Listing Regulations: A regulatory role over the listed entities by SEBI

CS Avinash Godse 
on 18 January 2016


SEBI in its Board meeting (SEBI PR No. 130/2014 dated 19 November 2014) had discussed the conversion of existing listing agreements into a single comprehensive regulation for various types of listed securities. Finally, the SEBI notified the SEBI Listing Regulations aiming to consolidate and streamline the existing listing agreements for different segments of the capital market into one single document across various types of securities listed on the recognized stock exchanges.

Listed firms will face monetary penalties and suspension of trading for non-compliance with the SEBI's new listing regulations, including for timely and proper disclosure of 'price sensitive' developments. In a circular, SEBI said stock exchanges will impose fines for non-compliance with listing regulations and invoke suspension of trading in case of subsequent and consecutive defaults.

In order to maintain consistency and uniformity of approach, exchanges will follow uniform fine structure for non-compliance with Listing Regulations with regard to non-submission of certain periodic reports as well as Standard Operating Procedure for suspension and revocation of trading suspension. To ensure effective enforcement of the Listing Regulations, the depositories, on receipt of intimation from concerned exchange, will have to freeze or unfreeze, as the case may be, the entire shareholding of the promoter and promoter group in such entity.

Under the mechanism, the initial penal action would be a minimum fine of Rs. 1,000 to Rs. 5,000 per day depending on the violation, while repeated offences would lead to actions like transfer to restricted-trade category, freezing of promoter shares and overall suspension on trading in company shares. The exchange will have to give a 21days (prior to the proposed date of suspension) public notice on its website proposing suspension of trading in the shares of non-compliant listed entity.

Further SEBI's provisions for listed entities have been aligned with those of the Companies Act, 2013. In the Regulations, while many of the existing provisions of the Listing Agreements have been retained, but at the same time, many new obligations have also been cast on the Listed Companies and their Boards/ KMPs.

A gist of some important provisions of listing regulations vis-à-vis erstwhile Equity Listing Agreement, in respect of Specified Securities are outline as follows:

Regulation

Particulars

Remarks

Regulation 7:

Share Transfer Agent

Listed entities are required to submit a Compliance Certificate duly certified by both the Compliance Officer and the Authorized Representative of Share Transfer Agent to the Recognised Stock Exchanges where their specified securities are listed within 1 month of end of each half of the financial year.

This Regulation is a substitution of Clause 47 (c) of the erstwhile Listing Agreement. Earlier, this Certificate was required to be obtained from a PCS but as per listing regulations, the same is required to be certified by the Compliance Officer of the Listed Entity and Authorized Representative of the Share Transfer Agent.

Regulation 9:

Preservation of

Documents 

The listed Company is required to formulate a Policy for Preservation of Documents duly approved by the  Board of Directors, classifying them in at least two categories as follows-

Documents whose preservation shall be permanent in nature;

Documents with preservation period of not less than 8 years after completion of the relevant transactions.

This Regulation is, to some extent, in line with the provisions of Companies Act, 2013 and would ensure better governance in the operations of the Company.

The policy for Preservation of Documents is required to be uploaded on the functional website of the Company.

Regulation 12:

Payment of Dividend, Interest, Redemption or Repayment

Every listed entity is required to make use of E-payment facility as approved by RBI for the purpose of making payment of Dividends, Interest, Redemption or Repayment Amounts.

Where it is not possible to use e-payment facility then ‘payable-at-par warrants’ or Cheques can be issued.

If the amount of Dividend is Rs. 1,500/- or more, the ‘payable-at-par warrants’ or Cheques shall be sent by speed post

To ensure transparency on one hand and on the other, in the interest of shareholders at large, this Regulation facilitates e-payment of Dividends, Interest, Redemption or Repayment Amounts.

Regulation 13:

Grievance Redressal Mechanism

Every listed Company is required to comply with the following:

To get itself registered on the SCORES platform or any other similar platform to electronically handle the investor complaints as specified by the Board.

To file a Statement within 21 days from the end of the relevant quarter to the Recognised Stock Exchanges pertaining to the status of investors complaints detailing the following information:

-No. of Complaints Pending

-pending at the beginning

- Received and disposed of during the quarter

-Unresolved at the end of the quarter

The said statement is also required to be placed before the Board of Directors on a quarterly basis.

To ensure timely redressal of investors’ complaints and accountability to the stakeholders at large, a new provision pertaining to submission of Pending Investor Complaints Report to the Recognised Stock Exchanges has been inserted. 

In the erstwhile Listing Agreement, the information pertaining to pending investors complaints were being submitted on a quarterly basis only along with the Financial Results required to be filed with the stock exchange for the relevant quarter.

Regulation 16 to 27:

Corporate Governance

The main highlights of the Corporate Governance are outlined as follows:

Provisions of Corporate Governance are not applicable on:

the listed entity having paid up equity share capital not exceeding Rs. 10 Crore and Networth not exceeding Rs 25 Crore, as on the last day of the previous financial year;

the listed entity which has listed its specified securities on the SME Exchange.

The Listed entities other than above, are required to:

Formulate a Policy on material related party transactions and dealing with related parties.

Seek approval from shareholders in General Meeting by passing an ordinary resolution for approving material related party transactions subject to the stipulation that such related parties shall be abstained from voting on such resolution.

With the intent to harmonize the provisions with the Companies Act, 2013, the requirement of shareholder approval for material related party transaction has been relaxed from Special Resolution to Ordinary Resolution.

The provisions of Clause 49 of erstwhile Listing Agreement are by and large replicated in the listing regulations.

Regulation 28:

In Principle approval

The Listed company, prior to issuance of securities is needed to obtain an In Principle approval 

This provision is in line with Clause 24(a) of erstwhile Listing Agreement. 

Regulation 29:

Prior Intimations

The listed company is required to give prior intimation to the Recognised Stock Exchanges about the Board Meeting held, from time to time, in the following manner:

  1. Financial Results: At least 5 days advance notice (excluding the date of intimation and date of meeting) required to be given before consideration of Financial Results of the company.
  1. Corporate Actions: At least 2 working days advance notice (excluding the date of intimation and date of meeting) required to be given for considering the proposals related to buyback of securities, voluntary delisting, fund raising including determination of issue price.
  1. Alteration in the date of payment of interest or nomenclature of the specified securities: At least 11 working days’ advance notice required to be given for considering the proposals pertaining to:
  • Change in nomenclature of any of the securities listed on the Stock Exchange;
  • Alteration in the date on which:

               -the interest is required to be paid on debentures or bonds

                          -the redemption amount is required to be paid on redeemable shares or debentures or bonds.

The listing regulations, have introduced some additional business pertaining to which prior intimation of Board Meeting is required to be forwarded to the Recognised Stock Exchanges and have also prescribed the computation of requisite timeframe for sending the prior intimation.

Regulation 30:

Disclosure of Events or Information.

The main provisions of the Regulation pertaining to disclosure are as follows:

  1. The responsibility is cast on the Board of listed entities, to authorize one or more KMPs for the purpose of determining materiality of an event or information and making disclosures to the stock exchange.
  1. The details of above stated authorized KMPs is required to be disclosed to the Stock Exchange(s) as well as on the Company’s website. 
  1.  Every Listed Company is required to update material developments on a regular basis pertaining to the disclosures made till the event is resolved/closed and host the said events along with all updated information on its website at least for a period of 5 years.
  1. Post 5 years, the requirement of disclosure of such events is as per the archival policy of the Listed Company.
  1. All events or information of material subsidiaries are to be disclosed by such listed entity.
  1. Material event/ information are needed to be disclosed as per the following timeline:
  • Within 24 hours from the occurrence of the events as specified in Part - A of Schedule III of the said regulations.
  • Within 30 minutes of the conclusion of the Board Meeting regarding events specified in sub-Para 4 of Para A of Part A of Schedule III of the said regulations.
  1. Any delay in filing disclosures beyond the timeframe of 24 hours shall be accompanied by an explanation for delay.

The provisions of this Regulation have removed all the ambiguities of Clause 36 of the erstwhile Listing Agreement and addition of provisions related to explanation for delay in disclosure would surely bring more transparency in the business affairs of the Company. 

Further, SEBI vide its Circular dated September 09, 2015 clearly prescribed the information needed to be disclosed pertaining to material transactions as prescribed in Regulation 30 of listing regulations. This circular brings in more clarity of what to disclose and will ensure uniformity in disclosures made by listed entities.

Regulation 31:

Holding of Specified Securities and Shareholding Pattern

  1. The listed entity shall submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities within 21 days from the end of respective quarter.
  1. If the entity is listed on SME Exchange, the above statement is to be filed on a half yearly basis within 21 days from the end of each half year.

Regulation 31 has duly replaced Clause 35 of the erstwhile Listing Agreement.

Regulation 31(A):

Disclosures of Class of Shareholders and Conditions For Reclassification

The Stock Exchange may allow for reclassification upon receipt of a request from the listed company or the concerned shareholder, along with requisite evidence. The reclassification will be allowed subject to compliance of specified conditions.

  • Reclassification of Promoter as Public Shareholder
  1. Change in Promoter: When a new promoter replaces the previous promoter subsequent to an open offer or in any other manner, re-classification shall be permitted subject to approval of shareholders in the general meeting.

Shareholders need to specifically approve whether the outgoing promoter can hold any KMP position in the company. In any case, the outgoing promoter cannot act as KMP for a period of more than 3 years from the date of shareholders’ approval.

The outgoing promoter along with the promoter group and persons acting in concert cannot hold more than 10% of the paid-up equity share capital of the company and shall not have any special rights through any formal or informal arrangements.

  1. Inheritance: In case of transmission/ succession/ inheritance, the inheritor shall be classified as promoter.
  1. Company not having any identifiable promoter: Existing promoters may be re-classified as public in case the company becomes professionally managed and does not have any identifiable promoter subject to the approval of shareholders in a general meeting. A company will be considered as professionally managed for this purpose, if:
  1. No person or group along with Persons Acting in Concert (PACs) taken together holds more than 1% of the paid-up equity share capital of the company (including any convertibles /outstanding warrants /ADR / GDR Holding). 
  1. Mutual Funds/ Banks/ Insurance Companies / Financial Institutions/ FPIs can each hold up to 10% of the paid-up equity share capital of the company (including any convertibles/ outstanding warrants/ ADR/ GDR Holding).
  1. Erstwhile promoters and their relatives may hold KMP position in the company only subject to shareholders’ approval and for a period not exceeding 3 years from the date of shareholders’ approval.
  1. The outgoing promoter shall not have any special rights through any formal or informal arrangements.
  1. Other Conditions:
  1. The outgoing promoter shall not, directly or indirectly, exercise control over the affairs of the company.
  1. Increase in public shareholding pursuant to re-classification of promoters shall not be counted towards achieving compliance with minimum public shareholding (MPS) requirement under clause 40A of equity listing agreement.
  1. The event of re-classification may be disclosed as a material event in accordance with the listing regulations.
  1. Power to relax the provisions  on a case to case basis:

SEBI may relax any condition for reclassification in specific cases, if it is satisfied about non-exercise of control by the outgoing promoter or its person acting in concert.

  • Reclassification of Public Shareholder as a Promoter:

Then Public shareholder is required to make an open offer in accordance with the provisions of SEBI (SAST) Regulations, 2011.

To resolve the ambiguities as to re-classification, SEBI has inserted this regulation to place a regulatory framework for re-classification of promoters in listed companies as public shareholders under various circumstances.

Regulation 32:

Statement of Deviation(s) or Variation(s)

  • The listed entity shall submit to the stock exchange the following statement(s) on a quarterly basis for public issue, rights issue, preferential issue etc. ,-
  1. indicating deviations, if any, in the use of proceeds from the objects stated
  2. indicating category wise variation between projected utilisation of funds and the actual utilisation of funds.
  • The above statement is required to be reviewed by the Audit Committee prior to its submission and to be given till the issue proceeds have been fully utilised or the purpose for which these proceeds were raised, has been achieved
  • The variation is required to be furnished in the Directors Report on an annual basis;
  • If the listed company has appointed any monitory agency then the report/comments of such agency is required to be submitted

In case of SME listed entities, the said Deviations statement is required to be furnished on semi-annual basis.

This Regulation has duly replaced the provisions of Clause 43A and Clause 49(VII)(I) of the erstwhile Listing Agreement.

Regulation 33:

Financial Results

The listed company shall submit to the stock exchange the following:

  • Audited or unaudited quarterly and year-to-date standalone financial results within 45 days from the end of relevant quarter.
  • In case the listed company has subsidiaries, then it may submit also quarterly/ year-to-date consolidated financial results of its subsidiary.
  • Audited standalone financial results along with the audit report for the financial year, within 60 days from the relevant financial year.

In respect of companies listed on SME Exchange, the quarterly results needed to be submitted on a half yearly basis and ‘year-to-date’ financial results are not required to be filed to the stock exchanges.

Regulation 33 has duly replaced Clause 41 of the erstwhile Listing Agreement.

Regulation 34:

Annual Report

  • The listed company is required to submit the Annual Report to the Stock Exchange within 21 working days of it being approved and adopted in the Annual General Meeting.
  • The disclosures as sought in the Regulation are needed to be incorporated in the Annual Report

While the erstwhile Listing Agreement cast the obligation for submission of Annual reports to the Stock Exchanges, as soon as they were issued. However, this Regulation mandates for filing of Annual Reports within 21 working days of the AGM.

Regulation 35:

Annual Information Memorandum

The annual Information Memorandum is needed to be submitted by the listed entities to the stock exchange, in the manner as may be specified by SEBI from time to time.

The Regulations ensure disclosure of updated information to the stakeholders at large on a regular basis to facilitate them to take well informed decision pertaining to making investment in the Company or not. 

Regulation  36:

Documents & Information to Shareholders

The listed company is required to submit its Annual Report to the shareholders in the following manner:

  • For shareholders, who have their e-mail Ids registered with the Company, soft copy of the full Annual Report;
  • For the ones who don’t have their email Ids registered, hard copy of the statement containing salient features, in terms of Section 136 of Companies Act 2013;
  • Hard copies of full Annual reports, to the shareholders who request for the same.

The Annual Reports are needed to be send to the shareholders at least 21 days before the AGM.

Regulation  37:

Draft Scheme of Arrangement 

  • Any listed company desirous of undertaking a Scheme of Arrangement shall prior to filing it with High Court/ Tribunal, file the same with the Stock Exchanges and obtain a NOC/ Observation Letter from the Exchange(s). 
  • The Observation Letter or No-objection Letter granted by the stock exchange prior to presenting scheme before the Court or the Tribunal will be valid for the period of 6 months from the date of its issuance.

The Regulation prescribes provisions in line with the Circulars issued by SEBI on February 4, 2013 and May 21, 2013 pertaining to No-Objection for the draft scheme of arrangement.  

Regulation 38:

Minimum Public Shareholding

All listed companies have to comply with Minimum Public Shareholding norms, as laid down in Rule 19(2) and 19A of SCRR, in the manner specified by SEBI from time to time.

While the erstwhile Clause 40A of Listing Agreement even mandated for the modes of complying with MPS norms, this Regulation, presently is silent on the same.

Regulation 39:

Issuance of Certificates or Receipts/ Letters/Advices for securities and dealing with unclaimed securities

  • The listed company would be required to issue certificates or receipts or advices pursuant to subdivision, split, consolidation, renewal, exchanges, endorsements, issuance of duplicates thereof or new certificates or receipts or advices, as applicable, in cases of loss or old decrepit or worn out certificates or receipts or advices, as applicable within a period of thirty days from the date of such lodgment.
  • The listed company is required to submit the information regarding loss of share certificate and issue of the duplicate certificate, to the stock exchange within two days of its getting information. 

The time period of 15 days for issuance of certificates or receipts on prescribed events has been extended to 30 days.

Regulation 40:

Transfer or transmission or transposition of securities.

The main highlights are outlined as follows:

  • The Board of Directors of a listed company may delegate the power of transfer of securities to a committee or to compliance officer or to the registrar to an issue and/or share transfer agent.
  • The delegated authority is required to review the formalities relating to transfer of securities at least once on a fortnightly basis and shall report to the Board on transfer of securities in each meeting.
  • The listed company shall not effect the transfer in securities if the transferor serves prohibitory order of a competent court within 60 working of raising the objection.

The Clause 12(c) of the erstwhile listing agreement doesn’t specify the time limit for serving the prohibitory order of the court which is being clearly specified in this regulation.

Regulation 42:

Record Date or Date of Closure of Transfer Books

  • The listed entity is required to intimate the record date/ book closure date to all the concerned Stock Exchanges at least 7 working days (excluding the date of intimation and the record date) before the record date/ closure of transfer books.
  • The listed entity is required to declare dividend/ cash bonuses at least 5 working days (excluding the date of intimation and the record date) before the record date fixed for that purpose.

There must be gap of minimum 30 days between two record dates or two transfer book closure dates.

In the Regulations, it is clarified that the requirement of maintaining of time gap of 30 days is between 2 Record Dates or between 2 Book Closures. 

Regulation 45:

Change in name of the listed entity

The listed company desirous to change its name is required to file an application for change in name with ROC subject to the compliance with the following conditions:

  1. One year must have been elapsed from its last name change.
  2. At least 50% of the total revenue in the preceding one year has been generated from the activity suggested by the new name.
  3. The amount invested in the new activity must be at least 50% of the assets of the company.

The line of business undertaken by the company must be in line with its name. However, if there is any deviation between the same, then the company is required to comply with the relevant provisions of the Companies Act, 2013 for change in name, within 6 months from the date of change in line of business. 

The listed company shall file an application for name availability with ROCs upon satisfying the conditions laid down above Para.

After receipt of confirmation regarding name availability from the ROC, the listed company is also required to obtain the approval from the concerned stock exchange for the change in name prior to filing the request for change of name to ROC.

Under the erstwhile Clause 32 of the Listing Agreement, this condition of not even being able to make an application to ROC was not there.

Regulation 46:

Website

The listed company is required to update any change in the content of its website within 2 working days from the date of such change in the content.

This regulation provides clarity as the erstwhile listing agreement was silent regarding updation of contents on the website of the company. 

Regulation 47:

Advertisements in Newspapers

The listed entity shall publish the following information in at least 1 English newspaper, circulating in whole or substantially whole of India and in 1 daily newspaper in the vernacular language, where the registered office of the company is situated:

  1. Notice of meeting of the Board of Directors where financial results would be considered;
  2. Financial results along with the opinion(s) or reservation(s), if any, expressed by the Auditor within 48 hours of conclusion of the meeting of Board of Directors;
  3. Statements of deviations/ variations
  4. Notices given to shareholders by advertisement

The above provisions are not applicable on the entities listed on SME Exchange.

This Regulation has provided an ease of reference by summarizing the provisions of Newspaper publications which in erstwhile Listing Agreement was mentioned in separate clauses

­

Earlier a private agreement between Stock Exchange and listed company govern all listing obligation and disclosure requirement. Listing agreement like any other agreement among parties creates civil obligation in case of any violation of the agreement. Now, market regulator took direct regulatory role over the listed entities in India.

Notification of SEBI Listing Regulations can be seen as a welcome move by SEBI streamlining and consolidating the post listing requirements under the Listing Agreement and various SEBI circulars. This would aid in simplifying doing business in India through a listed company and also increase transparency which in turn would boast investor confidence for investing in Indian listed companies.


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