SEBI floated a research paper on the 26th of June 2024. The paper talks about the changes in the rules related to the job of company secretary. The research paper is for public comment. The blog intrigues readers with its view of SEBI and the changing demand for company secretaries. To increase transparency and streamline issue processes, SEBI changes the ICDR and LODR. Company secretaries understand the changes in the Listing obligations and disclosure, and capital and disclosure requirements. The blog intrigues the readers with information on the consultation paper.
SEBI consultation paper:
SEBI’s consultation paper talks about changes in filings, disclosures, promoters and board of directors. The paper also discusses related party transactions, strengthening corporate governance in listed entities, disclosure of material events, disclosure of financials during public issues, promoter lock-ins among others, and pre-IPO transactions.
The notable changes in the consultation paper are about a single filing system between stock exchanges for corporate announcements, hybrid shareholder meetings permanently permitting listed entities to conduct virtual options and changes related to secretarial audits. In the present operations, secretarial auditor appointment requires the consent of the board and the shareholder consent is not necessary. In future, the consent of the shareholder is essential for the appointment of the secretarial shareholder.
Related party transactions:
- In the proposal, SEBI talks about the appointment of an independent director. The employees working in the promoter group company cannot be appointed as independent directors without following the cooling-off period of three years.
- The related party transaction is the dealings with the close authorities in the listed entity such as directors, relatives or key managerial personnel.
- The appointment of an independent director is after the dual approval. Approval of shareholders and minority and majority shareholders.
- If the approval conditions are not met, the person interested in the ID position fails to get an appointment. In such a scenario, the proposal is for a new candidate or the same candidate for a second time voting.
- Minority shareholders have powers to influence the appointment and re-appointment of the independent shareholders. The reason is that independent auditors protect the interests of the shareholders.
- Enhance the approach of diversity among the IDs.
- In the case of the appointment of the director, the disclosures are the skills and capabilities of the ID and the channels used for searching for the right candidate. If the Human resource channel is a recommendation from a person, the details of such a person are added to the disclosure. The person recommending can be a director, shareholder, or promoter.
- Strengthening corporate governance in listed entities, disclosure of material events, disclosure of financials during public issues
- The sitting fees and commission are given to the independent directors for the work within a ceiling limit. IDs do not have the right to receive stock options. The debate in the remuneration of ID is the removal of profit sharing as commission. The Independent directors receive fixed income but do not get a stake in the long-term growth of the company.
- The listed entities submit the following disclosures within seven days of the independent director’s resignation: reason for the resignation, confirmation about the material reasons, and confirmation from the independent director.
- Exempt transactions from RPT definitions uniformly to all the shareholders.
- Exempt the fees and remuneration for directors, senior management and key managerial personnel.
- In certain conditions, RPTs are allowed for ratification.
Promoter lock-in period:
- To ensure the participation of promoters in the company SEBI has many rules. The promoters receive 20% of the post-issue. The promoters have a lock-in restriction of 1.5 years after the IPO.
- Single filing system between stock exchanges for corporate announcements through an API-based system.
- Hybrid shareholder meetings permanently permit listed entities to conduct virtual options.
- SEBI recommend the disclosure of credit rating revisions and shareholding patterns through a system-driven process.
- SEBI recommend three months for filling the vacancies in the board committees.
- SEBI recommend streamlining the process of reclassifying promoter group entities and promoter.
- SEBI mandate the process of submitting disclosures for compliance from the directors, promoters and key managerial personnel.
- The board meetings after the trading hours are given additional time.
- SEBI streamline the disclosure requirements for acquisitions.
- SEBI clarifies the disclosures related to penalties, tax litigations and material events.
- SEBI mandates the compliance officers to hold the position of whole-time employees of key managerial personnel.
- SEBI introduces provisions for the appointment of a secretarial auditor and disqualification details of the same position.
- SEBI recommends using QR codes to disclose information.
- Disclose the post and pre-issue for the top ten shareholders and promoters.
- Allow to disclose the proforma financial disclosures for the divestments and recent acquisitions.
- The draft offer document should be advertised within two working days.
- Allow the issuers to get loan utilisation certificates from chartered accountants.
- The issuers with outstanding stock appreciation file the draft offer documents.
- SEBI deletes the provisions related to reservation to employees in the rights issue.
- SEBI insist on the disclosure of weighted averages of certain ratios.
- SEBI clarifies the rules related to the lock-in period allowed to the promoters for loan repayment and capital expenditure.
- If the issue proceeds are used for working capital the company requires a standalone basis of disclosure.
Bottom Line:
After receiving public comments, SEBI oversees the recommendation and finalises the rules regarding company secretaries and secretarial audits. The consultation paper introduces legal changes that protect the interests of the investors.
