SEBI (Listing Obligations & Disclosure Requirements) Regulation 2015 (LODR) is applicable to all listed companies in India with effect from December 1, 2015. This legislation is a relatively small but rather complicated legislation; thereare referencesin this legislation to the term “in the interest of stakeholders”.Under chapterII regulation4(h)it states, the listed entity shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders.There is another provision in chapterII regulation 4(f)(iii)(6) that says, the board of directors shall maintain high ethical standards and shall take into account the interests of stakeholders.
The term stakeholder is not clear in LODR
Nowhere in this legislation the regulator has defined or explained the term “stakeholder”. The synonym for the word Stakeholder means participant, patron, investor, and shareholder. Further the meaning of patron means customer, fan, supporter and the meaning of participant in turn means accomplice. It leaves room for interpretation at least in the LODR to understand who the real stakeholders are. The regulators have indicated that compliance is required to be made in Letter and Spirit. By letter the regulator expects the corporates to comply with the various provisions that are listed out in the Regulation and in case the regulator has missed out drafting any provisions then the regulators are free to invoke the Spirit behind these provisions for any non-compliance by corporates.
Under Black’s Law dictionary (real), which I suppose, is letter as it is in print, a stakeholder means anyone that has a legal, financial or a social interest in a company such as shareholders, managers, suppliers, directors, government, employees and the community. Under Grey law dictionary (fiction), which I suppose is Spirit, no one knows who this stakeholder is, andmost corporates are usingthis term to suit their business and the corporate culture asStakeholder is not defined or explained anywhere in the regulation.
The term Stakeholder is uncertain in LODR
Reference has been made of the term stakeholder in section 178 of the Companies Act, 2013 in the form of an explanation, to mean “Every Company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee”. I suppose, the regulators expect the corporates to infer from this section the meaning of stakeholders. A plain interpretation suggests stakeholder is a term that exits in companies that have more than 1000 shareholders; if the company has lesser shareholders would that mean there is no concept of a stakeholder for these entities.
In LODR the only reference that is close to having some meaning of stakeholder is in chapter II regulation 4(2)(d)(i) that says “the listed entity shall respect the rights of stakeholders that are established by law or through mutual agreements”.
The term Stakeholder is ambiguous in LODR
In fact the term security holders is not clear in section 178 of the Act, the term Securities has to be looked into another legislation, Securities Contracts (Regulation) Act, 1956. From the above provisions, it can be observed that, stakeholders consist of only shareholders, debenture-holders, deposit-holders and any other security holders. Though, the term ‘Stakeholder’ has not been expressly defined in LODR, the Companies Act, by making a passing reference in Section 178, seems to convey the meaning of the term Stakeholder. A combined reading of all the above legislationsleads us to interpret the meaning of a stakeholder.It is not clear if one has to understand the term “Stakeholder” under SEBI(Listing Obligations & Disclosure Requirements) Regulation 2015; this term has to be referred to the Companies Act, 2013 to be read along with Securities Contracts (Regulation) Act, 1956.
The regulators seem to have drafted the LODR is a tearing hurry and left out to explain or define the most important term – stakeholder; it is a matter left for interpretation and convenience of the corporate boards.
If any law is not favouring the purpose itself, SEBI in LODR is supposed to protect the interest of stakeholders whereas in this legislation the meaning of stakeholder itself is left out, where is the means of protecting their interest?
The regulators have ensured that the larger interest of Stakeholders is deadin letter, but they have ensured to leave the spirit of stakeholders inside boardrooms; and the onus is now on the Board of Directors to choose their stakeholders.