Listed Cos. Must Disclose Arbitration Matters Under Sch. III of LODR to the Extent Permissible Under Arbitration Act

Informal Guidance No. SEBI/HO/CFD-PoD-2/OW/P/2023/40986, Dated: 04.10.2023

The SEBI, in its reply to an Informal Guidance sought by GAIL(India) Ltd., has stated that listed companies can make disclosures with regard to the details of arbitration proceedings or arbitral awards under Schedule III of the LODR Regulations to the extent it is legally permissible under the Arbitration and Conciliation Act, 1996.

The Disclosures would include disclosing initiation of arbitration proceedings, the amount of claim involved in such proceedings, the fact of passing of an arbitral award and its effect on the listed entity, the fact of termination of the arbitration proceedings, court orders in relation to the arbitration proceedings etc.

Query raised by the Applicant Company

The applicant company sought informal guidance on the following queries:

(a) Whether the details of arbitral proceedings of pending arbitration matters or arbitral awards can be disclosed to SEBI as it may contravene Section 42A of the Arbitration and Conciliation Act, 1996?

(b) In case, there are multiple litigations/cases with the same party, whether the claims by/against the said party in all such multiple litigants/cases are to be taken together for arriving at the cumulative figure (deciding materiality)?

(c) In any single litigation/case, whether the claim by listed entity and counter-claim against the listed entity need to be added together for the purpose of arriving at the cumulative figure (deciding materiality)?

Provisions specified in Regulation 30 read with Schedule III of LODR Regulations, 2015

As per Regulation 30(1) of LODR Regulations, 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.

Further, the listed entity must make disclosure of events specified in Para B of Part A of Schedule III, based on the application of the guidelines for materiality.

As per sub-para 8 of Para B of Part A of Schedule III of LODR Regulations, the pendency of any litigation(s) or dispute(s) or the outcome thereof which may have an impact on the listed entity must be disclosed to the stock exchange.

The Relevant extract from SEBI Circular dated July 13, 2023 is reproduced as below

On July 13, 2023, SEBI issued a circular titled as ‘Disclosure of material events/information by listed entities under Regulation 30 and 30A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The relevant extract is reproduced below –

“The listed entity shall notify the stock exchange(s) upon it or its director or its key managerial personnel or its senior management or its promoter or its subsidiary becoming party to any litigation, assessment, adjudication, arbitration or dispute in conciliation proceedings or upon institution of any litigation, assessment, adjudication, arbitration or dispute including any interim orders passed against or in favour of the listed entity, the outcome of which can reasonably be expected to have an impact.

In case the amount involved in ongoing litigations or disputes with an opposing party becomes material on a cumulative basis, then the same shall also be required to be disclosed to the stock exchanges”

SEBI Reply

In response to the query, SEBI clarified that the disclosure of details of arbitral proceedings or arbitral awards under Schedule III of LODR can be made to the extent it is legally permissible under the Arbitration and Conciliation Act, 1996.

Further, regarding the meaning of the term ‘cumulative basis’, the SEBI clarified that the cumulative figure is to be arrived at by taking together the claims by/against the party in all ongoing litigations or disputes with the same party. However, a claim by the listed entity and counter-claim against the listed entity in any single litigation/case may not be added together or set off for the purpose of arriving at the cumulative figure.

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