[Opinion] SEBI Compliance Unveiled | Non-Standard Disclosures of KMP Resignation Amid SEBI’s Regulatory Framework

CS Vallabh M Joshi – [2024] 158 taxmann.com 75 (Article)

Introduction

Securities and Exchange Board of India [‘SEBI’] had released a consultation paper dt: November 12, 2022, inter-alia proposing to mandate disclosures pertaining to senior management. The objective behind mandating disclosures pertaining to senior management was that since the details of senior management were required to be disclosed at the time of filing of public offer documents, change in such senior management or any other event pertaining to the senior management is also a material information for investors. This consultation paper came up for discussion at SEBI Board Meeting dt: March 29, 2023. On discussion and addressing public comments SEBI vide its amendment notification dt: June 14, 2023, amended Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (second amendment) 2023 [‘LODR Regulations’]. Amendment was effective from July 14, 2023. In this article we would deal with varied practices in disclosure pertaining to change in senior management and key managerial personnel in the context of resignation or change in profile or designation etc.

Understanding the Regulatory Landscape

I. Disclosure of change in senior management and key managerial personnel

As per Schedule III Part A, Para A point 7 of LODR Regulations listed entities were mandated to disclose change in senior management. While disclosure with respect to changein key managerial personnel has been part of LODR Regulation,change in of senior management within a listed company was considered important because it provided crucial insights into the internal dynamics of the organization. Point 7 reads as follows, “Change in directors, key managerial personnel (Managing Director, Chief Executive Officer, Chief Financial Officer, Company Secretary etc.), senior management, Auditor and Compliance officer” The words used here are, “change in…….”. Word ‘Change’ would mean any change in the key managerial personnel, senior management, director etc. ‘Change’here would not necessarily mean resignation or appointment only. It can mean ‘promotion, demotion, giving of additional responsibilities, change in designation etc.

II. What to disclose and when to disclose?

SEBI vide Circular dated July 13, 2023 (‘July circular’), provides minimum information that is required to be provided while disclosing events given in Part A of Schedule III of LODR Regulations. Annexure I of July Circular provides for specified disclosure that needs to be adhered to while disclosing’Change in directors, key managerial personnel (Managing Director, Chief Executive Officer, Chief Financial Officer, Company Secretary etc.), senior management, auditor and compliance officer’ to stock exchange. July Circular at Point 7 states that following minimum details needs to be given while providing disclosure of change in key managerial personnel/senior management:

a. Reasons for change:

b. Date of appointment, re-appointment, cessation & term of appointment/re-appointment.

c. Brief profile (in case of appointment)

d. Disclosure of relationships between directors (in case of appointment of directors):

e. Letter of resignation along with detailed reasons for resignation as given by key managerial personnel, senior management, compliance officer or director.

Point 7C of Schedule III, Part A, Para A of LODR Regulations also talks about disclosures pertaining to ‘senior management’. Point 7C read as follows:

“In case of resignation of key managerial personnel, senior management, Compliance Officer or director other than an independent director; the letter of resignation along with detailed reasons for the resignation as given by the key managerial personnel, senior management, Compliance Officer or director shall be disclosed to the stock exchanges by the listed entities within seven days from the date that such resignation comes into effect.”

It states that disclosures shall be given ‘from the date when resignation comes into effect’. The terminology that ‘resignation comes into effect’ would mean the date when resignation becomes effective. Further Annexure II of July Circular states that ‘Change in directors, key managerial personnel (Managing Director, ChiefExecutive Officer, Chief Financial Officer, Company Secretary etc.), senior management, Auditor and Compliance Officer’ shall be disclosed within 24 hours in case of resignation and 12 hours in other cases.

It becomes pertinent here to note the background behind bringing the provisions relating to the provisions of change in senior management. SEBI board meeting dated March 29, 2023, while discussing the proposal for change in senior management mentioned that

“the date of resignation and the last working day may vary as per the mutual understanding between the employee and the company. It is also possible that the concerned employee may decide to withdraw the resignation. Also, in the case of key managerial personnel, senior management, and directors other than independent directors, the date of resignation may be different from the date of cessation (last working day). Hence, it may be specified that the disclosure is required within 7 days from the date such resignation comes into effect.”

Due to this there are two ways of interpreting disclosures pertinent to changes in senior management which can be given within 24 hours from the date of resignation and resignation letter can be given within 7 days from the date when resignation becomes effective or there is another way of disclosure of change in senior management and that is by way of disclosure of change within 7 days from the date when the resignation becomes effective.

However, it is observed that market participants have interpreted this provision of LODR Regulations in a varied manner. This article specifically highlights on such Non-standard disclosures and their implications.

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