The Securities and Exchange Board of India vide Circular number SEBI/HO/CFD/CFD-PoD-2/P/CIR/2025/25, dated 25 February 2025 has directed all listed companies to follow the Industry Standards Note on Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘SEBI LODR’), formulated by the Industry Standards Forum under the direction of the stock exchanges in India (‘Industry Note/ Note’). The Industry Standards Forum was introduced by SEBI to enhance implementation of regulatory requirements and formulate norms to conform with industrial standards and dynamics.
The Industry Note is a step in the direction of ease of reporting and providing uniformity in disclosures under SEBI LODR. The Note aims to set out standard operating procedures and provide a consistent approach for disclosures to be made by listed entities which will help in clearing the grey area and ambiguity in reporting requirements under Regulation 30 and Schedule III of SEBI LODR.
This follows from the major amendments with respect to disclosure requirements and subsequent clarifications issued vide circulars issued in November and December 2024.
The Industry Note serves as a welcome change providing clarifications to certain ambiguous disclosure requirements under SEBI LODR and seeks to cure the operational challenges and avoid information asymmetry. Most significant clarifications introduced by the Industry Note are:
- Uniform applicability of 2:2:5 rule under Regulation 30(4) for determining materiality threshold has been made more objective for Para B disclosures based on actual impact of events and information;
- Guidance on action taken in relation to subsidiaries, promoters, key managerial personnel (‘KMPs’) and senior management has been provided;
- Determination of threshold on a ‘cumulative basis’ for disclosures of pending litigations and disputes based on impact; and
- No mandatory disclosure of Show Cause Notices under Entry 20 of Para A and impact-based disclosures under Entry 8 of Para B have been provided.
This will have impact on quarterly reporting requirements and time to time disclosures to be made by listed companies. This Note effectually makes the disclosure requirements ‘qualitative’ rather than ‘quantitative’ under Regulation SEBI LODR.
The key provisions of the Industry Note can be noted as under:
Regulation 30(4)(i)(c): Interpretation of phrase ‘value or expected impact in terms of value’ to determine materiality
Expected impact in terms of value
To determine a disclosure requirement, the threshold as prescribed under Regulation 30(4)(i)(c) is ascertained and applied on the basis of the ‘value or expected impact in terms of value’ of an event or information.
Clarifying the interpretation of the phrase, the Industry Note specifies that the ‘expected impact’ of an event must be determined only for four ensuing quarters, which shall include the ongoing quarter if the event occurs in the first sixty (60) days.
The Industry Note further recommends listed entities to assess the ‘value’ and ‘expected impact in terms of value’ based on the principles of measurement prescribed under the accounting standards to maintain consistency in disclosures. An ‘impact-based’ reporting requirement is suggested in this regard which warrants a disclosure if a matter above the materiality threshold falls within the ‘possible or probable’ category and no disclosure is triggered if a matter falls within the ‘remote’ category. For events and information specified in Para B, Part A of Schedule III, it is clarified that a disclosure is warranted if the ‘gross amount’ involved in such an event exceeds the threshold. However, details of any insurance and indemnity claims which could mitigate the ‘expected impact’ may also be disclosed by listed entities to provide further clarity and context in the disclosures made.
Guidance on appropriate parameters to determine materiality
The Industry Note acknowledges that all three parameters to determine threshold under Regulation 30(4)(i)(c), i.e., turnover, net worth and absolute average value of profit or loss may not be relevant to all events. Accordingly, detailed guidance has been provided under Annexure A of the Industry Note prescribing relevant and appropriate parameters to determine materiality for certain events specified under Para B, Part A of Schedule III.
LKS Comment: Clarifications and guidance on parameters to determine the materiality threshold for disclosures of certain events signifies a paradigm shift by SEBI from a quantitative to qualitative approach for disclosures, based on the actual impact of an event. With the new guidance, thresholds for disclosures are focused at the turnover and net worth level and not the ‘absolute’ value. This shall ensure fair and transparent impact-based disclosures which is a welcome change for both, listed entities as well as investors. The Note is aligned between disclosures and financial documents and suggests that ‘impact’ needs to be captured based on the outcome and not on absolute numbers. This is also in line with the broad objective of the Note which is to adopt a qualitative approach of disclosures.
Entry 19 and 20 of Para A, Part A, Schedule III: Disclosures of actions against persons in relation to the listed entity
The Industry Note clarifies that disclosures under Entry 19 and 20 of Para A with respect to actions initiated or taken against the directors, KMPs, senior management, promoters or subsidiaries must be restricted to those actions which are ‘in relation to the listed entity’ and impact the (a) operations; (b) financial position; or (c) reputation of the listed entity. All other actions against the aforesaid persons may be excluded from disclosures.
LKS Comment: This note refines and clarifies the scope of disclosures concerning third parties and ensures that only significant and key events are disclosed for the benefit of investors.
Entry 8 of Para B, Part A, Schedule III: Disclosures of pending litigations and disputes on a ‘cumulative’ basis
The Industry Note has clarified that the ‘cumulation’ of pending disputes and litigations to ascertain materiality shall not be based merely on (a) the same opposite party; or (b) the dispute involving the listed entity or its subsidiaries.
Disputes and litigations shall be cumulated to ascertain the materiality threshold for disclosures if:
- litigations have a similar question of law and/or similar factual matrix; and
- there is a likelihood of similar outcome of proceedings.
It is further provided that ‘outcome’ refers only to a ‘negative outcome’ in any one dispute which may lead to similar negative outcomes in other disputes.
Specifically with respect to tax matters, the Industry Note specifies that matters involving tax authorities as a common opposite party with different facts and outcomes should not be cumulated. However, in case of same set of facts and possible outcomes, even matters for different financial years across different states are to be consolidated.
Listed entities may also consider whether any pending litigation, dispute, order or action is confidential in nature under any law or direction or requirement of any statutory, regulatory, judicial or quasi-judicial authority while ascertaining the disclosure requirements and determining the expected impact.
LKS Comment: Cumulation of matters in different states as recommended in the Industry Note may entail consolidation even in case of different opposite parties. Therefore, although the note has sought to provide additional filters for cumulation to determine materiality based on factual matrix and outcomes, it widens the scope of disclosures by eliminating the requirement of having the same opposite party. This may lead to additional disclosure requirements based on increased thresholds and is not a relief for listed entities.
Entry 20 of Para A and Entry 8 of Para B, Part A, Schedule III: Disclosure of Show Cause Notices
The Industry Note explicitly states that no disclosure for show cause notices is warranted under Entry 20 of Para A of Schedule III. However, a show cause notice issued by a regulatory, statutory or enforcement authority shall trigger a disclosure under Entry 8 of Para B subject to the materiality threshold of the listed entity.
LKS Comment: Listed companies faced several operational challenges due to the lack of clarity on disclosure of show cause notices. This resolves the ambiguity around the aforesaid disclosures and shall eliminate the disclosures of frivolous notices having low or no impact on stakeholders. The Note is aligned between disclosures and financial documents and suggests that ‘impact’ based disclosures must be made. This is aligned with the broad objective of the Note which is to adopt a qualitative instead of quantitative approach of disclosures.
Entry 20 of Para A, Part A, Schedule III: Materiality for disclosures of fines and penalties
The Industry Note provides an extensive list of industry and sector specific regulators and enforcement authorities, the imposition of fines and penalties by whom would warrant a disclosure under Entry 20 of Para A. This is subject to the materiality thresholds prescribed by SEBI through SEBI (LODR) (Third Amendment) Regulations, 2024 dated 12 December 2024 (‘2024 Amendment’), i.e., disclosures within twenty four (24) hours for fines and penalties of (a) rupees one (1) lakh or more imposed by sectoral regulators and enforcement agency; and (b) rupees ten (10) lakhs or more by any other authority or judicial body.
All other fines and penalties below the aforesaid threshold warrant a quarterly disclosure.
LKS Comment: There is no material change from the relaxation in the aforesaid 2024 Amendment with respect to thresholds for disclosures of fines and penalties. The Industry Note merely prescribes a sector/industry specific list of regulators and enforcement agencies for the disclosures.
Entry 1 of Para A, Part A, Schedule III: Materiality thresholds for disclosure of ‘acquisitions’
While disclosures of events and information specified under Para A of Part A, Schedule III are to be made by listed entities irrespective of the materiality threshold prescribed under Regulation 30(4) of SEBI LODR, there are certain events under Para A which have a separate threshold prescribed therein to determine their disclosure requirements.
One such event is ‘acquisitions, scheme of arrangements and sale and disposal of units’ of listed entities as provided under Entry 1 of Para A. Explanation (1) to Entry 1 of Para A provides a threshold to determine disclosures for an ‘acquisition’ by the listed entity. One such parameter is to determine whether the ‘cost of acquisition’ or the ‘price of shares acquired’ exceeds the materiality threshold as prescribed under Regulation 30(4)(i)(c).
In this regard, particularly with respect to insurance companies, non-banking financial companies (NBFCs) including core investment companies registered with RBI, the Industry Note has clarified that for acquisitions of listed or to be listed (a) equity; or (b) convertible of debt securities of another entity, only the threshold of ‘two percent net worth’ as per last annual audited consolidated financial statements as prescribed under Regulation 30(4)(i)(c)(2) will be relevant for the parameter under Explanation (1)(ii)(c) of Entry 1 Para A. Other parameters under Regulation 30(4)(i)(c), i.e., turnover and absolute average value of profit and loss are not applicable. However, for any other type of acquisition, Regulation 30(4)(i)(c) continues to apply.
LKS Comment: Relaxations to financial sector companies have been provided which is aligned with general concessions provided to them in their normal course of business.
Entry 6, Para A, Part A, Schedule III: Disclosure of frauds or default
For the purpose of disclosure of frauds or defaults in relation to the listed entity, the timelines prescribed under Regulation 30(6) would be triggered only upon:
- completion of prima facie assessment of fraud; or
- expiry of four (4) weeks from when company becomes aware of the alleged fraud, whichever is earlier.
It is clarified that the final disclosure is only to be made by a listed entity in this regard when the investigation pertaining to the fraud is fully completed.
For cases where fraud is with respect to the directors, promoters, senior management, KMPs or subsidiaries of the entity but does not involve the entity or is not in relation to its affairs, a disclosure is warranted only once an officer of the entity becomes aware of the fraud through credible and verifiable sources.
The aforesaid timings and stage of disclosures has also been made applicable to disclosure of frauds and defaults by employees under Entry 9 of Para B.
LKS Comment: By outlining the stages and timelines for the disclosures of frauds and defaults, listed companies shall now have greater clarity regarding their disclosure obligations for the same. This removes the ambiguity on whether mere allegations of fraud need to be disclosed, or if disclosures are required only upon the unearthing of fraud or following final determinations.
Regulation 30(6): Timeline for disclosures
Timeline for disclosures
Timelines for disclosures as prescribed under Regulation 30(6) of SEBI LODR would only commence once an ‘officer’ in terms of Section 2 (59) of the Companies Act, 2013 becomes aware of the occurrence of an event through a credible source. In this regard, listed entities must implement efficient systems for internal reporting and information sharing.
Defence for non-compliance of timelines
The Industry Note identifies (a) a force majeure event; (b) time taken for completion of prima facie assessment of materiality in inter alia cases of orders, fraud, claims and actions; and (c) information and events in relation to other persons where the listed entity is not involved, as a ‘defence’ in case of reasonable delay in disclosures.
Disclosure of decisions at meetings of Board of Directors
The ease in timelines for disclosures of decisions taken at board meetings of listed entities as prescribed by SEBI vide the 2024 Amendment read with circulars dated 11 November 2024, and 31 December 2024, is applicable to disclosures made in portable documentation format (pdf). Disclosures in XBRL format may be made within twenty-four (24) hours from the conclusion of the meetings.
LKS Comment: The easing of stringent timelines for disclosures under Regulation 30(6) SEBI LODR is a favourable step for listed companies, as it will facilitate more accurate and reliable disclosures, thereby benefiting investors. Further, the introduction of defences for reasonable delays in disclosures acknowledges the operational challenges and practical difficulties that listed entities face while determining their disclosure requirements.
Other clarifications in the Industry Note:
- Significant market reactions: Significant market reactions under Regulation 30(4)(i)(b) may be assessed against ‘scrip price’ as per the parameters provided by the stock exchanges.
- Communications of authorities from Regulation 30(13): Listed entities are now exempt from disclosing any communications under Regulation 30 (13) which are confidential in nature or classify as sensitive or proprietary information.
- Resignation of personnel: The timelines for disclosures of resignation of KMPs, senior management etc. shall commence on the last date of the concerned person in the listed entity.
- Announcements through social or mainstream media: Listed entities must issue a clarification in respect of any ‘premature’ announcement made by directors, promoters, KMPs or senior management through social media intermediaries or on mainstream media.
- Analysts and Institutional Investors meet: Requirement of two working days’ notice shall be dispensed with for urgent matters subject to simultaneous submission of schedule of meetings to stock exchanges with an explanation for the short notice.
- Guarantees and Indemnity: Guarantees, indemnities and sureties provided by listed companies to their wholly owned subsidiaries which are consolidated in the financial statements may be excluded from disclosure requirements under Entry 11 of Para B. Further, these disclosure requirements do not extend to contractual performance guarantees given in the normal course of business, except upon their invocation. Similarly, guarantees, indemnity, or surety bonds provided by listed banking and insurance companies in their normal course of business are exempt unless invoked. However, material indemnity, guarantees, or sureties pertaining to wholly owned subsidiaries must be disclosed if invoked.
- Disclosure of proceedings of AGM and EGM: A listed entity must disclose voting results of annual and extraordinary general meetings as per Regulation 44(3) timelines, and specific details like meeting date and items deliberated within 12 hours as per Regulation 30(6)(ii).
- Intimation on restriction of transferability: A listed entity is not required to disclose restrictions on transferability resulting from statutory or regulatory requirements, such as those imposed by the RBI or IRDAI under Entry 2 of Para A, Part A of Schedule III.
Conclusion
Listed companies must evaluate the current disclosure requirements in light of the Industry Note and review their internal standard operating procedures (SOPs) and materiality policies. Companies must also provide adequate training to stakeholders and employees on adhering with the amendments and revised guidelines.
[The authors are Partner and Associate, respectively, in Corporate and M&A practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
