of key
managerial personnel or promoter.
7. Change in
directors, key managerial personnel (Managing Director, Chief Executive
Officer, Chief Financial Officer , Company Secretary etc.), Auditor and
Compliance Officer.
(7A) In case of
resignation of the auditor of the listed entity, detailed reasons for
resignation of auditor, as given by the said auditor, shall be disclosed by the
listed entities to the stock exchanges as soon as possible but not later than
twenty four hours of receipt of such reasons from the auditor.
SEBI
Circular on Resignation of statutory auditors from listed entities and their
material subsidiaries dated 18.10.2019 can be referred for detailed
information. This Circular does provide a guidance on how and when the
disclosure is to be made.
(7B) Resignation of
auditor including reasons for resignation: In case of resignation of an
independent director of the listed entity, within seven days from the date of
resignation, the following disclosures shall be made to the stock exchanges by
the listed entities:
i. Detailed reasons for
the resignation of independent directors as given by the said director shall be
disclosed by the listed entities to the stock exchanges.
ii. The independent
director shall, along with the detailed reasons, also provide a confirmation
that there is no other material reasons other than those provided.
iii. The confirmation as
provided by the independent director above shall also be disclosed by the
listed entities to the stock exchanges along with the detailed reasons as
specified in sub-clause (i) above.
8. Appointment or
discontinuation of share transfer agent.
9. Corporate debt
restructuring.
10. One time
settlement with a bank.
11. Reference to
BIFR and winding-up petition filed by any party / creditors.
12. Issuance of
Notices, call letters, resolutions and circulars sent to shareholders,
debenture holders or creditors or any class of them or advertised in the media
by the listed entity.
13. Proceedings of
Annual and extraordinary general meetings of the listed entity.
14. Amendments to
memorandum and articles of association of listed entity, in brief.
15. Schedule of
Analyst or institutional investor meet and presentations on financial results
made by the listed entity to analysts or institutional investors;
16. The following
events in relation to the corporate insolvency resolution process (CIRP) of a
listed corporate debtor under the Insolvency Code:
a) Filing of application
by the corporate applicant for initiation of CIRP, also specifying the amount
of default;
b) Filing of application
by financial creditors for initiation of CIRP against the corporate debtor,
also specifying the amount of default;
c) Admission of
application by the Tribunal, along with amount of default or rejection or
withdrawal, as applicable ;
d) Public announcement
made pursuant to order passed by the Tribunal under section 13 of Insolvency
Code;
e) List of creditors as
required to be displayed by the corporate debtor under regulation
13(2)(c) of the IBBI (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016;
f) Appointment/
Replacement of the Resolution Professional;
g) Prior or post-facto
intimation of the meetings of Committee of Creditors;
h) Brief particulars of
invitation of resolution plans under section 25(2)(h) of Insolvency Code in the
Form specified under regulation 36A(5) of the IBBI (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016;
i) Number of resolution
plans received by Resolution Professional;
j) Filing of resolution
plan with the Tribunal;
m) Approval of resolution
plan by the Tribunal or rejection, if applicable;
k) Salient features, not
involving commercial secrets, of the resolution plan approved by the Tribunal,
in such form as may be specified;
l) Any other material
information not involving commercial secrets.
B. Events which
shall be disclosed upon application of the guidelines for materiality referred
sub-regulation (4) of regulation (30):
1. Commencement or
any postponement in the date of commencement of commercial production or
commercial operations of any unit/division.
2. Change in the general
character or nature of business brought about by arrangements for strategic,
technical, manufacturing, or marketing tie-up, adoption of new lines of
business or closure of operations of any unit/division (entirety or piecemeal).
3. Capacity addition or product
launch.
4. Awarding, bagging/
receiving, amendment or termination of awarded/bagged orders/contracts not in
the normal course of business.
5. Agreements (viz. loan
agreement(s) (as a borrower) or any other agreement(s) which are binding and
not in normal course of business) and revision(s) or amendment(s) or
termination(s) thereof.
6. Disruption of
operations of any one or more units or division of the listed entity due to
natural calamity (earthquake, flood, fire etc.), force majeure or events such
as strikes, lockouts etc.
7. Effect(s) arising out
of change in the regulatory framework applicable to the listed entity
8. Litigation(s) /
dispute(s) / regulatory action(s) with impact.
9. Fraud/defaults etc. by
directors (other than key managerial personnel) or employees of listed entity.
10. Options to purchase
securities including any ESOP/ESPS Scheme.
11. Giving of guarantees
or indemnity or becoming a surety for any third party.
12. Granting, withdrawal
, surrender , cancellation or suspension of key licenses or regulatory approvals.
C. Any other
information/event viz. major development that is likely to affect business,
e.g. emergence of new technologies, expiry of patents, any change of accounting
policy that may have a significant impact on the accounts, etc. and brief details
thereof and any other information which is exclusively known to the listed
entity which may be necessary to enable the holders of securities of the listed
entity to appraise its position and to avoid the establishment of a false
market in such securities.
D. Without prejudice
to the generality of para (A), (B) and (C) above, the listed entity may make
disclosures of event/information as specified by the Board from time to time.
Observation
The schedule does
incorporates to a great extent all the major factors which are crucial in
understanding the current operations as well as future outlook of the company,
both of which is must for any investor community. Understanding of all
these matters are essential on the part of both the KMP entrusted with dissemination
of information to the exchange as well as investors to make their decisions.
(3) The listed
entity shall make disclosure of events specified in Para B of Part A
of Schedule III, based on application of the guidelines for materiality, as
specified in sub-regulation (4).
Advisory
on disclosure of material impact of COVID-19 pandemic on listed entities under
SEBI LODR Regulations, 2015 issued on 20.05.2020 does provide detailed
guidelines on the impact which this pandemic had on the operations and outlook
of the company.
The major highlights of the
advisory are as follows-
1. SEBI has
granted several relaxations to the listed entities in terms of timelines for
filing of various reports/ disclosures under this regulation.
2. Clause 6
of Para B of Part A of Schedule III of LODR specifies events such as
“Disruption of operations of any one or more units or division of the listed
entity due to natural calamity (earthquake, flood, fire etc.), force majeure or
events such as strikes, lockouts etc.” that shall be disclosed upon application
of the guidelines for materiality referred in Regulation 30(4).
3. Illustrative
list of information that entities may consider disclosing are-
- Impact of
the pandemic on the business;
- Ability
to maintain operations including the factories/units/office spaces functioning
and closed down;
- Schedule,
if any, for restarting the operations;
- Steps
taken to ensure smooth functioning of operations;
- Estimation
of the future impact of CoVID19 on its operations;
- Details
of impact of CoVID19 on listed entity’s in terms of capital and financial
resources, profitability, liquidity position, ability to service debt and other
financing arrangements, assets, IFC reporting, supply chain, demand for its
products/services;
- Existing
contracts/agreements where non fulfilment of the obligations by any party will
have significant impact on the listed entity’s business;
- Other
relevant material updates.
4. Selective
disclosures are discouraged. Depending on circumstances peculiar to a entity
and on account of passage of time, the entity shall revisit, refresh or update
its previous disclosures.
Observation
Advisory issued by SEBI
will help entities in appropriate disclosures since the impact is going to be
material and should be in the public domain.
(4)(i) The listed entity
shall consider the following criteria for determination of materiality of
events/ information:
(a)the omission of an event
or information, which is likely to result in discontinuity or alteration of
event or information already available publicly; or
(b)the omission of an event
or information is likely to result in significant market reaction if the said
omission came to light at a later date;
(c)In case where the
criteria specified in sub-clauses (a) and (b) are not applicable, an
event/information may be treated as being material if in the opinion of the
board of directors of listed entity, the event / information is considered
material.
(ii) 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,
which shall be disclosed on its website.
Observation
This clause provides 3
criteria’s in total which would need to tested to arrive at the conclusion of
whether the information or event is material or not. The formation of the
policy duly approved by the BOD is mandatory for determination of materiality
by the listed entities in order to comply with this clause of the regulation.
The policy will differ from entity to entity based on the applicability of the
criteria to their respective organization. There does not seems to be an
exhaustive list of the event/ information which should be considered material.
(5) The
board of directors of the listed entity shall authorize one or more Key
Managerial Personnel for the purpose of determining materiality of an event or
information and for the purpose of making disclosures to stock exchange(s)
under this regulation and the contact details of such personnel shall be also
disclosed to the stock exchange(s) and as well as on the listed entity’s
website.
Observation
This clause mandates the
details of KMP be provided to exchange who are entrusted with the
responsibility to determine the materiality of an event or information for the
purpose of publication/ dissemination of the same to the exchange as they would
be first point of contact in case of any clarifications required.
(6)
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:
Provided that in case the
disclosure is made after twenty four hours of occurrence of the event or
information, the listed entity shall, along with such disclosures provide
explanation for delay:
Provided further that
disclosure with respect to events specified in sub-para 4 of Para A of Part A
of Schedule III shall be made within thirty minutes of the conclusion of the
board meeting.
Observation
This clause underlines the
importance of the timelines within which the material information should be
disseminated to the exchange i.e. 24 hours. Appropriate explanation is required
in case the timelines are not met.
Further there are always
very sensitive information which will have an immediate impact on the share
price and hence needs to be disclosed within 30 minutes of the conclusion of
the BM. All such matters have been provided in sub-para 4 of Para A of Part A
of Schedule III. The list provided seems to be exhaustive. The outcome of such
matters in the BM are strong enough that in case the same is not disclosed
within a short frame of time, the same be informed to exchange via other means/
methods which may not be proper/conducive/favourable to the company or
investors at large.
(7) The listed
entity shall, with respect to disclosures referred to in this regulation, make disclosures
updating material developments on a regular basis, till such time the event is
resolved/closed, with relevant explanations.
Observation
There may be material
developments which takes time to fructify and hence each major stage of the
development under consideration needs to be disclosed to the exchange. For
example, whistle blower complain against Infosys in the recent past would be an
ideal candidate to understand this clause.
(8)
The listed entity shall disclose on its website all such events or information
which has been disclosed to stock exchange(s) under this regulation , and such
disclosures shall be hosted on the website of the listed entity for a minimum
period of five years and thereafter as per the archival policy of the listed entity,
as disclosed on its website.
Observation
This clause is very
important since it mandates the minimum duration (5 years) for which the
happenings/ information disclosed to stock exchange shall be hosted on the
website of the entity. It may be understood that the period of 5 years shall
begin from the date of disclosure to the exchange.
(9)
The listed entity shall disclose all events or information with respect to
subsidiaries which are material for the listed entity.
Observation
This clause mandates
information on the subsidiaries which are material for the listed entity.
However, there is no threshold prescribed for a subsidiary to be considered as
material.
(10) The listed
entity shall provide specific and adequate reply to all queries raised by stock
exchange(s) with respect to any events or information:
Provided that the stock
exchange(s) shall disseminate information and clarification as soon as
reasonably practicable.
Observation
This clause mandates
entities to provide adequate reply to any query raised by the exchange with
respect to any happening or information. There is no timeline provided within
which the query needs to be resolved. It may be understood that the same should
be done within a reasonable period of time.
(11)
The listed entity may on its own initiative also, confirm or deny any reported
event or information to stock exchange(s).
Observation
In case any information is
provided to the exchange before the disclosure is done by the entity under
consideration, may wish to confirm or deny the information provided by other than
the entity to the exchange. This is not mandatory and is just an advisory.
(12)
In case where an event occurs or an information is available with the listed
entity, which has not been indicated in Para A or B of Part A of Schedule III,
but which may have material effect on it, the listed entity is required to make
adequate disclosures in regard thereof.
Observation
This clause does cover any
material point which has been missed to be covered by this Regulation but which
the entity may considered material enough and need to report accordingly.
Conclusion
This regulation is
extremely important since the matters discussed above does provide guidance to
the investors at large who put their hard earned money for appreciation of
their Capital. Hence to maintain transparency and fair play, this regulation
does provide the shield to the public at large. It’s the responsibility of all
the listed entities not to just have the disclosures done but the same to be done
on a timely basis to maintain the spirit of the law. Since there is no
exhaustive list of disclosures, it is advised that even in doubt on whether a
particular event/ information is material or not, the best way forward is
to DISCLOSE. A entity which discloses appropriately and on
timely basis is well accepted.
Disclaimer – SEBI
and NSE website has been referred while preparing this article. This article is
meant for understanding purposes only and in no way be deemed to be an advice
or solicit any marketing whatsoever. Any decisions based on this article would
not held me liable for any action whatsoever. Please get in touch with your
legal consultant to understand the impact on your industry. Thanks!
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