[Opinion] Triviality Over Materiality | SEBI LODR Regulations Require Disclosure of all Regulatory Actions

CS Palak Jaiswani – [2023] 152 taxmann.com 460 (Article)

Apparently with a view to make disclosure more stringent and widen the scope of disclosures, SEBI introduced two new clauses pertaining to regulatory actions, as clause 19 and 20, in Schedule III.A.A, as a part of SEBI (Listing Regulations and Disclosure Requirements) (Second Amendment) Regulations, 2023, with effect from July 14, 2023.

Newly inserted clauses 19 and 20 in Para A Part A of Schedule III cover the regulatory and similar actions which are required to be disclosed irrespective of the materiality thresholds prescribed.

There is a huge confusion as to what sort of regulatory actions are to be covered in item 19 and 20. Trivial fines and penalties have begun coming up on stock exchange reporting. Hence, it is very important to ascertain the type of regulatory actions that fall within the ambit of either of these two clauses. This article intends to understand the scope and coverage of the aforesaid clauses.

Need for the amendment

Prior to the amendment, the disclosure of these regulatory actions was a part of item 8 of Schedule III.A.B; these actions were, therefore, to be reported on considerations of materiality. However, SEBI Working Group was of the view that the provisions do not explicitly specify the nature of regulatory actions that need to be disclosed, as mentioned in the Consultation Paper on Review of disclosure requirements for material events or information under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Therefore, the Working Group recommended that disclosure of regulatory actions be made a part of Para A.

Hence, considerations of materiality or magnitude become unimportant; if the regulatory or similar actions are coming within the scope of either of the two clauses, they will need to be disclosed.

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