SEBI's Digital Leap in Shareholder Communication

Introduction

In a significant stride towards modernizing corporate governance and enhancing ease of doing business, the Securities and Exchange Board of India (SEBI) has ushered in a new era of shareholder communication under its Listing Obligations and Disclosure Requirements (LODR) Regulations. Among the various amendments, a notable change is the progressive doing away with the mandatory physical dispatch of notices and annual reports to shareholders, marking a pivotal shift towards electronic dissemination. This move reflects SEBI's commitment to leveraging technology for greater efficiency, transparency, and environmental sustainability in the Indian securities market.

Background

During the COVID-19 pandemic, regulatory bodies, including SEBI and the Ministry of Corporate Affairs (MCA), provided temporary relaxations, allowing companies to conduct virtual general meetings and dispatch communications solely through electronic means. This temporary measure proved to be highly effective, demonstrating the feasibility and benefits of digital communication. Building on this experience and in line with global best practices, SEBI has now formalized this shift, making electronic communication the primary mode for shareholder engagement.

Analysis of Recent Changes

While pinpointing a single, specific "recent change" doing away with all physical dispatches for all shareholders definitively at one go is complex due to the phased approach and ongoing circulars, the overarching trend and key regulatory direction from SEBI is clear: to significantly reduce and eventually eliminate the need for physical dispatch.

Key aspects of this evolution include:

• Dispensing with Physical Abridged Annual Reports: Regulation 36(1)(b) of SEBI LODR now states that a letter needs to be sent to shareholders who have not registered their email ids, stating that the annual report of the company would be available at the path mentioned in the letter. This amendment is effective from December 12, 2024. Prior to this amendment there was a requirement of sending physical copy of statement of accounts to the shareholders who have not registered their email ids.

A crucial amendment has been to do away with the requirement to send physical copies of abridged Annual Reports to shareholders whose email IDs are not available. Instead, a letter is to be sent to such shareholders indicating the link from which the annual report can be downloaded. This is a substantial step towards paperless communication.

So, for FY 24-25 companies need not send physical copy of abridged statement of accounts to shareholders who have not so registered their email ids. Rather a letter needs to be sent to these shareholders.

• Mandatory Electronic Payments: SEBI has progressively pushed for electronic modes of payment for dividends, interest, redemption, and repayment amounts. A key step in this direction was the Consultation Paper on "Proposed amendment to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to allowing only electronic mode for payment of dividend or interest or redemption or repayment amounts", which was issued by SEBI on September 20, 2024. This consultation paper specifically sought public comments on amending Regulation 12 of the LODR Regulations to remove the existing proviso that allowed for 'payable-at-par' warrants or cheques in cases where electronic payment was not possible. The intent was to make electronic payment the sole permissible mode for such disbursements. This has been approved by SEBI in its board meeting dt: December 18, 2024. LODR is yet to be amended in this regard.
• Website Hosting of Documents: Listed entities are mandated to make various reports, disclosures, and documents readily available on their websites. This includes financial results, notices, annual reports, and other material events, making them easily accessible to shareholders and the public without the need for physical copies. Recently SEBI vide its amendment dt: December 12, 2024 to SEBI (LODR) has also stated that listed entities shall upload schemes employee benefit and memorandum and articles of association of companies on website of listed entities. This is another step in making company documents online available rather making it available for physical inspection.

In conclusion, SEBI's progressive move to minimize and eventually eliminate the need for physical dispatch of notices and annual reports marks a significant leap forward. This regulatory evolution not only reduces compliance burdens and costs for companies but also contributes to a more sustainable and digitally empowered financial ecosystem in India, ultimately benefiting all stakeholders.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.