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Disclosure of material events based on newly prescribed criteria
Disclosure of material events based on newly prescribed criteria
Original publication: 2023-07-31 13:24:35
India Inc. may feel the heat of new governance norms and higher compliance.
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Corporate India may feel the heat of new SEBI governance norms with the tightening of disclosure norms and regulations. CORPORATE-INDIA-MAY-FEEL-HEAT-OF-NEW-OVEANCE-NORMS
India Inc. is staring at significantly higher compliance and governance costs, following the Securities and Exchange Board of India's (Sebi's) latest tightening of disclosure norms and regulations around the filling of key positions, the materiality of information, and third-party transfers. This week, the securities market regulator amended the Listing Obligations and Disclosure Requirements (LODR) to introduce a raft of changes that will affect how listed companies go about transparency and disclosures. The new framework will further empower public shareholders and soon move towards a 'comply or be penalised regime or comply or explain' in the case of high-value debt-listed entities. One of the major changes towards transparency requires the top 100 listed companies to confirm, deny, or clarify any rumour or information reported in mainstream media within 24 hours, effective October 1. The obligation will be extended to 250 companies, starting next financial year (2024-25). What expert observers have to say …………...!- "It can dampen the commercial vigour of the listed entity (as tracking such rumours is likely to be a time-consuming and tedious process), as the listed entity is now under obligation to not only comment on a market rumour but also provide its status," says Sharad Abhyankar and Vaibhav Mittal of Khaitan & Co in a note analyzing the latest amendments.
- Legal experts believe that the companies will be required to keep pace and effectively track media developments to timely verify and respond.
- “Although mainstream media has been defined, the interpretational developments thereof would be interesting to watch out for vis-à-vis influencers,” adds the duo.
- “Disclosure of material events based on newly prescribed quantitative criteria of turnover/net worth/profit and that of certain types of agreements involving promoters and related parties is likely to pose inevitable practical difficulties because of the involved subjectivity,” says Harish Kumar, partner, Luthra & Luthra Law Offices India.
- Extending them to third-party transactions will lead to administrative delays and potentially place unnecessary roadblocks in such transactions,” says Vaibhav Gupta, partner, Dhruva Advisors.
- Another major challenge cited by consultants and legal advisors is the requirement of shareholders’ approval for any sale or lease with third parties.
- “The provision to require the public shareholders to approve even third-party business transfer transactions appears to be somewhat overreaching
- “Safeguards already exist for any related party transactions.
- While most amendments underscore the need for listed entities to introspect on the spirit of compliance, it is clear that the compliance and governance costs of listed entities will continue to grow substantially,” reads a note by Khaitan & Co.
- Industry players say the proposal had received negative feedback from industry captains.