Navigating SEBI’s New LODR Amendments: Key Changes for Listed Companies

The Securities and Exchange Board of India (SEBI) has introduced several significant changes to the Listing Obligations and Disclosure Requirements (LODR) regulations. These changes cover critical areas such as related party transactions (RPTs), promoter reclassification, secretarial audits, and ease-of-doing-business measures. The amendments are designed to improve transparency, simplify compliance, and enhance corporate governance in listed companies.

Changes in Related Party Transactions (RPTs)

SEBI has introduced several important amendments to the RPT norms, aimed at streamlining disclosures and approvals:

• Exemptions in RPT Definition: Corporate actions by subsidiaries of listed entities or actions uniformly applicable to all shareholders, such as those proportional to shareholding, will be exempted from RPT requirements.
• Audit Committee Approval: Payments of remuneration and sitting fees to directors, key executives, and senior management (excluding promoter group members) will not require approval from the audit committee under RPT rules.
• Post-facto Ratification of RPTs: Independent directors on the audit committee can ratify RPTs within three months of the transaction or in the immediate next meeting, whichever is earlier.

Disclosure of Senior Management Fraud

The new SEBI notification stipulates that fraud by senior management (except for promoters, directors, or key managerial personnel) needs to be disclosed only if it pertains to the listed entity. This provides a more focused approach to reporting fraud by senior management.

Promoter Reclassification Norms

SEBI has laid down specific conditions for the reclassification of promoters to ‘public shareholders’:

• Request and Rationale: Promoters seeking reclassification must submit a request with the rationale to the listed company.
• Board and Exchange Approval: The company’s board will review the request and provide its views within two months. A no-objection certificate from the stock exchanges must be obtained, and exchanges will have 30 days to make a decision.
• Shareholder Approval: The final reclassification will require shareholder approval.

Ease-of-Doing-Business Measures

Several measures have been introduced to make compliance easier for companies:

• Extended Disclosure Timelines: Companies will have extended timelines for certain disclosures, allowing more time for reporting and compliance.
• Tax Disputes Disclosure: Disclosure of tax disputes will depend on materiality and thresholds, providing companies with flexibility in reporting.

Audio Recordings of Earnings Calls

Listed companies will now be required to provide audio recordings of post-earnings or quarterly calls before the next trading day. This aims to increase transparency and ensure that investors have access to timely information.

Conditions for Appointment/Reappointment of Key Personnel

SEBI has clarified that the reappointment or appointment of individuals, including managing directors, previously rejected by shareholders, will require prior approval from shareholders along with a detailed justification.

Changes in Secretarial Audit

A significant change in the secretarial audit process is the introduction of a cooling-off period of five years. After completing a term, a secretarial audit firm or individual auditor will not be eligible for reappointment in the same company for a minimum of five years.

Appointment of Independent Directors

Under the new regulations, listed companies ranked 1,001 to 2,000 will be required to appoint at least one woman independent director. This was previously only applicable to the top 1,000 listed companies.

The amendments by SEBI reflect an effort to enhance corporate governance, simplify compliance, and address issues related to transparency, particularly concerning related party transactions, fraud disclosure, and promoter reclassification.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.