Introduction

SEBI in its board meeting on 19th November 2014 had discussed the conversion of existing listing agreements into a single comprehensive regulation for various types of listed securities. Finally, the SEBI has, on 2nd September, 2015, notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) replacing the Listing agreement. The SEBI Listing Regulations aim to consolidate and streamline the existing listing agreements for different segments of the capital market into one single document across various types of securities listed on the stock exchanges. This article will provide you with a summary of the key highlights of the SEBI Listing Regulations with a special focus on provisions of the SEBI Listing Regulations effective from 2nd September, 2015.

Applicability

The SEBI Listing Regulations shall apply to all the listed entities which have any of the following designated securities listed on a recognized stock exchange:

1. Specified securities listed on main board or SME Exchange or institutional trading platform;
2. Non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument, perpetual non-cumulative preference shares;
3. Indian depository receipts;
4. Securitized debt instruments;
5. Units issued by mutual funds;
6. Any other securities as may be specified by SEBI.

Effective from

The SEBI Listing Regulations shall be effective from 90th day from the date of their publication, i.e. they are effective from 1st December, 2015. However, the following two provisions shall be applicable with immediate effect i.e. from 2nd September, 2015:

1. Passing of ordinary resolution instead of special resolution in case of all material related party transactions subject to related parties abstaining from voting on such resolution;
2. Re-classification of promoters as public shareholders under various circumstances.

Key features

1. The Listing Regulations have been sub-divided into two parts viz.,
   • Substantive provisions incorporated in the main body of Regulations; and
   • Procedural requirements in the form of Schedules to the Regulations.
2. Chapter II – Principles governing disclosures and obligations of listed entity:
   • Chapter II of the SEBI Listing Regulations provide the broad principles in relation to disclosures and obligations of the listed entities.
   • These principles underlie specific requirements prescribed in different chapters of the Regulations.
   • In the event of absence of specific requirements or ambiguity, these principles would serve to guide the listed entities.
3. Chapter III – Common Obligations of Listed Entities
   • Chapter II of the SEBI Listing Regulations, common obligations of all listed entities have been enumerated.
   • These include
     • General obligation of compliance of listed entity,
     • Appointment of common compliance officer and his obligations,
     • Appointment of Share Transfer Agent or management of share transfer facility in-house
     • Co-operation with intermediaries registered with Board and submission of correct and adequate information within the specified timelines and procedures
     • Preservation of documents – permanent and for 8 years
     • Filings on electronic platform,
     • Payment of dividend or interest or redemption or repayment through RBI approved electronic mode,
     • Grievance Redressal mechanism
     • Mandatory registration on SCORES to handle investor complaints electronically,
     • Quarterly reporting of investor complaints to the Board of directors and recognized stock exchange.

4. Chapter IV to IX of the SEBI Listing Regulations deal with obligations which are applicable to specific types of securities have been incorporated in various chapters.
5. Chapter X and XI of the SEBI Listing Regulations list down the responsibilities of the stock exchanges to monitor compliance or adequacy / accuracy of compliance with the provisions of these regulations and to take action for noncompliance.

Ease of Reference

1. The related provisions have been aligned and provided at a common place for ease of reference.
2. For example, all clauses dealing with disclosure of events or information which may be material or price sensitive spread across the Listing Agreement have been provided as a schedule to the regulations.
3. All disclosures required to be made on the website of the listed entity have been enumerated at a single place for ease of reference and all requirements pertaining to disclosures in annual report have been combined.

Streamlining and segregation of initial issuance/listing obligations

1. In order to ensure that there is no overlapping or confusion on the applicability of these regulations, pre-listing requirements have been incorporated in respective regulations viz. ICDR Regulations, ILDS Regulations, etc.
2. These provisions pertain to allotment of securities, refund and payment of interest, 1% Security Deposit (in case of public issuance), etc. Post-listing requirements have been incorporated in Listing Regulations.

Alignment with provisions of Companies Act, 2013

Wherever necessary, the provisions in Listing Regulations have been aligned with those of the Companies Act, 2013.

Listing Agreement

A shortened version of the Listing Agreement (2 page approximately) will be prescribed which will be required to be signed by a company getting its securities listed on Stock Exchanges.  Existing listed entities will be required to sign the shortened version within 6 months of the notification of the regulations.

Related party transactions

1. All the requirements and conditions to be fulfilled in case of related party transactions have been altered to be in line with the provisions of Companies Act, 2013.
2. The provisions now include defining a policy to determine materiality of related party transactions, prior approval of Audit Committee, omnibus approval by Audit Committee, approval of shareholders by ordinary resolution, carve out from applicability of provisions for related transactions between two government companies, a holding company and its wholly owned subsidiary, etc.
3. From all of the above provisions and conditions, the following condition shall be applicable with immediate effect from 2nd September, 2015: All material related party transactions shall require approval of the shareholders through ordinary resolution (instead of special resolution) and the related parties shall abstain from voting on such resolutions whether the entity is a related party to the particular transaction or not.

Re-classification of promoters as public shareholders

1. All entities falling under promoter and promoter group shall be disclosed separately in the shareholding pattern appearing on the website of stock exchanges.
2. The stock exchange shall allow modification or reclassification of the status of the shareholders, only upon receipt of a request from the concerned listed entity or the concerned shareholders along with all relevant evidence and on being satisfied with the compliance of various conditions.
3. Transmission/succession/inheritance – the inheritor shall be classified as promoter.
4. A new promoter replaces the previous promoter subsequent to an open offer or in any other manner, reclassification shall be permitted subject to the following conditions:
   • Approval of shareholders in the general meeting
   • Such promoters and their relatives shall not act as key managerial person for a period of more than 3 years from the date of shareholders’ approval. Resolution of the shareholders’ meeting must specifically grant approval for such promoter to act as key managerial person.
   • Such promoter along with the promoter group and the Persons Acting in Concert (“PACs”) shall not hold more than 10% of the paid-up equity capital of the entity.
   • Such promoter shall not continue to have any special rights through formal or informal arrangements.
   • All shareholding agreements granting special rights to such entities shall be terminated.
5. Where an entity becomes professionally managed and does not have any identifiable promoter the existing promoters may be re-classified as public shareholders subject to the following conditions:
   • Approval of the shareholders in a general meeting.
   • The promoters seeking reclassification and their relatives may act as key managerial personnel in the entity only subject to shareholders’ approval and for a period not exceeding 3 years from the date of shareholders’ approval.
   • No person or group along with PACs taken together shall hold more than 1% paid-up equity capital of the entity including any holding of convertibles, outstanding warrants, depository receipts.
     • However any mutual fund, bank, insurance company, financial institution, foreign portfolio investor may individually hold up to 10% paid-up equity capital of the entity including any holding of convertibles, outstanding warrants, depository receipts.
   • The promoter seeking reclassification along with his promoter group entities and the PACs shall not have any special right through formal or informal arrangements.
   • All shareholding agreements granting special rights to such outgoing entities shall be terminated.
6. Without prejudice to the conditions mentioned at point 4 and 5 above, re-classification of promoter as public shareholders shall be subject to the following conditions as well:
   • Such promoter shall not, directly or indirectly, exercise control, over the affairs of the entity.
   • Increase in the level of public shareholding pursuant to re-classification of promoter shall not be counted towards achieving compliance with minimum public shareholding requirement.
   • The event of re-classification shall be disclosed to the stock exchanges as a material event.
   • Board may relax any condition for re-classification in specific cases, if it is satisfied about non-exercise of control by the outgoing promoter or its PACs.