LISTING OBLIGATIONS & DISCLOSURE REQUIREMENTS
CHAPTER
APPLICABILITY, DEFINITIONS & DISCLOSURES
1. Discuss the duties of a ‘Compliance Officer’ in a listed company. [Dec. 2006 (4 Marks)]
Ans.: Compliance Of cer and his Obligations [Regulation 6]: A listed entity shall appoint a quali ed Company Secretary as the Compliance Of cer. The Compliance Of cer of the listed entity shall be responsible for -
(
(
a) Ensuring conformity with the regulatory provisions applicable to the listed entity in letter and spirit.
b) Co-ordination with and reporting to SEBI, recognized stock exchanges and depositories with respect to compliance with rules, regulations and other directives of these authorities in manner as speci ed from time to time.
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c) Ensuring that the correct procedures have been followed that would result in the correctness, authenticity and comprehensiveness of the information, statements and reports led by the listed entity under these regulations.
(d) Monitoring email address of grievance redressal division as designated by the listed entity for the purpose of registering complaints by investors.
However, above requirements shall not be applicable in the case of units issued by mutual funds which are listed on recognized stock exchange but shall be governed by the provisions of the SEBI (Mutual Funds) Regulations, 1996.
2. Write short notes on: Net worth [Dec. 2023 (3 Marks)]
Ans.: As per Regulation 2(1)(s) of the SEBI (LODR) Regulations, 2015, Net Worth means net worth as defined in section 2(57) of the Companies Act, 2013.
As per section 2(57) of the Companies Act, 2013, Net Worth means the aggregate value of:
- Paid-up share capital
- All reserves created out of the pro ts
- Securities premium account
- Credit balance of P & L A/c.
PART II : SECURITIES LAWS
Following amounts will be deducted:
- Debit balance of P & L A/c
- Accumulated losses
- Deferred expenditure
- Miscellaneous expenditure not written off, as per the audited balance sheet Net worth does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation.
3. GK Ltd. is a listed company having paid-up equity share of ` 8 Crore, preference share capital of ` 5 Crore and net worth of ` 15 Crore as on 31st March, 2019. The management intends to implement a “Code of Conduct” for Board of directors and senior management under SEBI (LODR) Regulations, 2015. You are required to prepare a draft agenda for the Board meeting on the applicability of above provisions.
Also advise on the situation, if equity share capital increase to ` 15 Crore, preference share capital to ` 8 Crore and net worth to ` 35 Crore. [Dec. 2020 (5 Marks)]
Ans.: As per Regulation 15 of the SEBI (LODR) Regulations, 2015, corporate governance provisions shall apply to listed companies subject to certain exceptions.
Certain Corporate governance provisions [Regulations 17 to 27] shall not apply to listed entity having:
(a) Paid-up equity share capital not exceeding ` 10 Crore and
(b) Net worth not exceeding ` 25 Crore as on the last day of the previous nancial year.
Situation-I:
(a) Paid-up equity share capital is ` 8 Crore i.e. not exceeding ` 10 Crore AND (b) Net worth is ` 15 Crore i.e. not exceeding ` 25 Crore.
Hence, Regulation 17(5) for Code of Conduct of Board of Directors & Senior Management does not apply to GK Ltd.
Situation-II:
If paid-up equity share capital is increased to ` 15 Crore and Net worth is increased to ` 35 Crore, the regulation 17(5) for Code of Conduct for Board of Directors & Senior Management shall become applicable as it will exceed the criteria of share capital and net worth and it shall ensure compliance with the same within 6 months from the date of applicability.
Note: Preference share capital does not have any bearing on the instant case.
OBLIGATIONS OF LISTED ENTITIES
4. A listed company can apply to stock exchange for re-classification of the Promoter’s holdings as public shareholders under SEBI regulations. Whether
following promoters can apply for re-classification with reference to SEBI regulations?
(a) Promoter is declared as wilful defaulter as per RBI guidelines.
(b) Promoter is holding 12% of total voting rights in the listed entity.
(
(c) Promoter is acting as CEO of the listed entity.
d) The promoter company has outstanding listing fees only for one year. [June 2019 (4 Marks)]
Ans.: Conditions for re-classi cation of any person as promoter/public [Regulation 31A]: “Promoter seeking re-classi cation” shall mean all such promoters/ persons belonging to the promoter group seeking re-classi cation of status as public.
Re-classi cation of the status of any person as a promoter or public shall be permitted by the stock exchanges only upon receipt of an application from the listed entity along with all relevant documents subject to compliance with speci ed conditions.
Promoters seeking re-classi cation and persons related to the promoters seeking re-classi cation shall not:
(i) together, hold more than 10% of the total voting rights in the listed entity;
(ii) exercise control over the affairs of the listed entity directly or indirectly;
(iii) have any special rights with respect to the listed entity through formal or informal arrangements including through any shareholder agreements;
(iv) be represented on the board of directors (including not having a nominee director) of the listed entity;
(v) act as a KMP in the listed entity;
(vi) be a ‘wilful defaulter’ as per the RBI Guidelines;
(vii) be a fugitive economic offender.
Listed entity shall:
(i) be compliant with the requirement for minimum public shareholding as required under regulation 38 of these regulations;
(ii) not have trading in its shares suspended by the stock exchanges;
(iii) not have any outstanding dues to the SEBI, the stock exchanges or the depositories.
Keeping in view above provisions, answer to given case is as follows:
(a) Promoter who is declared as wilful defaulter as per RBI Guideline cannot apply for re-classi cation.
(b) Promoter holding 12% of the total voting rights in the listed entity cannot apply for re-classi cation.
(c) Promoter acting CEO cannot apply for re-classi cation being key managerial person of the company.
(d) Promoter company having outstanding listing fee cannot apply for re-classication.
PART II : SECURITIES LAWS
5. Following persons desires to change their status from promoters to public i.e. re-classification of promoters shareholders to public shareholders. With reference to SEBI Regulations, advise whether they are eligible for reclassification?
(i) Raman is acting as a Company Secretary.
(ii) Naina defaulted repayment of loans and declared as wilful defaulter as per RBI guidelines.
(iii) Mayank is holding 15% of total voting rights.
(iv) The trading of equity shares of the company suspended by the stock exchange.
(v) Minal acting as a Chief Financial Officer. [June 2024 (5 Marks)]
Ans.: “Promoter seeking re-classification” shall mean all such promoters/persons belonging to the promoter group seeking re-classification of status as public. Thus, there is change in status from “Promoter shareholder” to “public shareholder”.
Conditions for re-classification of any person as promoter/public: As per Regulation 31A of the SEBI (LODR) Regulations, 2015, re-classification of the status of any person as a promoter or public shall be permitted by the stock exchanges only upon receipt of an application from the listed entity along with all relevant documents subject to compliance with specified conditions.
The promoter seeking re-classification and persons related to the promoter seeking re-classification shall not:
(i) together, hold more than 10% of the total voting rights in the listed entity;
(ii) exercise control over the affairs of the listed entity directly or indirectly;
(iii) have any special rights with respect to the listed entity through formal or informal arrangements including through any shareholder agreements;
(iv) be represented on the board of directors (including not having a nominee director) of the listed entity;
(v) act as a KMP in the listed entity;
(vi) be a ‘wilful defaulter’ as per the RBI Guidelines;
(vii) be a fugitive economic offender.
Listed entity shall:
(i) be compliant with the requirement for minimum public shareholding as required under regulation 38 of these regulations;
(ii) not have trading in its shares suspended by the stock exchanges; not have any outstanding dues to the SEBI, the stock exchanges or the depositories.
In view above, answer to given case is as follows:
(i) Raman is acting as a Company Secretary. He is Key Managerial Person (KMP) in the listed entity and hence cannot apply for re-classi cation.
(ii) Naina is declared as wilful defaulter as per RBI Guideline and hence she cannot apply for re-classi cation.
CH. 11 : LISTING OBLIGATIONS & DISCLOSURE REQUIREMENTS 11.5
(iii) Mayank is holding 15% of the total voting rights which is in excess of speci ed limit of 12% and hence he cannot apply for re-classi cation.
(iv) One of the conditions for re-classi cation of any person as promoter/public is that “listed entity shall not have trading in its shares suspended by the stock exchanges”.
Thus, if trading of equity shares of the company is suspended by the stock exchange then it cannot apply for re-classi cation of any person as promoter/ public.
(
v) Minal is acting as a Chief Financial Of cer. He is Key Managerial Person (KMP) in the listed entity and hence she cannot apply for re-classi cation.
BOARD OF DIRECTORS
6. With reference to the SEBI Regulations, explain with reasons, the eligibility for appointment of an Independent director in a listed company.
(a) Aarav has given his office premises on lease to the company.
(b) Ehsaan is a component supplier.
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c) Manav is 20 year old.
(d) Elika holds 1% of the total voting power. [June 2022 (4 Marks)]
Ans.: Considering the de nition of ‘Independent Director’ as given in Regulation 16 of the SEBI (LODR) Regulations, answer to given case is as follows:
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a) A person cannot be appointed as independent director of the listed entity, who, himself or whose relative is a material supplier, service provider or customer or a lessor or lessee of the listed entity. Thus, Aarav who has given his of ce premise on lease to the listed company cannot be appointed as independent director in that listed company.
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b) A person cannot be appointed as independent director of the listed entity, who, himself or whose relative is a material supplier, service provider or customer or a lessor or lessee of the listed entity. Thus, Ehsaan who is component supplier to the listed company cannot be appointed as independent director in that listed company.
(c) A person cannot be appointed as independent director of the listed entity who is less than 21 years of age. Thus, Manav who is 20 years old cannot be appointed as independent director in the listed company.
(d) A person cannot be appointed as independent director of the listed entity who, himself or together with his relatives holds 2% or more of the total voting power of the listed entity. Elika holds only 1% voting power of listed company and thus she can be appointed as independent director in the listed company.
7. For ensuring independence in the spirit of Independent Directors and their active participation in functioning of the company, SEBI has accepted many recommendations of Committee setup under the Chairmanship of Shri Uday
PART II : SECURITIES LAWS
Kotak and made amendments in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. Explain any four amended provisions related to Independent Directors. [Dec. 2018 (4 Marks)]
Ans.: Four important amendments relating to ‘independent directors’ as per SEBI (LODR) Regulations, 2015 are given below:
(1) The Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1,000 listed entities shall have at least 1 independent woman director by April 1, 2020.
Explanation: The top 500 and 1000 entities shall be determined on the basis of market capitalization, as at the end of the immediate previous nancial year.
[w.e.f. 1.4.2019]
(2) The quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be 1/3rd of its total strength or 3 directors, whichever is higher, including at least 1 independent director. [Inserted by the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018]
(3) The evaluation of independent directors shall be done by the entire board of directors which shall include -
(a) performance of the directors; and
(b) ful lment of the independence criteria as speci ed in these regulations and their independence from the management. However, in the above evaluation, the directors who are subject to evaluation shall not participate. [w.e.f. 1.4.2019]
(4) The directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, including any alternate directorships that can be held by them at any point of time -
(a) A person shall not be a director in more than 7 listed entities
(b) A person shall not serve as an independent director in more than 7 listed entities
(c) Any person who is serving as a whole time director/managing director in any listed entity shall serve as an independent director in not more than 3 listed entities.
Explanation: The count for the number of listed entities on which a person is a director/independent director shall be only those whose equity shares are listed on a stock exchange.
8. Nikhil Ltd., a listed company is confused about the composition of Board of directors, seeks your advice regarding the composition of Board of directors as per SEBI (LODR) Regulations, 2015. As a Company Secretary of Nikhil Ltd., offer your suggestions by highlighting provisions of applicable regulation. [Dec. 2015 (6 Marks)]
Ans.: As per Regulation 17(1) of the SEBI (LODR) Regulations, 2015, following are the provisions relating to composition of board of directors of the listed entity:
(
a) Board of directors shall have an optimum combination of executive and non-executive directors with at least 1 woman director and not less than 50% of the board of directors shall comprise of non-executive directors However, the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least 1 independent woman director by April 1, 2020.
Explanation: The top 500 and 1000 entities shall be determined on the basis of market capitalization, as at the end of the immediate previous nancial year.
(
b) Where the chairperson of the board of directors is a non-executive director, at least 1/3rd of the board of directors shall comprise of independent directors.
Where the listed entity does not have a regular non-executive chairperson, at least 50% of the board of directors shall comprise of independent directors
However, where the regular non-executive chairperson is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors, at least half of the board of directors of the listed entity shall consist of independent directors.
(c) The board of directors of the top 1000 listed entities (w.e.f. from April 1, 2019) and the top 2000 listed entities (w.e.f. April 1, 2020) shall comprise of not less than 6 directors.
Explanation: The top 1000 and 2000 entities shall be determined on the basis of market capitalization as at the end of the immediate previous nancial year.
(d) Where the listed company has outstanding SR equity shares, at least half of the board of directors shall comprise of independent directors.
Explanation: ‘Related to any promoter’ shall have following meaning:
(a) If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it.
(b) If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.
9. Neo Engineering Ltd. is in the list of top 1,000 listed entity on the basis of market capitalization. Based on the changes made in SEBI (LODR) Regulations, 2015, what would be the composition of the Board? Explain. [Dec. 2019 (4 Marks)]
Ans.: Composition of board of directors [Regulation 17(1)]: Composition of board of directors of the listed entity shall be as follows:
(a) Board of directors shall have an optimum combination of executive and non-executive directors with at least 1 woman director and not less than 50% of the board of directors shall comprise of non-executive directors
(
PART II : SECURITIES LAWS
However, the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least 1 independent woman director by April 1, 2020.
b) Where the chairperson of the board of directors is a non-executive director, at least 1/3rd of the board of directors shall comprise of independent directors
Where the listed entity does not have a regular non-executive chairperson, at least 50% of the board of directors shall comprise of independent directors
However, where the regular non-executive chairperson is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors, at least half of the board of directors of the listed entity shall consist of independent directors.
(
c) The board of directors of the top 1000 listed entities [w.e.f. from April 1, 2019] and the top 2000 listed entities [w.e.f. April 1, 2020] shall comprise of not less than 6 directors
(
d) Where the listed company has outstanding SR equity shares, at least half of the board of directors shall comprise of independent directors
Explanation: ‘Related to any promoter’ shall have the following meaning:
(
(
a) If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it.
b) If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.
10. Neeraj, an experienced technocrat, worked as an Executive director of an unlisted company. One of the leading listed companies (top 10), offered him Chief Executive Officer’s post, at a higher pay scale. Neeraj knows that there is numerous SEBI compliance applicable for a listed company. Being a company secretary in practice, advise Neeraj about SEBI Regulations on following:
(i) Requirement of appointment of women director.
(ii) Meeting & Quorum of the Board Meeting.
(iii) Composition of an Audit Committee. [June 2024 (1 + 2 + 2 = 5 Marks)]
Ans.:
(i) Requirement for appointment of woman director: As per Regulation 17(1) of the SEBI (LODR) Regulations, 2015 the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020.
(
Thus, as on today top 1000 listed entities shall have at least one independent woman director.
ii) No. of meeting of directors: As per Regulation 17(2) of the SEBI (LODR) Regulations, 2015, the board of directors shall meet at least 4 times a year, with a maximum time gap of 120 days between any two meetings.
Quorum for meetings of Board: The quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be 1/3rd of its total strength or 3 directors, whichever is higher, including at least one independent director
(iii) Composition of audit committee: As per Regulation 18(1) of the SEBI (LODR) Regulations, 2015, composition of audit committee is as follows:
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a) Every listed entity shall constitute a quali ed and independent audit committee.
(
(
b) Audit committee shall have minimum 3 directors as members.
c) At least 2/3rd members of audit committee shall be independent directors and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors.
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d) All members of audit committee shall be nancially literate and at least one member shall have accounting or related nancial management expertise.
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e) Chairperson of the audit committee shall be an independent director and he/she shall be present at AGM to answer shareholder queries.
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f) Company Secretary shall act as the secretary to the audit committee.
g) Audit committee at its discretion shall invite the nance director or head of the nance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee. However, occasionally the audit committee may meet without the presence of any executives of the listed entity.
11. Suzan Limited is in top 1000 listed companies. Referring to provisions of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the Board of directors seeks your advice as a company secretary regarding the following two matters:
(i) Quorum in Board meeting
(ii) Maximum number of directorship in a listed entity by a director. [June 2021 (4 Marks)]
Ans.: Quorum for meetings of Board [Regulation 17(2A)]: The quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be 1/3rd of its total strength or 3 directors, whichever is higher, including at least one independent director
11.10
PART II : SECURITIES LAWS
Explanation: The participation of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of such quorum.
Maximum number of directorships [Regulation 17A]: The directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, including any alternate directorships that can be held by them at any point of time -
(1) A person shall not be a director in more than 7 listed entities
(2) A person shall not serve as an independent director in more than 7 listed entities
(3) Any person who is serving as a whole time director/managing director in any listed entity shall serve as an independent director in not more than 3 listed entities.
Explanation: The count for the number of listed entities on which a person is a director/independent director shall be only those whose equity shares are listed on a stock exchange.
12. Home Technology Ltd. has recently listed on the leading stock exchanges. Advise the company on the compliance of corporate governance regulation for holding of maximum number of directorship by a director of the company. If the company is having paid-up capital and reserve & surplus ` 8 Crore & `12 Crore respectively, are there any exceptions in the compliances with the corporate governance under the SEBI Regulations?
[Dec. 2021 (4 Marks)]
Ans.: Maximum number of directorships [Regulation 17A]: The directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, including any alternate directorships that can be held by them at any point of time -
(1) A person shall not be a director in more than 7 listed entities
(2) A person shall not serve as an independent director in more than 7 listed entities
(3) Any person who is serving as a whole time director/managing director in any listed entity shall serve as an independent director in not more than 3 listed entities
Explanation: The count for number of listed entities on which a person is a director/ independent director shall be only those whose equity shares are listed on a stock exchange.
As per Regulation 15, corporate governance provisions shall apply to listed companies subject to certain exceptions.
Certain Corporate governance provisions [Regulations 17 to 27] shall not apply to listed entity having:
(a) Paid-up equity share capital not exceeding ` 10 Crore and
(b) Net worth not exceeding ` 25 Crore as on the last day of the previous nancial year.
