Change by Heraclitus and LODR Regulations
Published: Mar 19, 2025
By CS Shweta Jain, PCS Partner, Agarwal S. & Associates, New Delhi
Introduction
THE Greek philosopher Heraclitus' notable quote states that change is the only constant in life. Change is also a constant occurrence in the economic and legal systems of every country. Changes are good and are always welcomed when they are properly planned and executed. Today, we will be discussing the recent changes made to the legal framework for listed companies. A listed company means a company which has any of its securities listed on any recognized stock exchange. The listed companies are governed by SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR).
In August 2023, an Expert Committee headed by Mr S K Mohanty was formed to review LODR for facilitating ease of doing of business and standardization and integration of various filings under LODR. The major recommendations of the Expert Committee were approved by the SEBI and changes are introduced in LODR in current year 2025. Industry Standards Note (ISN) has also been published to assist listed entities in complying with their obligations in respect of Continuous Disclosure Requirements under LODR.
Industry Standards Note on Regulation 30 of the LODR facilitates uniform approach and assists listed entities in complying with their obligations in respect of disclosures under Regulation 30. Changes are given in detail in ISN issued. This ISN has been prepared in consultation with SEBI and any addition/alteration to this shall be made only in consultation with SEBI. This ISN is available on the websites of BSE Limited, National Stock Exchange of India Limited, Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII) and Associated Chambers of Commerce & Industry of India (ASSOCHAM).
KEY CHANGES IN REGULATION 30 OF LODR:
DISCLOSURE OF COMMUNICATION FROM REGULATORY, STATUTORY, ENFORCEMENT OR JUDICIAL AUTHORITY UNDER REGULATION 30(13)
The listed entities, while disclosing material information under Regulation 30 with respect to regulatory, statutory, enforcement or judicial authority, shall not be required to disclose confidential and sensitive information, including proprietary information. A summary of key elements of such communication (furnished in the prescribed format as set out in Annexure C of ISN shall constitute sufficient compliance under Regulation 30(13).
DISCLOSURE FOR RESIGNATION OF KEY MANAGERIAL PERSONNEL, SENIOR MANAGEMENT
In cases of key managerial personnel, senior management, compliance officer and non-independent directors of a listed entity, the phrase "resignation comes into effect" shall mean the last date of the person concerned in the listed entity, and the timelines for disclosure shall be calculated accordingly. For instance, if Ms. A is a key managerial personnel in a listed entity, who submits her resignation letter on January 1, 2023, the management of the listed entity accepts the resignation on January 31, 2023 and her last date in the listed entity is February 28, 2023, the listed entity will be required to make the disclosure of her resignation on or prior to March 1st, 2023 (i.e. within 24 hours of such resignation coming into effect). The listed entity would also be required to provide the copy of her resignation letter dated January 1, 2023 on or prior to March 7, 2023 (i.e. within seven days from the date that such resignation comes into effect), along with detailed reasons for the resignation.
When disclosing resignation letter of the key managerial personnel, senior management, compliance officer or director, other than an independent director, to stock exchanges, the listed entity can redact portions from such resignation letter, other than the detailed reasons for resignation.
DISCLOSURE OF ANNOUNCEMENT/COMMUNICATION THROUGH SOCIAL MEDIA INTERMEDIARIES OR MAINSTREAM MEDIA
In case of any premature announcement or communication through social media intermediaries or mainstream media by directors, promoters, key managerial personnel or senior management of a listed entity, while making the requisite disclosure under this provision, the listed entity shall be required to issue necessary clarification in respect to such announcement /communication.
DISCLOSURE OF PROCEEDINGS OF AGMS AND EGMS OF LISTED ENTITY
A listed entity shall disclose voting results of annual and extraordinary general meetings as per the timelines provided in Regulation 44(3) of the LODR Regulations. But certain specific details, like, date of meeting and brief details of items deliberated, would be disclosed within 12 hours as per Regulation 30(6)(ii) of the LODR Regulations.
NOW LET'S ROLL OUR EYES TOWARDS RELATED PARTY TRANSACTIONS (RPT) WHICH ARE GOVERNED BY REGULATION 23 OF LODR
Meaning of material transaction
The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions [including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly].
Provided that a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten per cent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
A transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed {five} percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.
Power to approve RPT
All related party transactions [and subsequent material modifications] shall require prior approval of the audit committee [of the listed entity]
Provided that only those members of the audit committee, who are independent directors, shall approve related party transactions.
Ratify related party transactions
The members of the audit committee, who are independent directors, may ratify related party transactions within three months from the date of the transaction subject to certain conditions.
Omnibus approval for related party transactions
Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity [or its subsidiary] subject to certain conditions, like -
1. The audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity [or its subsidiary] pursuant to each of the omnibus approvals given.
2. Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year.
When Shareholders' approval required
All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2)] shall require prior approval of the shareholders through resolution.
Changes in RPT are introduced by SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/18 dated February 14, 2025. This circular shall come into effect from April 1, 2025, which is given below -
"The listed entity shall provide the audit committee with the information as specified in the Industry Standards on "Minimum information to be provided for review of the audit committee and shareholders for approval of a related party transaction", while placing any proposal for review and approval of an RPT."
"The notice being sent to the shareholders seeking approval for any RPT shall, in addition to the requirements under the Companies Act, 2013, include the information as part of the explanatory statement as specified in the Industry Standards on "Minimum information to be provided for review of the audit committee and shareholders for approval of a related party transaction".
As per Circular, Standards for Minimum Information to be provided to the shareholders for consideration of RPTs is as follows:
(1) The explanatory statement contained in the notice sent to the shareholders for seeking their approval for an RPT shall provide the minimum information so as to enable the shareholders to take a view whether the terms and conditions of the RPT are favorable to the listed entity.
(2) The notice being sent to the shareholders seeking approval for any material RPT shall, in addition to the requirements under the Companies Act, 2013, include the following information as a part of the explanatory statement:
(a) Information as placed before the Audit Committee in the format as specified in Para 4 of these Standards, to the extent applicable.
(b) The Audit Committee can approve redaction of commercial secrets and such other information that would affect competitive position of listed entity from disclosures to shareholders. Further, the Audit Committee shall certify that, in its assessment, the redacted disclosures still provide all the necessary information to the public shareholders for informed decision-making.
(c) Justification as to why the proposed transaction is in the interest of the listed entity.
(d) Statement of assessment by the Audit Committee that relevant disclosures for decision-making were placed before them, and they have determined that the promoter(s) will not benefit from the RPT at the expense of public shareholders.
(e) Disclose the fact that the Audit Committee had reviewed the certificate provided by the CEO or CFO or any other KMP as well as the certificate provided by the promoter directors of the Listed Entity as required under Para 3(2)(b) of these Standards.
(f) Copy of the valuation report or other reports of external party, if any, considered by Audit Committee while approving the RPT.
(g) Comments of the Board/Audit Committee of the listed entity, if any.
(h) Any other information that may be relevant.
Conclusion
Apparently, these LODR changes will bring more transparency and clarity in disclosures of listed companies. They would also promote uniformity in continuous disclosures made by listed companies and enhance corporate governance. LODR changes aim to streamline compliance and align with industry's best practices worldwide. It aims to build investor trust and transparent financial market.
[The views expressed are strictly personal.]
