Prof R Balakrishnan – [2024] 169 taxmann.com 654 (Article)

1. Background of the case

This is a case in which a former chief financial officer (KMP) of M/s Gwalior Smart City Development Corporation Limited has been penalized by the Registrar of Companies/Adjudication Officer of Gwalior as the concerned chief financial officer (KMP) was holding office in more than one company in violation of section 203 (3) of the Companies Act 2013.

The Registrar of Companies, Gwalior issued an order penalizing the former chief financial officer (CFO) of M/s. Gwalior Smart City Development Corporation Limited, for holding office in more than one company, which violated the provisions of section 203(3) of the Companies Act 2013. The violation occurred when the chief financial offer of M/s. Gwalior Smart City Development Corporation Limited, also became a director in M/s. Causebox Consulting Private Limited without obtaining prior permission from the board of the company in which he was serving. The company initiated a departmental inquiry against the chief financial officer and terminated his services. The former chief financial officer defended himself by stating that he was not aware of the requirement to seek approval from the board to holda directorship in another company.

However, the Adjudicating Officer concluded that the former chief financial officer being the KMP, was liable for the violation and imposed a penalty of Rs. 50,000 upon him for the violation pursuant to section 203(5) of the Companies Act 2013. Let us go through this case in order to understand the provisions of the Companies Act 2013 on this matter and the consequences of default, which resulted in a penalty upon the person who committed the offence.

2. Relevant provisions of the Companies Act 2013 pertaining to this case

Section 203 relating to appointment of KMP of the Companies Act 2013 is the relevant provision pertaining to this case and the extract of relevant portion is reproduced below: –

Section 203 (3) of the Companies Act 2013 states that a whole-time KMP shall not hold office in more than one company except in its subsidiary company at the same time.

The first proviso to section 203(3) states that nothing contained in this sub-section shall disentitle a KMP from being a director of any company with the permission of the board.

The second proviso to section 203(3) states that whole-time KMP holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of KMP.

The third proviso of 3 of section 203(3) of the Companies Act 2013 inter-alia states that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made as approved by a resolution made or approved by a resolution passed at a meeting of the board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

3. Penal Provisions for default (if any) committed by the company

As per section 203(5) of the Companies Act 2013, any company that is mandatorily required to appoint a chief financial officer and company secretary, if don’t appoint, such company shall be liable to a penalty of five lakh rupees and every director and KM of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees

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Circular no. SEBI/HO/MIRSD/ MIRSD-PoD-1/P/CIR/2024/164; Dated: 27.12.2024

SEBI has issued a clarification regarding the transfer and transmission of shareholding among immediate relatives for investment advisers, research analysts, and know-your-client (KYC) registration agencies (KRAs). This move aims to streamline regulatory compliance and protect investor interests while ensuring transparency in the functioning of these intermediaries. Immediate relatives include spouses, parents, siblings, and children. The provisions shall be effective immediately.

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On December 18, 2024, the Securities and Exchange Board of India (SEBI) implemented a comprehensive set of amendments during its 208th board meeting, as detailed in the Press Release (PR No. 36/2024). These regulatory adjustments emphasise SEBI's ongoing commitment to enhancing transparency, strengthening governance, and bolstering the overall regulatory framework across different market segments. Key highlights from the board meeting include:
– Stricter Norms for SME IPOs
– Corporate Governance Norms for High-Value Debt Listed Entities
– Expansion of the UPSI Definition
– Recognition of Past Risk and Return Verification Agency
– Regulated Entities' Responsibility for AI Tools
– Enhanced Framework for Securitised Debt Instruments
– Amendments to Mutual Fund Regulations
– Simplified Compliance for Custodians
– Electronic Payments Mandate for Listed Entities
– Timely Payment of Annual Fees by Depositories
– Investor Protection Measures for REITs and InvITs
– Facilitation for Small and Medium REITs
These initiatives reflect SEBI's strategic focus on streamlining regulatory processes, enhancing market liquidity, and ensuring robust protection for investors.

Table of Contents

Introduction

1. Introducing Stricter Norms for SME IPOs to Enhance Transparency and Governance
2. Corporate Governance Norms for High-Value Debt Listed Entities (HVDLEs)
3. SEBI Widens the Scope of Definition of ‘UPSI’ and Introduces Threshold Limits for Identifying Events as UPSI
4. Simplification of ‘Business Responsibility and Sustainability Report’ Requirements for ESG Disclosures and Reporting
5. Strengthening of Regulatory Framework for Merchant Bankers by Ensuring High Standards of Compliance
6. Enhanced Framework for Securitised Debt Instruments with Focus on Liquidity and Investor Protection
7. Amendments to SEBI (Mutual Fund) Regulations, 1996 to Facilitate Ease of Doing Business
8. Simplified Compliance and Enhanced Governance Framework for Custodians
9. Recognition of ‘Past Risk and Return Verification Agency’ to Enhance Transparency in Financial Services Market
10. Regulated Entities to Take Full Responsibility for Use of ‘AI Tools’ and Ensure Data Privacy and Security
11. Mandating Electronic Payments by Listed Entities to Security Holders
12. Timely Payment of Annual Fees by Depositories and Independent Verification of Annual Charges Paid to Board
13. Strengthening Investor Protection Measures for REITs and InvITs
14. Measures Towards Ease of Doing Business for Small and Medium REITs
15. Conclusion

Introduction

The Securities and Exchange Board of India (SEBI), in its 208^th board meeting dated December 18, 2024, approved a series of amendments. These amendments aim to strengthen the regulatory framework, improve transparency and enhance governance across various sectors.

The Press Release (PR No. 36/2024), dated December 18, 2024, highlights the key approvals made by the Board. These include:

• The introduction of stricter norms for SME IPOs to improve transparency and governance,
• Corporate Governance Norms for ‘High-Value Debt Listed Entities’,
• Widening of the scope of the definition of UPSI,
• Recognition of ‘Past Risk and Return Verification Agency’ and
• Regulated Entities to take full responsibility for ‘AI tools’ and ensure data privacy and security.

The key highlights of the SEBI’s board meeting in detail are as follows:

1. Introducing Stricter Norms for SME IPOs to Enhance Transparency and Governance

The Board has approved amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, and SEBI (LODR) Regulations, 2015, to enhance transparency and streamline processes for SME IPOs and listings. The amendments are as follows:

• Eligibility for IPO – Issuers can make an IPO only if they have an operating profit (earnings before interest, depreciation and tax) of at least Rs 1 crore from operations in any 2 out of 3 previous financial years at the time of filing the Draft Red Herring Prospectus (DRHP).
• Offer for Sale (OFS) Limits – Selling shareholders in SME IPOs must not exceed 20% of the total issue size, and their sales are limited to 50% of their holdings.
• Promoters Lock-In – Lock-in on promoters’ holdings held in excess of the Minimum Promoter Contribution (MPC) will be released in a phased manner, i.e. lock-in for 50% of promoters’ holding in excess of MPC must be released after one year, and the remaining 50% must be released after two years.
• Cap on General Corporate Purpose (GCP) – GCP amounts in SME IPOs must be capped at 15% of the amount being raised by the issuer or Rs 10 crores, whichever is lower.
• Restrictions on Loan Repayment – SME issues cannot use proceeds to repay loans taken directly or indirectly from promoters, promoter groups, or related parties.
• Further Issues by SME Companies – SME companies can raise funds without migrating to the main board, provided they comply with the SEBI (LODR) Regulations applicable to main board-listed entities.

2. Corporate Governance Norms for High-Value Debt Listed Entities (HVDLEs)

The Board has approved key proposals to enhance corporate governance norms for High-Value Debt Listed Entities (HVDLEs). It includes the following:

• Increased Threshold for HVDLE Identification – The threshold for identifying HVDLEs has been raised from Rs. 500 crores to Rs. 1000 crores to align with Large Corporate thresholds.
• Flexibility in Committee Constitution – HVDLEs will have more flexibility in forming their Nomination and Remuneration Committee (NRC), Risk Management Committee (RMC), and Stakeholder Relationship Committee (SRC).
• Directorship Restrictions – HVDLEs will be included in the count for directorship ceilings to ensure directors can focus adequately on each listed entity. This restriction will not apply to ex-officio positions in PSUs or Public-Private Partnership (PPP) entities.
• Related Party Transactions (RPTs) – For debt-listed entities with substantial related party shareholding, material RPTs will require a No-Objection Certificate (NOC) from the Debenture Trustee, who must obtain approval from debenture holders before shareholders’ approval can be sought. This will apply from April 1, 2025.
• Introduction of Voluntary’ Business Responsibility and Sustainability Report’ (BRSR) – A voluntary BRSR requirement will be introduced for HVDLEs, aligning them with good governance practices on par with equity-listed entities.
• Relaxation for PPP Entities – Entities set up under the Public-Private Partnership (PPP) model will be relaxed from director composition requirements in the LODR Regulations, similar to PSUs or statutory entities.

3. SEBI Widens the Scope of Definition of ‘UPSI’ and Introduces Threshold Limits for Identifying Events as UPSI

The Board approved amendments to the definition of UPSI under Regulation 2(1)(n) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, by including 17 out of the 27 items not already covered in the illustrative list from material events requiring disclosures under Regulation 30 of SEBI (LODR) Regulations, 2015. This change aims to enhance regulatory clarity, certainty, and uniformity in compliance within the ecosystem.

Further, for identifying events as UPSI, threshold limits as prescribed for events from Para A and Para B of Part A of Schedule III of the SEBI (LODR) Regulations, 2015, have been made applicable.

4. Simplification of ‘Business Responsibility and Sustainability Report’ Requirements for ESG Disclosures and Reporting

To facilitate ease of doing business for listed entities and their value chain partners, SEBI has introduced changes to the Business Responsibility and Sustainability Report (BRSR) requirements on Environmental, Social, and Governance (ESG) disclosures.

The implementation of ESG disclosures for value chain partners has been deferred by one year, now applicable from FY 2025-26 instead of FY 2024-25. Similarly, the requirement for ‘assessment or assurance’ of these disclosures will now commence from FY 2026-27 instead of FY 2025-26.

To further simplify compliance, ESG value chain disclosures will remain voluntary, replacing the earlier ‘comply-or-explain’ mandate. Additionally, the scope of reporting has been streamlined to focus on the top upstream and downstream partners contributing 2% or more of the listed entity’s purchases and sales while ensuring coverage of at least 75% of total value. For the first year of reporting, data from the previous year will be optional.

5. Strengthening of Regulatory Framework for Merchant Bankers by Ensuring High Standards of Compliance

The Board has reviewed and approved amendments to the SEBI (Merchant Bankers) Regulations, 1992, focusing on the registration, eligibility, and activities of Merchant Bankers (MBs) and their net worth criteria. The key amendments are as follows:

• Scope of Permitted Activities – Now, MBs (excluding banks and public financial institutions) can only undertake permitted activities. Non-permitted activities must be transferred to a separate legal entity within two years in compliance with SEBI’s code of conduct.
• Prohibition on New Valuation Activities – MBs are prohibited from undertaking new valuation activities but may complete existing ones. For future valuation work, separate registration with the relevant authority is required within nine months.
• Categorisation of MBs Based on Net Worth – MBs must be categorised into two groups based on their net worth. Category 1 MBs must have a net worth of at least Rs. 50 crore, enabling them to undertake all permitted activities. Category 2 MBs, with a net worth of at least Rs. 10 crore, are eligible for all activities except managing equity issues on the Main Board.
• Revenue Requirements for MB Categories – Revenue requirements have been set for Category 1 (Rs. 25 crore over three years) and Category 2 (Rs.5 crore over three years), with exceptions for MBs managing only debt or hybrid securities.
• Compliance Officer Qualifications and Experience Criteria – Compliance Officers must hold a Company Secretary qualification or a law degree with two years of experience or five years of experience with NISM certifications.

6. Enhanced Framework for Securitised Debt Instruments with Focus on Liquidity and Investor Protection

The Board has approved key proposals to refresh and restate the Securitised Debt Instruments (SDI) Regulations, focusing on enhancing transparency, liquidity, and investor protection. The key proposals include:

• Demat Form Requirement – Listed or to-be-listed Securitised Debt Instruments (SDIs) must be issued and transferred only in demat form.
• Minimum Ticket Size – The minimum ticket size for a single investor, both during initial subscription and subsequent purchase of listed or to-be-listed SDIs, is defined as follows:

1. 1. For RBI-regulated originators – Rs. 1 crore at initial subscription, with no specification for subsequent transfers.
   2. For non-RBI-regulated originators – Rs. 1 crore for both initial and subsequent transfers, subject to the amortised value for trading purposes.
   3. For SDIs backed by listed securities – The ticket size will be the highest face value among the listed securities.

• Securitisation Conditions – The following conditions will apply to the securitisation resulting in the issuance of listed or to-be-listed SDIs:

1. 1. No single obligor should constitute more than 25% of the asset pool, with potential risk-based relaxation as specified by SEBI.
   2. The securitisation pool assets must be homogeneous.
   3. SDIs must be fully paid up upfront.
   4. Originators must have a track record of 3 years in creating the type of debt or receivable they wish to securitise.
   5. Obligors must also have a 3-year track record in the relevant debt or receivable type, excluding originators regulated by the RBI.

• Trustee Eligibility and Accountability – Trustees of the Special Purpose Distinct Entity (SPDE) for SDIs must be SEBI-registered Debenture Trustees. Amendments to the ‘Duties of Trustees’ and Trustee Code of Conduct aim to enhance clarity, accountability, and transparency.

7. Amendments to SEBI (Mutual Fund) Regulations, 1996 to Facilitate Ease of Doing Business

In its board meeting, the SEBI approved certain amendments to the SEBI (Mutual Funds) Regulations, 1996, to relax the regulatory framework related to the ‘alignment of interest of designated employees of AMCs with the interest of unitholders’. Further, the Board approved amendments to specify timelines for the deployment of funds collected by AMCs in New Fund Offers as per the asset allocation of a scheme.

7.1 Relaxing Framework Related to ‘Alignment of Interest of Designated Employees of AMCs with Interest of Unitholders’

The Board approved amendments to the SEBI (Mutual Funds) Regulations, 1996, to relax the regulatory framework related to the ‘alignment of interest of designated employees of AMCs with the interest of unitholders’. The objective is to facilitate the ease of doing business for mutual funds while mandating disclosure of the results of stress testing for all mutual fund schemes.

The relaxations pertain to the reduction of the minimum investment amount, reduction in frequency of disclosures, lower lock-in period for employees who have resigned, empowering of the Nomination and Remuneration Committee to verify compliances by designated employees, relaxed requirements for employees managing liquid funds and relaxed redemption norms.

7.2 Specifying Timelines for Deployment of Funds Collected by AMCs in New Fund Offer as per Asset Allocation of Scheme

The Board approved amendments to SEBI (Mutual Fund) Regulations to specify timelines for the deployment of funds collected by Mutual Funds in New Fund Offers (NFO) as per the specified asset allocation of a scheme.

The objective of the framework is to provide a timeline within which the fund manager would be required to deploy the funds garnered in an NFO as per the required asset allocation of the scheme.

Further, the framework provides investors with the option to exit the scheme without an exit load in case the fund manager is unable to deploy the fund within the specified timeline.

8. Simplified Compliance and Enhanced Governance Framework for Custodians

The Board approved the proposal to review SEBI (Custodian) Regulations, 1996. These measures are expected to simplify compliance while strengthening risk management and governance amongst custodians. The key proposals approved by the Board are as follows:

8.1 Net Worth Requirement and Operational Framework for Custodians

Custodians must maintain a dedicated net worth of Rs. 75 Crore. The existing Custodians must achieve the same within three years. Further, custodians must adopt a framework for a business continuity plan and disaster recovery, orderly winding down and enhancing obligations, similar to those of qualified stock brokers. Also, the Code of Conduct applicable to Custodians must be amended in line with that applicable to other intermediaries.

8.2 Outsourcing Norms and Vault Requirements for Custodians

Regarding outsourcing non-core custodian activities, the Custodians and Depositories Standard Setting Forum (CDSSF) may categorise a list of core/non-core activities in consultation with SEBI. Further, the requirement of vaults must apply only if the custodian is holding any physical securities.

9. Recognition of ‘Past Risk and Return Verification Agency’ to Enhance Transparency in Financial Services Market

In order to facilitate persons regulated by the Board or their agents to market their services to investors using their risk-return metrics, the Board has approved the proposal to recognise a “Past Risk and Return Verification Agency (PaRRVA)” which shall verify the risk-return metrics in respect of services of such persons or their agents.

A Credit Rating Agency (CRA) must act as PaRRVA, with a recognised stock exchange serving as PaRRVA Data Centre (PDC). Further, PaRRVA must verify risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs), algorithmic Traders, and those persons permitted by the Board to offer these services.

10. Regulated Entities to Take Full Responsibility for Use of ‘AI Tools’ and Ensure Data Privacy and Security

The Board approved the proposal to amend certain provisions of SEBI Regulations, including the SEBI (Intermediaries) Regulations, 2008, the SEBI (Depositories and Participants) Regulations, 2018, to require persons regulated by SEBI (including MIIs, registered intermediaries, AMCs, managers of pooled investment vehicles) who use Artificial Intelligence tools, either designed by them or procured from third-party technology service providers, to take full responsibility for their use of such tools.

The SEBI-regulated persons must be solely responsible for the privacy, security, and integrity of investors’ and stakeholders’ data, including data maintained by them in a fiduciary capacity, the output arising from the usage of such tools and techniques and for complying with applicable laws in force.

11. Mandating Electronic Payments by Listed Entities to Security Holders

The Board approved the proposal to mandate that any payment, including dividends, interest, redemption, or repayment by a listed entity to its security holders, be made in electronic form only. In case of returned dividends/interest/redemption, the company will be obligated to inform the Demat account holders by registered post as well as by email/SMS to update their correct bank account details.

Further, the companies and depositories must engage in a sustained campaign to facilitate that investors populate their bank account details to receive their payments in electronic mode.

12. Timely Payment of Annual Fees by Depositories and Independent Verification of Annual Charges Paid to Board

The Board has approved amendments to the SEBI (Depositories and Participants) Regulations, 2018, for the following:

• The payment of an annual fee to the Board by depositories must be within 15 days from the beginning of each financial year.
• The depository must inform the Board of the details of remittance along with the statement of computation of annual charges certified to be correct by a Chartered Accountant to ensure correct computation and independent verification of annual charges paid to the Board by the depository.
• In case of non-payment, late payment or short payment of an annual fee or annual charge, the depository must be liable for payment of interest of 15% p.a. on the amount remaining unpaid or belatedly paid or short-paid for every month of delay or part to the Board.

13. Strengthening Investor Protection Measures for REITs and InvITs

The Board approved investor protection measures for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs), allowing REITs and InvITs to invest in unlisted equity shares, but only in companies providing management, property maintenance, housekeeping and other incidental services to the REIT/InvIT assets subject to certain conditions.

Further, the Board approved ease of doing business proposals for REITs and InvITs, including permitting inter-se transfer of locked-in units amongst a sponsor group entity, defining “common infrastructure” in the REIT Regulations, and allowing three months to fill a vacancy for the position of director.

14. Measures Towards Ease of Doing Business for Small and Medium REITs

The Board approved the following proposals to facilitate ease of doing business related to activities of SM REITs:

• Standardising disclosures in the scheme offer document, including bifurcation of the document into Key Information of the Trust (KIT) and Key Information of the Scheme (KIS), the manner of updating KIT and the preparation of the scheme offer document in a manner that facilitates automated processing;
• Introducing guidelines for the public issuance of units by a scheme of SM REIT, including allocation in public issues, subscription periods, price bands, allotment procedures in case of oversubscription and minimum subscription amount, and
• Alignment of certain provisions relating to investment conditions and borrowings for SM REITs with those applicable to REITs

15. Conclusion

Overall, the key highlights mark a significant step toward strengthening the regulatory framework of the Indian securities market. The approved amendments focus on enhancing investor protection, improving market transparency, and ensuring more efficient market operations. These changes are expected to boost investor confidence, reduce systemic risks, and facilitate the long-term growth of the market, aligning with SEBI’s continued commitment to regulatory excellence.

Dive Deeper:
[Analysis] Key Highlights of the SEBI’s Board Meeting Decisions – March 2024
[Impact Analysis] of the SEBI Board Meeting – April 2024
[Analysis] SEBI Board Meeting Highlights [September 2024]

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Circular No. SEBI/HO/DEPA-II/DEPA-II_SRG/P/CIR/2024/178; Dated: 20.12.2024

SEBI has introduced a uniform policy for Stock Exchanges, Clearing Corporations, and Depositories to share data separately for only research/research publications undertaken by accredited academic institutions. However, data shared with vendors for commercial purposes must not fall under this policy. This policy is aimed at balancing data accessibility for research with privacy and confidentiality concerns, ensuring transparency and protection in the securities market.

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Circular No. SEBI/HO/IMD/IMD-RAC-1/P/CIR/2024/179; Dated: 20.12.2024

As per the SEBI’s Master Circular dated June 27, 2024, AMCs are required to submit a soft copy of the draft Scheme Information Document (SID) to SEBI, which is made available on its website for 21 working days from the date of filing to receive public comments. SEBI has now reduced the timeline for uploading SID on its website from 21 working days to at least 8 working days to receive public comments on the adequacy of disclosures made in the offer document.

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Circular No. SEBI/HO/CFD/CFD-PoD-1/P/CIR/2024/177; Dated: 20.12.2024

In order to facilitate ease of doing business and to bring about standarisation in implementation, the Industry Standards Form (ISF) has formulated industry standards for effective implementation of the requirement to disclose ‘Business Responsibility and Sustainability Report’ (BRSR) Core under LODR norms. The listed entities must follow the standards to ensure compliance with SEBI requirements on disclosure of BRSR Core. The circular shall be applicable for FY 2024-25 and onwards.

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PR No. 37/2024; Dated: 18.12.2024

Earlier, SEBI issued directions to stock exchanges with a commodity derivatives segment to suspend trading in derivative contracts for 7 agro commodities for a period of one year. Subsequently, the suspension was extended beyond December 20, 2023, to December 20, 2024. Now, SEBI has further extended the suspension of trading in these contracts to January 31, 2025.

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PR No.36/2024, Dated: 18.12.2024

SEBI, in its 208th Board Meeting, approved several amendments to regulations, including measures to enhance ease of doing business related to Business Responsibility & Sustainability Reporting, a review of the SME framework under ICDR Norms, a review of Merchant Bankers Regulations, etc.

The Board has approved amendments to the SEBI (LODR) Regulations, 2015 and SEBI (ICDR) Regulations, 2018, to mandate the issuer to have an operating profit of Rs. 1 crore from operations for any 2 out of 3 previous financial years at the time of filing of its draft red herring prospectus. Further, Offer for sale (OFS) by selling shareholders in SME IPO must not exceed 20% of the total issue size and selling shareholders cannot sell more than 50% of their holding.

Some of the key highlights of the Board Meeting are as follows –

• Amendments to SEBI (Depositories & Participants) Regulations, 2018 for provisions related to payment of annual fees and charge
• Recognition of a ‘Past Risk and Return Verification Agency’
• Mandating payments by listed entities to security holders in electronic form only
• Assigning responsibility for the use of ‘AI tools’ by MIIs and SEBI-Regulated persons
• Review of provisions regarding corporate governance norms for ‘High-Value Debt Listed Entities’
• Ease of doing business w.r.t Business Responsibility and Sustainability Report
• Measures towards ease of doing business for ESG Rating providers
• Measures towards ease of doing business for Small and Medium Real Estate Investment Trusts
• Amendments to SEBI (Mutual Funds) Regulations, 1996 to facilitate ease of doing business
• Amendments to the definition of UPSI to enhance clarity, certainty, an uniformity in compliance

Click Here To Read The Full Press Release

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The SEBI LODR Amendments refer to the changes introduced by the Securities and Exchange Board of India (SEBI) to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These amendments, notified on December 12, 2024, aim to enhance corporate governance, improve transparency, and simplify compliance processes for listed entities. Key updates include revised norms for related party transactions, strengthened roles for compliance officers, clarified requirements for board meetings and appointments, mandatory peer-reviewed secretarial audits, and improved financial disclosure timelines. The changes balance regulatory simplification with robust oversight to promote accountability and protect stakeholder interests.

Table of Contents

1. Introduction
2. ‘Acceptance of Deposits by Banks’ and ‘Retail Purchases by Directors or Employees’ will not be considered as RPT – [Regulation 2(1)(zc)]
3. Strengthening the Position of Compliance Officer for Listed Entities – [Regulation 6(1) and 26A]
4. Clarification on Appointment/Reappointment of Non-executive Director on Attaining Age of 75 Years – [Regulation 17(1A)]
5. Streamlining Shareholders’ Approval for Appointment/Reappointment of Individuals on the Board – [Regulation 17(1C)]
6. Enhanced Clarity on Frequency of Board Meetings and Audit Committee Meetings for Listed Entities – [Regulation 17(2), 18(2), 19(3A), 20(3A), and 21(3A)]
7. Exemption from Audit Committee Approval and Ratification of Related Party Transactions – [Regulation 23(2) and 23(3)]
8. Mandatory Peer-Reviewed Secretarial Audits to Enhance Corporate Governance in Listed Entities – [Regulation 24A]
9. Removal of a 3-month Timeline to Fill the Vacancy in the Office of Independent Director – [Regulation 25(6)]
10. Approval Requirements for Compensation or Profit-Sharing Agreements of Listed Entities – [Regulation 26]
11. Timely Disclosure of Decisions and Financial Results Post Board Meetings – [Regulation 30(6)]
12. Timelines for Financial Disclosures by Listed Entities under Approved IBC Resolution Plans – [Regulation 33(3)(a)]
13. Clarification on Timeline for Submitting Annual Report and AGM Notice to Stock Exchange – [Regulation 34(1)(a)]
14. Replacement of Hard Copy Requirement with Web-Link for Accessing Annual Report Details – [Regulation 36(1)]
15. Exemption from Regulation 37 for Draft Schemes of Arrangement Involving Write-off of Accumulated Losses and Reserves – [Regulation 37(6)]
16. Reduction in Timeline for Giving Notice to Stock Exchange for ‘Record Date’ – [Regulation 42(2) and 42(4)]
17. Enhanced Transparency and Disclosure Requirements for Listed Entities on Key Corporate Information – [Regulation 46(2)]
18. Publication of Financial Results and Auditor’s Opinion – [Regulation 47]
19. Disclosures to Stock Exchanges in XBRL Format – [Regulation 50]
20. Approval and Signing of Quarterly Financial Results – [Regulation 52]
21. Independent Directors of Top 2000 Listed Entities to Hold Biannual Meetings for Enhanced Corporate Governance – [Schedule II -Part E]
22. Amendment to the definition of ‘Acquisition’ – [Schedule III Part A]
23. Relaxation in a Timeline for Reporting of Outcome of the Board Meeting to the Stock Exchanges – [Schedule III Part A]
24. Conclusion

1. Introduction

On December 12, 2024, the Securities and Exchange Board of India (SEBI) introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These amendments aim to improve corporate governance, streamline compliance processes, and enhance transparency for listed entities. The changes address key aspects of corporate operations, including related party transactions, compliance officer norms, board meeting frequencies, audit committee oversight and secretarial audits. The key highlights of the amendments are as follows:

2. ‘Acceptance of Deposits by Banks’ and ‘Retail Purchases by Directors or Employees’ will not be considered as RPT – [Regulation 2(1)(zc)]

SEBI has introduced amendments to the definition of ‘related party transactions’, and the following two new exceptions have been added to the exclusion list:

• Acceptance of current account deposits and savings account deposits by banks in compliance with the directions issued by the Reserve Bank of India or any other central bank.
• Retail purchases from any listed entity or its subsidiary by its directors or its employees without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.

3. Strengthening the Position of Compliance Officer for Listed Entities – [Regulation 6(1) and 26A]

SEBI has notified key changes in Regulation 6 relating to the ‘Compliance Officer and his/her obligations’. As per the amended norms, a Compliance Officer must now be a whole-time employee of the listed entity, the rank of Compliance Officer should not be more than one level below the board of directors, and he/she must be designated as a Key Managerial Personnel (KMP). Earlier, the Compliance Officer was required to be only a qualified company secretary.

Further, any vacancy in the office of the Compliance Officer or in the office of CEO, MD, WTD or manager of such a listed entity in respect of which a resolution plan has been approved must be filed within a period of 3 months of such approval.

Also, such a listed entity must have at least one full-time key managerial personnel to manage its day-to-day affairs.

4. Clarification on Appointment/Reappointment of Non-executive Director on Attaining Age of 75 Years – [Regulation 17(1A)]

A new proviso has been inserted into Regulation 17(1A), which clarifies that a special resolution is moved before the shareholders prior to the non-executive directors attaining the age of 75 and not after the directors have attained the said age.

5. Streamlining Shareholders’ Approval for Appointment/Reappointment of Individuals on the Board – [Regulation 17(1C)]

SEBI has introduced amendments to the provisions governing shareholders’ approval for the appointment or reappointment of individuals to the Board of Directors or as a manager under Regulation 17 (1C).

Under the existing norms, the listed entity must ensure that approval of shareholders for the appointment or reappointment of individuals on the Board of Directors or manager is taken at the next general meeting or within 3 months from the date of appointment, whichever is earlier.

As per the amended norms, if such appointments or reappointments are subject to the approval of the regulatory, government, or statutory authorities, then the time taken to obtain such approvals will be excluded from the specified period of ‘three months or the next general meeting, whichever is earlier’.

Further, the requirements to obtain shareholders’ approval do not apply to appointments or reappointments of individuals nominated by a financial sector regulator, Court, or Tribunal to the board of a listed entity.

6. Enhanced Clarity on Frequency of Board Meetings and Audit Committee Meetings for Listed Entities – [Regulation 17(2), 18(2), 19(3A), 20(3A), and 21(3A)]

SEBI has amended the provisions governing the frequency of board meetings and audit committee meetings for listed entities. Under the existing norms, the Board of Directors is required to meet at least four times a year, with a maximum time gap of 120 days between any two meetings.

As per the revised norms, SEBI has clarified that the Board of Directors must meet at least four times in a ‘financial year’, with a maximum time gap of 120 days between any two ‘consecutive’ meetings.

Further, SEBI has clarified that the meetings of the Nomination and Remuneration Committee, Stakeholders Relationship Committee, and Risk Management Committee must be held at least once during each ‘financial’ year.

7. Exemption from Audit Committee Approval and Ratification of Related Party Transactions – [Regulation 23(2) and 23(3)]

SEBI has introduced amendments to Regulation 23 governing ‘Related Party Transactions’. Under the existing norms, all related party transactions and subsequent material modifications must require the approval of the audit committee of the listed entity.

The amended norms introduce new clauses to the second proviso of the Regulation. These states that remuneration and sitting fees paid by the listed entity or its subsidiary to its director, KMP, or senior management (excluding promoter or promoter group members) will not require the approval of the audit committee. The condition is that these payments are not material as per the policy on the materiality of related party transactions.

Further, members of the audit committee, who are independent directors, are empowered to ratify the related party transactions within three months from the date of the transaction or in the immediate next audit committee meeting, whichever is earlier, subject to certain conditions. The conditions are as follows –

• the value of the ratified transaction(s) with a related party, whether entered into individually or taken together, during a financial year shall not exceed Rs 1 crore;
• the transaction is not material in terms of policy on the materiality of related party transactions;
• rationale for the inability to seek prior approval for the transaction must be placed before the audit committee at the time of seeking ratification;
• the details of ratification must be disclosed along with the disclosures of related party transactions;
• any other condition as specified by the audit committee.

Also, the Audit Committee may now grant omnibus approval for related party transactions proposed to be entered into by the listed entity or its subsidiary.

8. Mandatory Peer-Reviewed Secretarial Audits to Enhance Corporate Governance in Listed Entities – [Regulation 24A]

Regulation 24A of the SEBI (LODR) Regulations, 2015 governs the ‘Secretarial Audit and Secretarial Compliance Report’. It mandates that every listed entity and its material unlisted subsidiaries must undertake a secretarial audit and annex a secretarial audit report prepared by CS in practice with the annual report.

SEBI has now amended these regulations to mandate that every listed entity and its material unlisted subsidiaries incorporated in India undertake a secretarial audit conducted by a Peer-Reviewed Company Secretary and annex a secretarial audit report in a specified format along with the annual report of the listed entity.

8.1 Definition of the Terms ‘Secretarial Auditor’ and ‘Peer Reviewed Company Secretary’

‘Secretarial Auditor’ means a Company Secretary in Practice or a firm of Company Secretary(ies) in practice appointed to conduct the Secretarial Audit.

‘Peer Reviewed Company Secretary’ means a Company Secretary in practice who is either practising individually or as a sole proprietor or as a partner of a Peer-Reviewed Practice Unit, holding a valid certificate of peer review issued by the Institute of Company Secretaries of India.

8.2 Appointment and Tenure of Secretarial Auditor

The listed company must appoint a Secretarial Auditor on the recommendation of the Board of Directors of the company. An individual as Secretarial Auditor may be appointed for one term of five consecutive years, and a Secretarial Audit firm as Secretarial Auditor may be appointed for two terms of five consecutive years, with the approval of its shareholders in its Annual General Meeting.

Further, any association of an individual or firm as the Secretarial Auditor of a listed entity before March 31, 2025, will not be considered for calculating the tenure of 5 years.

8.3 Cooling off Period for Reappointment of Secretarial Auditor

An individual Secretarial Auditor who has completed his or her term shall not be eligible for reappointment as a Secretarial Auditor in the same entity for five years from the completion of his or her term.

Further, a Secretarial Audit firm that has completed its term shall not be eligible for reappointment as Secretarial Auditor in the same entity for five years from the completion of such term.

Further, no Secretarial Audit firm that shares a common partner or partners with another Secretarial Audit firm whose tenure has expired in the listed entity immediately preceding the financial year shall be appointed as the Secretarial Auditor of the same entity for a period of 5 years.

8.4 Casual Vacancy Arising out of Resignation, Death or Disqualification of Secretarial Auditor

Any casual vacancy arising out of the resignation, death or disqualification of a Secretarial Auditor must be filled by the Board of Directors of the listed entity within a period of three months, and the secretarial auditor so appointed must hold office till the conclusion of the next annual general meeting.

8.5 Eligibility, Qualifications and Disqualifications of Secretarial Auditor

A person shall be eligible for appointment as a Secretarial Auditor of the listed entity only if such a person is a Peer-Reviewed Company Secretary and has not incurred any of the disqualifications as specified by the Board.

Further, where a firm, including an LLP, is appointed as Secretarial Auditor of the listed entity, only the partners who are Peer-Reviewed Company Secretaries must be authorised to act and sign on behalf of the firm.

Also, where a person appointed as Secretarial Auditor of the listed entity incurs any of the disqualifications as specified by the Board, such person must vacate the office as Secretarial Auditor.

8.6 Removal or Resignation of Secretarial Auditor

The listed entity may remove the Secretarial Auditor with the approval of its shareholders in its Annual General Meeting, or the Secretarial Auditor may resign from his office before the completion of the term as a Secretarial Auditor.

8.7 Submission and Signing Requirements for Secretarial Compliance Report

As per Regulation 24A(2) of SEBI (LODR) Regulations, 2015, every listed entity is required to submit a secretarial compliance report to the stock exchanges within 60 days from the end of each financial year.

A new proviso has been inserted into this Regulation, stating that the Secretarial Compliance Report submitted to the stock exchanges on an annual basis is signed only by the Secretarial Auditor or by a Peer-Reviewed Company Secretary.

9. Removal of a 3-month Timeline to Fill the Vacancy in the Office of Independent Director – [Regulation 25(6)]

As per the existing norms, an independent director who resigns or is removed from the Board of Directors of a listed entity must be replaced by a new independent director as soon as possible but not later than 3 months from the date of vacancy. SEBI has now removed this requirement. This amendment represents a shift towards greater flexibility in board management.

10. Approval Requirements for Compensation or Profit-Sharing Agreements of Listed Entities – [Regulation 26]

Regulation 26 of the SEBI (LODR) Regulations governs ‘Obligations w.r.t employees including senior management, KMP, directors and promoters.

Regulation 26(6) states that no employee, including key managerial personnel, director, or promoter of a listed entity, must enter into any agreement with any shareholder or any third party regarding compensation or profit sharing in connection with dealings in the securities of a listed entity unless prior approval has been obtained from the Board of Directors and public shareholders.

As per the amended norms, all interested persons involved in the transaction covered under the agreement must abstain from voting in the general meeting. Further, any subsisting agreement that continues after the listing must be placed for approval before the Board of Directors in the forthcoming Board meeting.

Also, if the Board of Directors approves such an agreement, the same must be placed before the public shareholders for approval by way of an ordinary resolution in the first general meeting held after the listing.

11. Timely Disclosure of Decisions and Financial Results Post Board Meetings – [Regulation 30(6)]

Regulation 30 deals with the ‘disclosure of events or information’. It states that every listed entity must disclose any events or information which, in the opinion of the board of directors of the listed company, is material.

Regulation 30(6) states that the listed entity must first disclose to the stock exchanges all events or information that are material as soon as reasonably possible and, in any case, not later than 30 minutes from the closure of the meeting of the Board of Directors in which decision pertaining to event or information has been taken.

A new proviso has been inserted into the Regulation, which states that, in case the board meeting closes after normal trading hours but more than three hours before the beginning of normal trading hours of the next trading day, the listed entity must disclose the decision within 3 hours from the closure of the board meeting.

Further, in case the board meeting lasts for more than one day and financial results are discussed, the company must disclose the financial results either within 30 minutes or three hours, depending on the situation, from the closure of the meeting for that particular day when the results were considered.

11.2 Timely Disclosure of Claims Against Listed Entity

In case a listed entity receives any notice about a claim against it (except for tax-related disputes), and if the details of these claims are maintained in a structured digital database as required by SEBI’s Insider Trading Regulations, the company must disclose the claim to the stock exchange within 72 hours of receiving the notice.

12. Timelines for Financial Disclosures by Listed Entities under Approved IBC Resolution Plans – [Regulation 33(3)(a)]

Regulation 33(3)(a) states that the listed entity must submit quarterly and year-to-date standalone financial results to the stock exchanges within 45 days of the end of each quarter other than the last quarter.

A new proviso has been inserted mandating the listed entity, with respect to which a resolution plan u/s 31 of the IBC has been approved, to disclose its financial results within 90 days from the end of the quarter in which such resolution plan was approved.

Further, a listed entity in respect of which a resolution plan u/s 31 of the IBC has been approved during the last quarter of a financial year must disclose its annual audited financial results within 120 days from the end of such financial year. The amendment ensures timely financial disclosures by entities with approved IBC resolution plans, enhancing transparency for stakeholders.

13. Clarification on Timeline for Submitting Annual Report and AGM Notice to Stock Exchange – [Regulation 34(1)(a)]

As per the existing norms, the listed entity must submit a copy of the annual report along with the notice of AGM to the stock exchange not later than the day of dispatch to its shareholders.

SEBI has now clarified that the listed entity must submit a copy of the annual report along with the notice of AGM to its shareholders on or before the commencement of dispatch.

14. Replacement of Hard Copy Requirement with Web-Link for Accessing Annual Report Details – [Regulation 36(1)]

Regulation 36(1)(b) states that the listed entity must send a hard copy of the statement containing the salient features of all the documents as prescribed in section 136 of the Companies Act, 2013, or rules to shareholders who have not registered.

SEBI has now replaced the requirement for a “hard copy of the statement containing the salient features of all the documents”, as prescribed under Section 136 of the Companies Act, 2013, with a more digital approach. The revised provision now mandates that a “letter providing the web link, including the exact path, where complete details of the Annual Report are available” be provided instead. The amendment simplifies disclosure by replacing physical statements with a web link, enabling faster digital access to company information.

15. Exemption from Regulation 37 for Draft Schemes of Arrangement Involving Write-off of Accumulated Losses and Reserves – [Regulation 37(6)]

Regulation 37 requires the listed entity to file the draft scheme of arrangement with the stock exchange for approval before submitting it to any Court or Tribunal, along with a non-refundable fee. Now, the requirement of adhering to Regulation 37 has been done away with in the case draft scheme, which:

• Solely provide for the merger of a wholly owned subsidiary with its holding Company or;
• Solely provide for writing off the accumulated losses against the share capital of the listed entity applied uniformly across all shareholders on a pro-rata basis or against the reserves of the listed entity.

However, such a draft scheme shall be filed with recognised stock exchanges for the purpose of disclosure.

16. Reduction in Timeline for Giving Notice to Stock Exchange for ‘Record Date’ – [Regulation 42(2) and 42(4)]

SEBI has amended the notification requirements for the record date. The timeline for advance notice to stock exchanges has been reduced from “seven working days” to “three working days” (excluding the date of intimation and the record date).

Additionally, in the proviso, the scope has been revised to include “corporate actions through schemes of arrangement covered under regulation 37” instead of “rights issues,” with the advance notice requirement increased from “three working days” to “seven working days” for such cases. Further, the listed entity must ensure a time gap of at least five working days between two record dates.

17. Enhanced Transparency and Disclosure Requirements for Listed Entities on Key Corporate Information – [Regulation 46(2)]

The following new clauses have been inserted to enhance transparency and disclosure practices for listed entities, ensuring better access to key corporate information for stakeholders.

17.1 Dissemination of MOA, AOA and Brief Profile of Board on the Website of the Listed Entity

Every listed entity must disseminate its Memorandum of Association and Articles of Association on its website. A brief profile of the board of directors, including directorship and full-time positions in body corporates, must also be uploaded to the listed entity’s website.

17.2 Availability of Audio Recordings, Video Recordings, and Transcripts of Post-Earnings/Quarterly Calls

All audio recordings, video recordings (if any), and transcripts of post-earnings or quarterly calls, whether conducted physically or through digital means, will be made available as follows:

• Audio recordings will be posted on the website by the next trading day or within 24 hours of the call, whichever is earlier.
• Video recordings (if any) will be posted on the website within 48 hours of the call.
• Transcripts will be posted on the website and sent to recognised stock exchanges within five working days after the call.

The information under points number (a) and (b) must be hosted on the website of the listed entity for a minimum period of two years, and the information under point number (c) must be hosted on the website for 5 years. Thereafter, all this information must be preserved as per the listed entity’s preservation policy.

17.3 Disclosure of Employee Benefits Scheme Documents and Redaction Guidelines

Documents related to the Employee Benefits Scheme, excluding sensitive commercial information that could harm the competitive position of the company, must be framed according to the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021.

In case any information needs to be removed from these documents for privacy or competitive reasons, the company’s board of directors must approve the redaction, and it must follow the guidelines set by the regulatory authority.

18. Publication of Financial Results and Auditor’s Opinion – [Regulation 47]

The listed company must publish an advertisement within 48 hours of board approval of financial results, including a QR code linking to the full results and auditor’s comments. However, the requirement to include a reference in the newspaper publication to the links of its website and the stock exchange(s) where more details are available and publication of the information in the newspaper at the same time it submits it to the stock exchange(s) has been done away with.

19. Disclosures to Stock Exchanges in XBRL Format – [Regulation 50]

The listed company must submit its disclosures to the stock exchanges in XBRL format, following the guidelines set by the stock exchanges as updated from time to time.

20. Approval and Signing of Quarterly Financial Results – [Regulation 52]

The quarterly financial results submitted by a listed entity must now be approved by its board of directors before they are made public. Further, the financial results submitted to the stock exchange must be signed by the chairperson, managing director, or a whole-time director. If none of them are available, the results may be signed by another director who is authorised by the board to sign the financial results.

21. Independent Directors of Top 2000 Listed Entities to Hold Biannual Meetings for Enhanced Corporate Governance – [Schedule II -Part E]

The independent directors of the top 2000 listed entities, based on market capitalisation, should aim to hold at least two meetings each financial year without the presence of non-independent directors or management. All independent directors should try to attend these meetings. This requirement will help to ensure unbiased decision-making and improve corporate governance.

22. Amendment to the definition of ‘Acquisition’ – [Schedule III Part A]

The term ‘acquisition’ has been amended as follows:

Acquiring control, either directly or indirectly; or acquiring or agreeing to acquire shares or voting rights in a company, whether existing or to be incorporated, either directly or indirectly, such that:

• The listed entity holds 20% or more of the shares or voting rights in the company or
• There is a change in the holding since the last disclosure, and this change exceeds 5% of the total shareholding or voting rights in the company or
• The cost of acquisition or the price at which the shares are acquired exceeds the threshold specified in regulation 30, sub-regulation (4), clause (i), sub-clause (c).

23. Relaxation in a Timeline for Reporting of Outcome of the Board Meeting to the Stock Exchanges – [Schedule III Part A]

The listed entity must now disclose to the Exchange the outcome of the board meeting held to consider the following matters without adhering to the strict 30-minute timeline.

• dividends recommended or declared or the decision to pass any dividend and the date on which the dividend shall be paid/dispatched;
• any cancellation of dividend with reasons thereof;
• the decision on the buyback of securities;
• decision on proposed fundraising through securities issuance, including public offer, rights issue, debt, or preferential issue;
• increase in capital by issue of bonus shares through capitalisation, including the date on which such bonus shares shall be credited/dispatched;
• 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;
• short particulars of any other alterations of capital, including calls;
• financial results;
• decision on voluntary delisting by the listed entity from the stock exchange.

24. Conclusion

The recent amendments to SEBI’s (LODR) Regulations mark a significant step towards strengthening corporate governance, enhancing transparency, and improving compliance for listed entities. By refining key areas such as related party transactions, board and audit committee operations, financial disclosures, and secretarial audits, SEBI has achieved a balance between simplifying regulatory processes and ensuring strong supervision. These changes demonstrate a progressive approach aimed at ensuring accountability, protecting stakeholder interests, and promoting sustainable corporate practices.

The post [Analysis] Key Amendments to SEBI (LODR) Regulations | Enhancing Corporate Governance and Transparency appeared first on Taxmann Blog.

Draft Circular Dated 17.12.2025

SEBI has proposed MITRA (Mutual Fund Investment Tracing and Retrieval Assistant), a platform developed by RTAs to help investors locate inactive or unclaimed Mutual Fund folios. This will allow investors to identify overlooked investments, encourages investor’s KYC compliance, reduces unclaimed mutual fund folios, and mitigates against fraud risks. Public comments are invited on the draft Circular latest by January 07, 2025.

Click Here To Read The Full Circular

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