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Frequently Asked Questions- January 21, 2016
SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015
Disclaimer: Based
on queries,’ comments received from market participants, these FAQs have been prepared to provide guidance on the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“the Regulations”, “Listing Regulations”, “LR”) and
circulars issued
there under. For full particulars of laws governing continuous disclosure
requirements, please
refer to the Acts,’Regulations,’Guidelines,’Circulars etc. appearing under the
Legal Framework Section of SEBI website i.e., www.sebi.gov.in and the websites of respective recognized stock exchanges.
A. Definitions
Q1. Regulation 2(1)(b) of LR defines an ‘associate
company’ to mean any entity which is an associate under the Companies Act, 2013
or under the applicable accounting standards. Whether both conditions have to
be met or either of the two?
Answer: The
definition of associate company should be viewed under the Companies Act, 2013
as well as Accounting Standards. If the condition is met under either of the
two, then such entity should be classified as an associate company.
Q2. Regulation 2(1)(zb) of LR defines the term ‘Related
party’ to mean related party under the Companies Act, 2013 or under the
applicable Accounting Standards. Whether both conditions have to be met or
either of the two?
Answer: The
definition of related party should be viewed under the Companies Act, 2013 as
well as Accounting Standards. If the condition is met under either of the two,
then such party should be classified as a related party.
B. Common Obligations of Listed Entities
Q3. Regulation 9 requires a listed entity to frame a
policy for preservation of documents approved by its board of directors,
classifying them into the documents that can be preserved permanently or can be
preserved for a period of not less than eight years after completion of the
relevant transactions. What types of documents are covered under this
regulation?
Answer: The
documents preserved in terms of Regulation 9 includes documents required to be
preserved by a listed entity in terms of securities laws defined under
Regulation 2(1)(zf) and other laws and statutes applicable to such listed
entity.
C. Corporate Governance
Q4. Regulation 17(8) of LR requires a compliance
certificate to the Board of directors by Chief Executive Officer (CEO) and
Chief Financial Officer (CFO). Whether the Managing Director or Whole Time
Director may certify the compliance certificate, when the company has not
designated a CEO?
Answer: Such
certificates may be signed by the officials who hold powers, duties and
responsibilities of a CEO/ CFO irrespective of their designations.
Q5. Regulation 23 (4) provides that all material related
party transactions shall require approval of the shareholders through
resolution and the related parties shall abstain from voting on such
resolutions whether the entity is a related party to the particular transaction
or not. In this regard, whether only those related parties who are related to
the concerned transaction/ contract should abstain from voting or whether
related parties should altogether abstain from voting?
Answer: The
requirement under Regulation 23(4), is applicable for listed entities subject
to the provisions of Regulation 15. Hence, for applicable entities, the
regulations clearly provide that all material related party transactions shall
require approval of the shareholders through resolution and the related parties
shall abstain from voting on such resolutions whether the entity is a related
party for the particular transaction or not.
Q6. Regulation 23(8) requires all existing material
related party contracts or arrangements entered into prior to the date of
notification of these regulations and which may continue beyond such date shall
be placed for approval of the shareholders in the first General Meeting
subsequent to notification of these regulations. Whether the listed entity
requires to take a fresh shareholders approval in case it has already taken an
approval prior to implementation of these regulations?
Answer: The
listed entity need not take fresh approval of shareholders in case the entity
has already fulfilled the requirement of the regulations.
Q7. Regulation 24(1) prescribes having at least one
independent director of the listed entity as a director on the board of
directors of ‘unlisted material subsidiary, incorporated in India’. Sub-regulations
(2), (3) and (4) to the same regulation refer to ‘unlisted subsidiary’. Whether
such sub-regulations (2), (3) and (4) are applicable to all unlisted
subsidiaries or only material unlisted subsidiaries incorporated in India?
Answer: Listed
entities may be guided by the provisions of Regulation 24. Wherever ‘unlisted
material subsidiary’ and ‘unlisted subsidiary’ have been distinctly mentioned
in a particular sub-regulation, such sub-regulation shall be applicable to
material unlisted subsidiaries or all unlisted subsidiaries as the case may be.
Q8. Regulation 24 (4) requires that the management of the
unlisted subsidiary shall periodically bring to the notice of the board of
directors of the listed entity, a statement of all significant transactions and
arrangements entered into by the unlisted subsidiary. Whether the requirement
is applicable only to the material unlisted subsidiary?
Answer: The
requirement is applicable to all unlisted subsidiaries.
Q9. Regulation 26(1) stipulates that a director shall not
be a member in more than ten committees or act as chairperson of more than five
committees across all listed entities. Clause (a) to the aforesaid
sub-regulation requires membership on committees that a director serves in all
public limited companies, whether listed or not, to be included for determining
the count of committee membership/ chairmanship for sub-regulation (1) and
excludes membership on committees of private limited companies, foreign
companies and companies under Section 8 of the Companies Act, 2013. Whether a
director can be committee member for ten listed entities only or the same
includes unlisted public companies as well?
Answer: A
director of a listed entity can be member in maximum ten committees and
chairperson of more than five committees of listed entities and unlisted public
limited companies put together.
D. Disclosure of Events or
Information
Q10. Regulation 30(8) of LR requires posting of
disclosures on the listed entity’s website for a minimum period of five years.
Whether the said provision is prospective from December 1, 2015 and pertains to
disclosures relating to events happening thereafter?
Answer: The
disclosures made under Regulation 30(8) shall be made w.e.f. December 01, 2015,
i.e., the listed entity shall disclose on its website all such events or
information which has been disclosed to stock exchange(s) under this regulation
on or after the said date, and such disclosures shall be hosted on the website
of the listed entity for a minimum period of five years from the date of
disclosure to the stock exchange.
Q11. Regulation 30(9) of LR requires disclosure of all
events and information with respect to subsidiaries which are material. If both
parent and subsidiary are listed entities, would it be sufficient compliance if
the listed subsidiary has made a disclosure or whether same disclosure be made
by the parent listed entity also?
Answer: Both
the parent and material subsidiary in their own right as Listed Entities have
to make disclosure separately as applicable under Listing Regulations.
Q12. Regulation 16 (1)(c) defines material subsidiary as
– “material subsidiary” shall mean a subsidiary, whose income or net worth
exceeds twenty percent of the consolidated income or net worth respectively, of
the listed entity and its subsidiaries in the immediately preceding accounting
year.” The Explanation to Regulation 16 (1)(c) states that the listed entity
shall formulate a policy for determining material subsidiary. Can the listed
entity adopt a different criteria for determining material subsidiary for the
purpose of Regulation 30 (9)?
Answer: The
definition of ‘material subsidiary’ under regulation 16(1)(c) defines a
subsidiary that is material to the listed entity. Further, the explanation to
the aforesaid provision allows the listed entity to formulate a policy for the
same, i.e., a listed entity can develop criteria that is stricter than what has
been provided in the Regulations. Regulation 30(9) requires the listed entity
to disclose all events or information with respect to subsidiaries which are
material for the listed entity. The said sub-regulation places stress on
materiality of the events or information. Therefore, disclosure would be
required in cases where the event or information originating from a subsidiary
is material to the listed entity, irrespective of whether such a subsidiary is
material or not as per the definition provided at regulation 16(1)(c).
Q13. Schedule III Part A, Para A, item 1(ii)(a) requires
disclosures on acquisition or agreements to acquire shares or voting rights in
a company, whether directly or indirectly, such that 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. Whether the disclosure is with respect to
acquisition of shares or voting rights when the target company is a listed
entity only or whether it is applicable to unlisted entities also?
Answer: The
Schedule refers to the listed entity’s acquisition of shares or voting rights
in the company. Such target company can be listed or unlisted.
Q14. Schedule III Para A of Part A, item 4 (d) on deemed
material events mentions that a listed entity shall disclose within 30 minutes
of the closure of the meeting the decision with respect to fund raising
proposed to be undertaken. What all methods of fund raising are covered under
the same?
Answer: The
listed entity may be guided by Regulation 29(1) (d) which stipulates the types
of fund raising an entity is required to intimate to Stock Exchange.
E. Other Clarifications
Q15. Under Regulation 33(3), for submission of financial
results for the last quarter, whether Unaudited Results can be submitted to the
Exchanges?
Answer: Regulation
(33)(3)(d) clearly states that the listed entity shall file audited annual
results in 60 days from the end of the last quarter. Therefore, the financial
statements for the last quarter shall necessarily be audited. The said
provision was also there in the erstwhile Listing Agreement.
Q16. Regulation 33 (3)(d) requires a company to submit
audited standalone financial results for the financial year, within sixty days
from the end of the financial year along with the audit report and either Form
A (for audit report with unmodified opinion) or Form B (for audit report with
modified opinion). However for listed entities having subsidiaries whether two
sets of Form A or Form B have to be prepared for standalone and consolidated
results?
Answer: A
company having subsidiaries will prepare two sets of Form A and/or Form B, one
for standalone results and another for consolidated results based on the
respective audit report.
Q17. Regulation 34 (2) (f) requires Annual Report to
contain Business Responsibility Report (BRR). Since when this requirement will
be applicable?
Answer: Presently
Regulation 34 requires top hundred listed entities based on market
capitalization(calculated as on March 31 of every financial year) to
compulsorily and other than top hundred listed entities to voluntarily include
BRR in their Annual Report. Subsequent to amendment in SEBI (Listing
Obligations and Disclosure Requirements) Regulation 2015 notified on December
22, 2015, the requirement of mandatory reporting of BRR in Annual Report has
been raised from hundred to five hundred listed entities which will be
effective from April 1, 2016 and hence it will form a part of the Annual Report
for the financial year 2016-17.
Q18. Regulation 35 requires the listed entity to submit
to the stock exchange(s) an Annual Information Memorandum in the manner
specified by the Board from time to time. Since the Regulations do not
currently specify the applicable date and the manner, is the said provision
currently applicable?
Answer: As
mentioned, in the regulation, the said requirement will become applicable as
and when Annual Information Memorandum is specified by SEBI.
Q19. Regulation 40(3) requires that the listed entity
shall register transfers of its securities in the name of the transferee(s) and
issue certificates or receipts or advices, as applicable, of transfers; or
issue any valid objection or intimation to the transferee or transferor, as the
case may be, within a period of fifteen days from the date of such receipt of
request for transfer. It provides that the listed entity shall ensure that
transmission requests are processed for securities held in dematerialized mode
and physical mode within seven days and twenty one days respectively, after
receipt of the specified documents and that proper verifiable dated records of
all correspondence with the investor shall be maintained by the listed entity.
In this regard, how would a company ensure compliance in an era where companies
have no role to play in processing of transmission of securities held in
dematerialized mode?
Answer: The
provision in Regulation 40(3) may be read in context with Regulation 7(1) which
states that the listed entity shall appoint a share transfer agent or manage
the share transfer facility in-house. In cases where the listed entity is
managing the share transfer in-house, such compliance may be ensured. In this
regard, the share transfer agent is an agent of the listed entity and it is
imperative that the listed entity as a principal shall supervise the activities
of its agent. Further, Regulation 8 provides that the listed entity, wherever
applicable, shall co-operate with and submit correct and adequate information
to the intermediaries registered with the Board including registrar to an issue
and share transfer agents.
Q20. Regulation 40 (8) requires the listed entity that
has not effected transfer of securities within fifteen days or where the listed
entity has failed to communicate to the transferee(s) any valid objection to
the transfer, within the stipulated time period of fifteen days to compensate
the aggrieved party for the opportunity losses caused during the period of the
delay. Sub regulation (9) of the aforesaid regulation states that the listed
entity shall ensure that the share transfer agent and/or the in-house share
transfer facility, as the case may be, produces a certificate from a practicing
company secretary within one month of the end of each half of the financial
year, certifying that all certificates have been issued within thirty days of
the date of lodgment for transfer, sub-division, consolidation, renewal,
exchange or endorsement of calls/allotment monies. The matter needs to be
clarified.
Answer: It is
clarified that the listed entity may seek such reports from share transfer
agents as they may require, so as to ensure compliance with the time period of
15 days for transfer of securities as stipulated in sub-regulation (8).
Q21. As per Regulation 46(2)(n), the listed entity is
required to disseminate on its website details of agreements entered into with
the media companies and/or their associates, etc. In this regard, should the
listed entity disclose all agreements entered into with media companies/ their
associates including ordinary agreements or disclose only such agreements that
are not in the normal course of business as required under item 5 of paragraph
A of part A of Schedule III of LR?
Answer: It is
clarified that only such agreements that are not in the normal course of
business shall be disclosed. Listed entities may refer to SEBI Press Release
No. 200/2010 dated August 27, 2010 and Press Council of India Press Release No.
PR/3/10-11-PCI dated August 02, 2010 wherein concerns related to ‘private
treaties’ and their disclosures have been discussed in detail.
Q22. Regulation 46 (3) requires listed entity to update
any change in the content of its website within two working days from the date
of such change in content. Whether change in the content of website means any
change on the website?
Answer: Regulation
46(2) prescribes the list of information to be disseminated by a listed entity
on its website. Regulation 46 (3) refers to the update of any change in the
content which is provided as per the requirements of Regulation 46 (2).
F. Miscellaneous
Q23. The regulations do not define ‘working days’.
Whether the same can be clarified?
Answer: ‘Working
days’ means working days of the stock exchange where the securities of the
entity are listed.
Note:
Additional FAQs will be issued shortly.
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