Taxmann’s Analysis | SEBI Amends LODR Regulations – Tightens Governance Norms for HVDLEs and SMEs

SEBI LODR Amendments refer to the recent changes introduced by the Securities and Exchange Board of India (SEBI) on March 27, 2025, under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. These amendments aim to strengthen corporate governance, enhance transparency, and tighten disclosure requirements for listed entities—especially High-Value Debt-Listed Entities (HVDLEs) and Small and Medium Enterprises (SMEs) that meet certain financial thresholds. The new rules mandate the formation of key board committees, stricter oversight of Related Party Transactions (RPTs), more robust whistle-blower mechanisms, age limits and approval requirements for directors, and expanded reporting duties and compliance obligations. By enforcing these standards, SEBI seeks to protect investor interests, foster accountability in corporate conduct, and maintain confidence in India's capital markets.

Table of Contents

1. Introduction
2. SEBI Extends RPT Compliance Norms to SME-listed Entities Exceeding Capital or Net Worth Thresholds
3. Introduction of New Chapter VA on Corporate Governance Norms for ‘High-Value Debt Listed Entities’
4. Conclusion

1. Introduction

On March 27, 2025, the Securities and Exchange Board of India (SEBI) introduced significant amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015[1]. These amendments are designed to enhance corporate governance and improve market transparency, focusing on two categories of listed entities: High-Value Debt-Listed Entities (HVDLEs) and Small and Medium Enterprises (SMEs).

These amendments are set to bring significant and far-reaching benefits to various stakeholders. Institutional investors and debenture holders will benefit from stronger regulatory oversight of large debt issuers, ensuring greater transparency through establishing mandatory board committees and enhanced disclosure requirements.

Additionally, SME promoters exceeding the specified size thresholds will be required to establish proper RPT governance frameworks. The revised HVDLE criteria aim to balance regulatory efficiency and compliance flexibility, easing the burden on mid-sized debt issuers (those with NCDs between Rs. 500 crore and Rs. 1,000 crore) while maintaining stringent standards for systemically larger players.

2. SEBI Extends RPT Compliance Norms to SME-listed Entities Exceeding Capital or Net Worth Thresholds

SEBI has significantly strengthened the compliance framework for SME-listed entities by extending the applicability of Regulation 23 of the LODR Regulations, which governs Related Party Transactions (RPTs). This regulation now applies to SME-listed entities if, as of the last day of the previous financial year, they meet either of the following criteria:

• Paid-up equity share capital exceeding Rs. 10 crore, or
• Net worth exceeding Rs. 25 crore.

Once an SME-listed entity crosses either of these thresholds, it must comply with RPT compliance norms within six months. The compliance obligation remains in force unless the entity’s equity capital and net worth stay below these thresholds for three consecutive financial years.

Furthermore, SEBI has revised the materiality threshold for RPTs in SME-listed entities. Under the amended norms, a transaction will be considered material if its value exceeds Rs. 50 crore or 10% of the entity’s annual consolidated turnover, whichever is lower.

This change ensures that even mid-sized transactions will fall under regulatory scrutiny, enhancing transparency in SME operations and safeguarding the interests of minority shareholders.

3. Introduction of New Chapter VA on Corporate Governance Norms for ‘High-Value Debt Listed Entities’

SEBI has introduced a new Chapter VA to the LODR Regulations, incorporating stricter governance norms for High-Value Debt Listed Entities (HVDLEs). A ‘High-Value Debt Listed Entity’ refers to a listed entity with only non-convertible debt securities listed, with an outstanding value of Rs. 1000 crore or above, and no listed specified securities.

Suppose the value of outstanding listed non-convertible debt securities reaches or exceeds Rs. 1,000 crore during a financial year. In that case, the entity must comply with the prescribed provisions within six months from the trigger date.

Including Chapter VA ensures that large debt-listed entities adhere to comprehensive governance standards, enhancing transparency, financial accountability and investor confidence.

Further, the principle that an entity remains an HVDLE indefinitely has been removed. Regulation 62C(2) introduces a sunset clause, stating that if the outstanding NCDs remain below Rs. 1,000 crores for three consecutive years (as assessed on March 31 each year), the provisions of this Chapter will no longer apply.

The key provisions of this Chapter are as follows –

3.1 Provisions Relating to the Board of Directors of “High-Value Debt Listed Entities” [Reg. 62D]

SEBI has introduced stringent norms regarding the composition of the Board of Directors for HVDLEs. The regulations mandate an optimal mix of executive and non-executive directors, with at least 50% of the Board comprising non-executive directors.

If the chairperson of the Board is a non-independent director or is related to the promoter or CEO, at least 50% of the Board must consist of independent directors. These measures aim to enhance board independence, ensuring that governance remains transparent, accountable and aligned with stakeholder interests.

3.1.1 Age Limit for Non-Executive Directors

HVDLEs cannot appoint or retain a non-executive director aged 75 or above unless a special resolution is passed. Furthermore, the explanatory statement must justify the appointment of such a person.

3.1.2 Continuation of Directors

To continue serving on the Board, directors must secure shareholder approval every five years. As of March 31, 2025, directors serving on the Board who have obtained shareholder approval in the past five years or more must secure approval at the first general meeting held after March 31, 2025.

The requirement does not apply to –

• Whole-time directors, managing directors, managers, or independent directors retiring as per Section 152(6) of the Companies Act, 2013.
• Directors appointed by Court orders, tribunals, or under resolution plans approved by NCLT.
• Government nominee directors (other than in public sector companies) or those appointed by financial sector regulators.
• Directors nominated by RBI-regulated financial institutions or debenture trustees.

3.1.3 Filling Board Vacancies

Any vacancy in the office of a director must be filled by the HVDLE within three months from the date of the vacancy. If a board becomes non-compliant with the prescribed composition due to the expiration of a director’s term, the vacancy must be filled immediately. However, this requirement does not apply if the HVDLE remains compliant despite the vacancy.

3.1.4 Board Meetings

The Board must meet at least four times a year, ensuring that the time gap between two consecutive meetings does not exceed 120 days.

3.1.5 Quorum for Board Meetings

The quorum for board meetings must be one-third of the total strength or three directors, whichever is higher. Further, at least one independent director must be present. Directors participating via video conferencing or other audio-visual means must be considered part of the quorum.

3.2 Governance Committee Requirements for HVDLEs

To further strengthen corporate governance, SEBI has mandated HVDLEs to establish key governance committees that align with the framework applicable to equity-listed companies.

3.2.1 Audit Committee [Reg. 62F]

SEBI requires HVDLEs to constitute an Audit Committee comprising at least three directors, with a minimum of two-thirds independent directors. Additionally, all members of the Audit Committee must be financially literate, and at least one member should have expertise in accounting or financial management.

The HVDLE must ensure that audit committee meetings are conducted as follows –

• The committee must meet at least four times yearly, with no more than 120 days between two consecutive meetings.
• The quorum must be the greater of two members or one-third of the committee, with at least two independent directors.
• The committee must be able to investigate activities within its scope, seek information from employees, obtain external legal or professional advice, and summon experts when necessary.

Also, the Audit Committee is responsible for overseeing financial reporting processes to ensure the accuracy of financial statements, monitoring the effectiveness of internal controls and risk management systems, and reviewing and approving related party transactions (RPTs) to prevent conflicts of interest.

3.2.2 Nomination and Remuneration Committee [Reg. 62G]

HVDLEs are required to form an NRC with at least three directors, most of whom must be independent. The chairperson of the NRC must also be an independent director.

The NRC must meet at least once a year, with a quorum of either two members or one-third of the committee, whichever is greater, including at least one independent director.

The NRC is responsible for appointing, removing, and evaluating directors and senior management, recommending remuneration policies to the Board, and ensuring that remuneration practices align with the company’s long-term interests and shareholder value.

3.2.3 Risk Management Committee (RMC) [Reg. 62I]

The Risk Management Committee (RMC) must consist of at least three members, with a majority being board members, including at least one independent director. The chairperson must be a board member, and senior executives may also be on the committee.

The RMC must meet at least twice yearly, with no more than 210 days between consecutive meetings. The quorum must be either two members or one-third of the committee, whichever is higher and must include at least one board member.

The Risk Management Committee (RMC) is responsible for overseeing the formulation and implementation of the risk management framework, identifying and mitigating financial, operational, and cybersecurity risks, and ensuring continuous monitoring and reporting of emerging risks to the Board.

3.2.4 Stakeholders Relationship Committee (SRC)[Reg. 62H]

The Stakeholders Relationship Committee (SRC) must comprise at least three directors, including at least one independent director. The chairperson must be a non-executive director and present at the annual general meeting to address queries from debenture holders. The committee must meet at least once a year.

The Stakeholders Relationship Committee (SRC) oversees the grievance redressal of shareholders, debenture holders, and security holders. It ensures effective communication with stakeholders and works to enhance investor relations.

3.3 Vigil Mechanism/Whistle-blower Policy for ‘High-Value Debt Listed Entities’ [Reg. 62J]

The HVDLE must formulate a vigil mechanism/whistle-blower policy for directors and employees to report genuine concerns. The mechanism must provide for adequate safeguards against the victimisation of directors, employees, or any other person who avails themselves of the mechanism and also provide for direct access to the audit committee chairperson in appropriate cases.

3.4 Related Party Transactions [Reg. 62K]

The HVDLE must formulate a policy on materiality and dealing with related party transactions (RPTs), including clear threshold limits duly approved by the Board of Directors. The Board must review the policy at least every three years and updated as necessary.

A transaction with a related party must be considered material if it, individually or combined with previous transactions during a financial year, exceeds –

• 1,000 crores, or
• 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements, whichever is lower.

Transactions involving payments for brand usage or royalties must be considered material if they exceed 5% of the annual consolidated turnover during a financial year.

3.4.1 Approval by the Audit Committee

All RPTs and subsequent material modifications must receive prior approval from the HVDLE Audit Committee. Only independent directors of the Audit Committee must approve RPTs. The Audit Committee must –

• Define “material modifications” and disclose them in the policy.
• Approve RPTs involving the subsidiary of a listed entity if the value exceeds 10% of the annual consolidated turnover, as per the last audited financial statements.
• Approve RPTs involving a subsidiary of an HVDLE if the HVDLE is not a party and the value exceeds 10% of the annual standalone turnover of the subsidiary.

3.4.2 Omnibus Approval by the Audit Committee

The Audit Committee may grant omnibus approval for repetitive RPTs, subject to –

• Laying down criteria for such approvals in line with the RPT policy.
• Ensuring the approval is in the interest of the listed entity.
• Specifying the name of the related party, nature, period, maximum amount of transactions, base price/contracted price, and variation formula.
• Granting omnibus approval for unforeseen transactions up to Rs 1 crore per transaction.
• Reviewing details of RPTs approved through omnibus approvals on a quarterly basis.
• Ensuring omnibus approvals remain valid for a maximum of one year.

3.4.3 Approval by Debenture Trustee and Debenture Holders

All material RPTs and subsequent material modifications must require a No-Objection Certificate (NOC) from the Debenture Trustee. The Debenture Trustee must obtain NOC from debenture holders who are not related to the issuer and collectively hold more than 50% of the debentures in value based on voting (including e-voting).

Upon receiving approval from debenture holders, shareholder approval via a resolution must be required. If the NOC is withheld, the matter must not proceed for shareholders’ consideration.

For listed debt securities issued on or after April 1, 2025, a NOC from the Debenture Trustee and debenture holders is mandatory for material RPTs. For outstanding listed debt securities as of March 31, 2025, an NOC is not required for existing or prospective RPTs.

3.5 Corporate Governance Requirements Relating to Unlisted Material Subsidiary of ‘High-Value Debt Listed Entities’ [Reg. 62L]

The various corporate governance requirements relating to an unlisted material subsidiary of ‘High-Value Debt Listed Entities’ are as follows –

A subsidiary is classified as material if its income or net worth exceeds 20% of the consolidated income or net worth, respectively, of the High-Value Debt Listed Entity (HVDLE) and its subsidiaries in the immediately preceding financial year.

3.6 Secretarial Audit and Secretarial Compliance Report for ‘High-Value Debt Listed Entities’ [Reg. 62M]

Every HVDLE and its material unlisted subsidiaries incorporated in India must undertake a Secretarial Audit and annex a Secretarial Audit Report prepared by a company secretary in practice, in the form specified by the Board, along with the annual report of the listed entity.

Further, every HVDLE must submit a secretarial compliance report to the stock exchanges within 60 days from the end of each financial year.

3.7 Obligations Relating to Independent Directors for ‘High Value Debt Listed Entities’ [Reg. 62N]

The obligations relating to Independent Directors are as follows –

3.8 Obligations for Employees in ‘High Value Debt Listed Entities’ [Reg. 62O]

The obligations for employees for High-Value Debt Listed Entities are as follows –

3.8.1 Maximum No. of Committees in Which a Director Must Be a Member

A director must not be a member of more than 10 committees or act as chairperson of more than 5 committees across all listed entities in which they are a director. Furthermore, every director must inform the HVDLE about the positions they hold in committees of other HVDLEs and notify the HVDLE of any changes that occur.

3.8.2 Compliance with Code of Conduct by Board Members and Senior Management on an Annual Basis

All members of the Board of Directors and senior management personnel must affirm compliance with the code of conduct of the Board of Directors and senior management on an annual basis.  

3.8.3 Cases Requiring Prior Approval of Board of Directors and Shareholders

An employee, including KMP, director, or promoter of a HVDLE, must not enter into any agreement, either for himself/herself or on behalf of any other person, with any shareholder or third party regarding compensation or profit sharing in connection with dealings in the securities of a HVDLE, unless prior approval has been obtained from the BODs and public shareholders by way of an ordinary resolution.

3.9 Vacancies in the Office of Key Managerial Personnel for ‘High-Value Debt Listed Entities’ [Reg. 62P]

Any vacancy in the office of the Chief Executive Officer, Managing Director, Whole-Time Director, or Manager must be filled by the HVDLE at the earliest opportunity but no later than three months from the date of such vacancy.

However, if the HVDLE is required to obtain approval from regulatory, governmental, or statutory authorities to fill the vacancy, the vacancy must be filled within six months from the date it arises.

Furthermore, any vacancy in the office of the Chief Financial Officer must be filled by the HVDLE at the earliest opportunity but no later than three months from the date of the vacancy.

3.10 Other Corporate Governance Requirements [Reg. 62Q]

The HVDLE must submit a periodic compliance report on corporate governance in the specified format to the recognised stock exchanges within 21 days from the end of the reporting period. The report must disclose details of all material transactions with related parties.

Furthermore, details of cybersecurity incidents, breaches, or losses of data or documents must also be disclosed along with the report. The report must be signed either by the compliance officer or the chief executive officer of the HVDLE.

Additionally, HVDLEs may provide a Business Responsibility and Sustainability Report detailing environmental, social, and governance disclosures in the specified format as part of their annual report.

4. Conclusion

In conclusion, SEBI’s amendments to the LODR Regulations, 2015 mark a significant step toward strengthening corporate governance, enhancing transparency, and enforcing stricter compliance norms for SME-listed entities and High-Value Debt Listed Entities (HVDLEs). By expanding the RPT framework, introducing governance norms for HVDLEs, and mandating key board and committee requirements, these reforms aim to improve accountability and boost investor confidence in the market.

[1] Notification no. F. No. SEBI/LAD-NRO/GN/2025/239; Dated: 27.03.2025