Chapter 6 Corporate Policies and Disclosures – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.
Corporate Policies and Disclosures – Governance, Risk Management, Compliances and Ethics Study Material
Question 1.
Write short note on the following:
Continual disclosure (June 2013, 3 marks)
Answer:
Continual Disclosures (Regulation 30)
1. Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in the prescribed format.
2. The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.
The disclosures required under sub-regulation (1) and (2) shall be made within seven working days from the end of each financial year to:
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.
Question 2.
Write short note on the following:
Continual disclosure. (June 2014, 3 marks)
Question 3.
Write a short note on Dividend distribution policy. (Dec 2020, 5 marks)
Answer:
Dividend Distribution Policy
Dividend Distribution Policy Regulation 43A
(1) The top 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports
(2) The dividend distribution policy shall include the following parameters:
(a) the circumstances under which the shareholders of the listed entities may or may hot expect dividend;
(b) the financial parameters that shall be considered while declaring dividend;
(c) internal and external factors that shall be considered for declaration of dividend;
(d) policy as to how the retained earnings shall be utilized; and
(e) parameters that shall be adopted with regard to various classes of shares:
Provided that if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.
(3) The listed entities other than those specified at sub-regulation (1) of this regulation may disclose their dividend distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.
Question 4.
Regulation 30(3) of SEB1 (LODR), 2015 regarding disclosure of events upon application of materiality guidelines. (Dec 2020, 3 marks)
Answer:
As per Regulation 30 (3) The listed entity shall make disclosure of events specified in Para B of Part A of Schedule III, based on application of the guidelines for materiality, as specified in sub-regulation (4).
Further, as per Regulation 30 (4) (i) The listed entity shall consider the following criteria for determination of materiality of events/ information:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly: or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
(c) In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event/information is considered material.
Also as per Regulation 30 (4) (ii) The listed entity shall frame a policy for determination of materiality, based on criteria specified in this sub-regulation, duly approved by its board of directors, which shall be disclosed on its website.
Question 5.
Write a short note on the content of Management Discussion and Analysis. (Dec 2021, 3 marks)
Answer:
As per SEBI (LODR) Regulations, 2015, Management Discussion and Analysis Report should form part of the Annual Report of the Company to the shareholders. It should include discussion on the following matters within the limits set by the company’s competitive position:
(a) Industry structure and developments
(b) Strength and weakness
(c) Opportunities and Threats
(d) Segment-wise or product-wise performance
(e) Outlook
(f) Risks and concerns
(g) Internal control systems and their adequacy
(h) Discussion on financial performance with respect to operational performance
(i) Material developments in Human Resources, Industrial Relations front, including number of people employed.
(j) Environmental Protection and Conservation, Technological conservation, Renewable energy developments, Foreign Exchange conservation
(k) Corporate social responsibility
Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction.
Question 6.
Discuss provisions relating to prior intimation of Board Meeting to Stock Exchange as per SEBI (LODR) Regulations, 2015. (Dec 2017, 5 marks)
Answer:
Prior Intimations (Regulation 29)
The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors in the following manner:
1. The listed entity shall give prior intimation to stock exchange about the meeting of the board of directors in which any of the following proposals is due to be considered:
(a) financial results viz. quarterly, half yearly, or annual, as the case may be;
(b) proposal for buyback of securities;
(c) proposal for voluntary delisting by the listed entity from the stock exchange(s);
(d) fund raising by way of further public offer, rights issue, American Depository Receipts/Global Depository Receipts/Foreign Currency Convertible Bonds, qualified institutions placement, debt issue, preferential issue or any other method and for determination of issue price.
Provided that intimation shall also be given in case of any annual general meeting or extraordinary general meeting or postal ballot that is proposed to be held, for obtaining shareholder approval for further fund raising indicating type of issuance.
(e) declaration/ recommendation of dividend, issue of convertible securities including convertible debentures or of debentures carrying a right to subscribe to equity shares or the passing over of dividend.
(f) the proposal for declaration of bonus securities.
2. At least two working days in advance, excluding the date of the intimation and date of the meeting.
Provided that intimation regarding item specified in clause (a) of sub-regulation (1), to be discussed at the meeting of board of directors shall be given at least five days in advance (excluding the date of the intimation and date of the meeting), and such intimation shall include the date of such meeting of board of directors.
3. At least eleven working days before any of the following proposal is placed before the board of directors
(a) any alteration in the form or nature of any of its securities that are listed on the stock exchange or in the rights or privileges of the holders thereof.
(b) any alteration in the date on which, the interest on debentures or bonds, or the redemption amount of redeemable shares or of debentures or bonds, shall be payable.
Question 7.
To protect the interest of the Stakeholders, SEBI has taken various initiatives and Code of Fair Disclosure is one of the important step under Regulation 8 of SEBI (Prohibition of Insider Trading) Regulations, 2015. Prepare a note on Code of Fair Disclosure. (Dec 2019, 5 marks)
Answer:
Note on Code of Fair Disclosure
As per Code of Fair Disclosure under Regulation 8 of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015:
1. The board of directors of every company, whose securities are listed on a stock exchange, shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to the regulation on Prohibition of Insider Trading, without diluting the provisions in any manner.
This provision intends to require every company whose securities are listed on stock exchanges to formulate a stated framework and policy for fair disclosure of events and occurrences that could impact price discovery in the market for its securities. Principles such as, equality of access to information, publication of policies such as those on dividend, inorganic growth pursuits, calls and meetings with analysts, publication of transcripts of such calls and meetings, and the like are set out in the schedule to the Regulations on Prohibition of Insider Trading.
2. Every such code of practices and procedures for fair disclosure of unpublished price sensitive information and every amendment thereto shall be promptly intimated to the stock exchanges where the securities are listed. This provision is aimed at requiring transparent disclosure of the policy formulated in sub-regulation (1) of Regulation 8 of (Prohibition of Insider Trading) Regulations, 2015
SCHEDULE A [Sub-regulation (1) of regulation 8]
Principles of Fair Disclosure for purposes of Code of Practices and Procedures for Fair Disclosure of Unpublished Price Sensitive Information
- Prompt public disclosure of unpublished price sensitive information that would impact price discovery no sooner than credible and concrete information comes into being in order to make such information generally available.
- Uniform and universal dissemination of unpublished price sensitive information to avoid selective disclosure.
- Designation of a senior officer as a chief investor relations officer to deal with dissemination of information and disclosure of unpublished price sensitive information.
- Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available.
- Appropriate and fair response to queries on news reports and requests for verification of market rumours by regulatory authorities.
- Ensuring that information shared with analysts and research personnel is not unpublished price sensitive information.
- Developing best practices to make transcripts or records of proceedings of meetings with analysts and other investor relations conferences on the official website to ensure official confirmation and documentation of , disclosures made.
- Handling of all unpublished price sensitive information on a need-to-know basis.
Question 8.
What are the material disclosures of which information should be disclosed to Stock Exchange within 24 hours of conclusion of the Board Meeting as per SEBI (LODR) Regulations, 2015? (Dec 2019, 3 marks)
Answer:
Regulation 30(6) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 clarifies that the listed entity shall first disclose to stock exchange(s) of all events, as specified in Part A of Schedule III, of information as soon as reasonably possible and not later than twenty four hours from the occurrence of event or information.
- Commencement or any postponement in the date of commencement of commercial production or commercial operations of any unit/division.
- Change in the general character or nature of business brought about by arrangements for strategic, technical, manufacturing, or marketing tie-up, adoption of new lines of business or closure of operations of any unit/division (entirety or piecemeal).
- Capacity addition or product launch.
- Awarding, bagging/ receiving, amendment or termination of awarded/ bagged orders/contracts not in the normal course of business.
- Agreements (viz. loan agreement(s) (as a borrower) or any other agreement(s) which are binding and not in normal course of business) and revision(s) or amendment(s) or termination(s) thereof.
- Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc.
- Effect(s) arising out of change in the regulatory framework applicable to the listed entity.
- Litigation(s) / dispute(s) / regulatory action(s) with impact.
- Fraud/defaults etc. by directors (other than key managerial personnel) or employees of listed entity.
- Options to purchase securities including any ESOP/ESPS Scheme.
- Giving of guarantees or indemnity or becoming a surety for any third party.
- Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals.
Question 9.
What are the Materiality Guidelines ? Prepare a note on Disclosures of events upon application of the Materiality Guidelines. (Aug 2021, 5 marks)
Answer:
As per Regulation 30 of the Listing Regulations, every listed entity shall make disclosure of any event or information which, in the opinion of the board of directors of the listed company, is material.
Materiality Guidelines:
As per Regulation 30(4), the listed entity shall frame a policy for determination of materiality of events/ information, approved by the board of directors and which shall be disclosed on its website.
The criteria for determination of materiality of events/informations is:
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date; or
(c) In case Where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.
Disclosures of events upon application of the Materiality Guidelines:
Regulation 30(3) of the SEBI (LODR) Regulations, 2015 specifies that the listed entity shall make disclosure of events specified in Para B of Part ‘A’ of Schedule III,
Based on application of the guidelines for materiality. These are as follows:
- Commencement or any postponement in the date of commencement of commercial production or commercial operations of any unit/division.
- Change in the general character or nature of business brought about by arrangements for strategic, technical, manufacturing, or marketing tie-up, adoption of new lines of business or closure of operations of any unit/division (entirety or piecemeal).
- Capacity addition or product launch.
- Awarding, bagging/ receiving, amendment or termination of awarded/bagged orders/contracts not in the normal course of business.
- Agreements (viz. loan agreement(s) (as a borrower) or any other agreement(s) which are binding and not in normal course of business) ai id revision(s) or amendment(s) or termination(s) thereof.
- Disruption of operations of any one or more units or division of the listed
entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts etc. - Effect(s) arising out of change in the regulatory framework applicable to the listed entity
- Litigation(s) / dispute(s) / regulatory action(s) with impact.
- Fraud/defaults etc. by directors (other than key managerial personnel) or employees of listed entity.
- Options to purchase securities including any ESOP/ESPS Scheme.
- Giving of guarantees or indemnity or becoming a surety for any third party.
- Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals.
Question 10.
During the course of the statutory audit of Y Ltd., a listed company, it was observed for the first time that there are shares in the demat suspense account. State the disclosure requirements in this regard in Y Ltd.’s annual report. (Dec 2021, 5 marks)
Answer:
Para F of Schedule V of SEBI (LODR) Regulations, 2015 provides that the listed entity shall disclose the following details in its annual report, as long as there are shares in the demat suspense account or unclaimed suspense account, as applicable:
- aggregate number of shareholders and the outstanding shares in the suspense account lying at the beginning of the year;
- number of shareholders who approached listed entity for transfer of shares from suspense account during the year;
- number of shareholders to whom shares were transferred from suspense account during the year;
- aggregate number of shareholders and the outstanding shares in the suspense account lying at the end of the year;
- that the voting rights on these shares shall remain frozen till the rightful owner of such shares claims the shares.
Hence, Y Ltd. having shares in suspense account, has to disclose the above information in its annual report.
Question 11.
2022 – June [3] (c) Explain the content of “Management Discussion and Analysis” section of the Annual Report. (June 2022, 3 marks)
Question 12.
Write short note on CSR Policy.
Answer:
Corporate Social Responsibility Policy:
Section 135(4) of the Companies Act 2013, the Board of every company required to constitute CSR Committee shall after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, and ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
The CSR Policy of the company shall, inter-alia, include the following namely:-
- A list of CSR projects or programs which a company plans to undertake specifying modalities of execution of such project or programs and implementation schedules for the same
- Monitoring process of such projects or programs
- A clause specifying that the-surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of the company.
Activities which may be included by companies in their Corporate Social Responsibility Policies are activities relating to:
1. eradicating hunger, poverty and malnutrition, promoting health care including preventive health care” and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
2. promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
3. promoting ‘gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
4. ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
5. protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
6. measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;
7. training to promote rural sports, nationally recognised, sports, paralympic sports and Olympic sports
8. contribution to the prime minister’s national relief fund or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the central govt, for socio economic development and relief and welfare of the schedule caste, tribes, other backward classes, minorities and women;
9. (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and
(b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
10. rural development projects
11. slum area development.
12. disaster management, including relief, rehabilitation and reconstruction activities.
Question 13.
Write short notes on
(a) Risk Management Policy
(b) Vigil Mechanism Policy
(c) Nomination and Remuneration policy
Answer:
(a) Risk Management Policy:
Section 134 (3) (n) of the Companies Act 2013, provides that a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company should be included in the report by its Board of Directors.
(b) Vigil Mechanism Policy:
Section 177 (10) of the Companies Act 2013 provides that the vigil mechanism under sub-section (9) shall provide for adequate safeguards against victimisation of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in appropriate or exceptional cases and the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.]
(c) Nomination and Remuneration policy:
Section 178 (3) and (4) of the Companies Act 2013 provides that the Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees. The Nomination and Remuneration Committee shall, while formulating the policy shall ensure that
(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;
(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:
The policy shall be placed on the website of the company, if any, and the salient features of the policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report.
Question 14.
Write short notes on
(a) Risk Policy
(b) Policy for preservation of documents
(c) Archival Policy
(d) Policy for Determining ‘Material’ Subsidiary
(e) Policy on Materiality of Related Party
(f) Policy for determination of materiality of events
(g) Whistle Blower Policy
(h) Policy relating to the remuneration of the directors, key managerial • personnel and other employees
(i) Policy on board diversity
(j) Dividend Distribution Policy
Answer:
(a) Risk policy:
The listed entity shall have a risk policy which shall be reviewed and guided by the board of directors. [Regulation 4(2)(f)(ii)(1)]
(b) Policy for preservation of documents:
The listed entity shall have a policy for preservation of documents, approved by its board of directors, classifying them in at least two categories as follows-
(a) documents whose preservation shall be permanent in nature;
(b) documents with preservation period of not less than eight years after completion of the relevant transactions. The documents may be preserved in electronic mode. [Regulation 9]
(c) Archival Policy:
The listed entities would identify all the documents which need to be preserved under various regulations relating to securities laws and then develop a suitable archival policy. According to Section 2 (zf) of Lising Regulations “securities laws” covers the following-
- The Listing regulations
- The Securities Contracts (Regulation) Act, 1956,
- The Depositories Act, 1996,
The provisions of the Companies Act, 1956 and Companies Act, 2013, and the rules, regulations, circulars or guidelines made there under.
(d) Policy for Determining ‘Material’ Subsidiary:
“Material subsidiary” shall mean a subsidiary, whose income or not worth exceeds 10 [ten] percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. The listed entity shall formulate a policy for determining ‘material’ subsidiary. [Regulation 16(1 )(c)]
(e) Policy on Materiality of Related Party:
The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions 108[including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly. However, a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one thousand crore or ten percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
Not with standing the above, with effect from duly 01,2019 a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed five percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.
(f) Policy for determination of materiality of events:
The listed entity shall frame a policy for determination of materiality, duly approved by its board of directors, which shall be disclosed on its website. The policy shall be based on the following criteria for determination of materiality of events/ information:
- The omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
- The omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date;
- In case where the criteria specified in sub-clauses (a) and (b) are not applicable, an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.
(g) Whistle Blower Policy:
The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns under which they can have direct access to the chairperson of the audit committee in appropriate or exceptional cases and formulate and disclose whistle blower policy. [Regulation 22 and 46 (2) (e)]
(h) Policy relating to the remuneration of the directors, key managerial personnel and other employees
The listed entity shall formulate a policy on the remuneration of the directors, key managerial personnel and other employees. [Part- D, Schedule II (1)]
(i) Policy on board diversity
The listed entity shall formulate a policy on diversity of board of directors is mentioned as a role of nomination and remuneration committee. [Part- D, Schedule II (3)].
(J) Dividend Distribution Policy
Dividend Distribution Policy Regulation 43A
(1) The top 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link shall also be provided in their annual reports.
(2) The dividend distribution policy shall include the following parameters:
(a) the circumstances under which the shareholders of the listed entities may or may not expect dividend;
(b) the financial parameters that shall be considered while declaring dividend;
(c) internal and external factors that shall be considered for declaration of dividend;
(d) policy as to how the retained earnings shall be utilized; and
(e) parameters that shall be adopted with regard to various classes of shares:
Provided that if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.
(3) The listed entities other than those specified at sub-regulation (1) of this regulation may disclose their dividend distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.
Question 15.
Write short notes on
(a) Insider Trading Policy
(b) Policy for prevention of sexual hara$sment at workplace
Answer:
(a) Insider Trading Policy: A listed company has to also formulate Insider Trading Policy as per the requirements of SEBI (Prohibition of Insider Trading) Regulations, 2015.
(b) Policy for prevention of sexual harassment at workplace: All companies are required to formulate policy for prevention of sexual harassment at workplace under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The policy should contain the procedures and guidelines to govern cases against sexual harassment in the company.
Question 16.
Write a short note on Voluntary Policies.
Answer:
Voluntary Policies: In addition to above, the companies may also formulate following policies:
- Code of business conduct & Ethics
- Ethics policy
- Information security policy
- Health and safety policy
- Gender diversity policy
- Environmental policy
- Policy on investor relations
- Quality policy
- Social accountability policy
- Communication policy
- Investment and cash policy
- Policy for ascertaining the ‘Fit and Proper’ status of directors
- Affirmative action policy
- Code of corporate disclosures
Question 17.
Write short notes on
(a) Continual disclosures (Regulation 30) as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
(b) Disclosure of encumbered shares (Regulation 31) as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
(c) Filing of draft offer document and offer document (Regulation 25) as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
(d) Annual Report Disclosures [Regulation (34)] as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Answer:
(a) Continual disclosures (Regulation 30):
1. Every person, who together with persons acting in concert with him, holds shares or voting rights entitling him to exercise twenty-five per cent or more of the voting rights in a target company, shall disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in the prescribed format.
2. The promoter of every target company shall together with persons acting in concert with him, disclose their aggregate shareholding and voting rights as of the thirty-first day of March, in such target company in such form as may be specified.
The disclosures required under sub-regulation (1) and (2) shall be made within seven working days from the end of each financial year to, –
(a) every stock exchange where the shares of the target company are listed; and
(b) the target company at its registered office.
(b) Disclosure of encumbered shares (Regulation 31):
1. The promoter of every target company shall disclose details of shares in such target company encumbered by him or by persons acting in concert with him in the prescribed format.
2. The promoter of every target company shall disclose details of any invocation of such encumbrance or release of such encumbrance of shares in prescribed format.
3. The disclosures required under sub-regulation (1) and sub-regulation (2) shall be made within seven working days from the creation or invocation or release of encumbrance, as the case may be to,—
(a) every stock exchange where the shares of the target company are listed; and .
(b) the target company at its registered office.
(c) 1. Prior to making an initial public offer, the issuer shall file three copies of the draft offer document with the concerned regional office of the SEBI under the jurisdiction of which the registered office of the issuer company is located, in accordance with Schedule IV, along with fees as specified in Schedule III, through the lead manager(s).
2. The lead manager(s) shall submit the following to the SEBI along with the draft offer document:
(a) a certificate, confirming that an agreement has been entered into between the issuer and the lead manager(s);
(b) a due diligence certificate as per Form A of Schedule V;
(c) in case of an issue of convertible debt instruments, a due diligence certificate from the debenture trustee as per Form B of Schedule V;
3. The issuer shall also file the draft offer document with the stock exchange(s) where the specified securities are proposed to be listed, and submit to the stock exchange(s), the Permanent Account Number, bank account number and passport number of its promoters where they are individuals, and Permanent Account Number, bank account number, company registration number or equivalent and the address of the Registrar of Companies with which the promoter is registered, where the promoter is a body corporate.
(d) Annual Report Disclosures [Regulation (34)]:
The listed entity shall submit the annual report to the stock exchange within twenty one working days of it being approved and adopted in the annual general meeting as per the provisions of the Companies Act, 2013 which shall contain the following:
(a) audited financial statements i.e. balance sheets, profit and loss accounts etc., and Statement on Impact of Audit Qualifications as stipulated in regulation 33(3)(d), if applicable;
(b) consolidated financial statements audited by its statutory auditors;
(c) cash flow statement presented only under the indirect method as prescribed in Accounting Standard-3 or Indian Accounting Standard 7, as applicable, specified in Section 133 of the Companies Act, 2013 read with relevant rules framed thereunder or as specified by the Institute of Chartered Accountants of India, whichever is applicable;
(d) directors report;
(e) management discussion and analysis report – either as a part of directors report or addition thereto;
(f) for the top one thousand listed entities based on market capitalization, a business responsibility report describing the initiatives taken by the listed entity from an environmental, social and governance perspective, in the format as specified by the Board from time to time:
Provided that the requirement of submitting a business responsibility report shall be discontinued after the financial year 2021-22 and thereafter, with effect from the financial year 2022-23, the top one thousand listed entities based on market capitalization shall submit a business responsibility and sustainability report in the format as specified by the Board from time to time:
Provided further that even during the financial year 2021-22, the top one thousand listed entities may voluntarily submit a business responsibility and sustainability report in place of the mandatory business responsibility report:
Provided further that the remaining listed entities including the entities which have listed their specified securities on the SME Exchange, may voluntarily submit such reports.
Explanation: For the purpose of this clause, market capitalization shall be calculated as on the 31st day of March of every financial year.
Question 18.
Write short notes on the Materiality Guidelines?
Answer:
As per Regulation (4), the listed entity shall frame a policy for determination
of materiality of events/ information, approved by the board of directors and
which shall be disclosed on its website on the basis of following criteria-
(a) the omission of an event or information, which is likely to result in discontinuity or alteration of event or information already available publicly; or
(b) the omission of an event or information is likely to result in significant market reaction if the said omission came to light at a later date; or
(c) an event/information may be treated as being material if in the opinion of the board of directors of listed entity, the event / information is considered material.
Question 19.
Write a short note on Related Party Disclosure
Answer:
Related Party Disclosure:
1. The listed entity shall make disclosures in compliance with the Accounting Standard on “Related Party Disclosures”.
2. The disclosure requirements shall be as follows:
| S.
No. |
In the accounts of | Disclosures of amounts at the year end and the maximum amount of loans/ advances/investments outstanding during the year. |
| 1. | Holding Company | Loans and advances in the nature of loans to subsidiaries by name and amount. Loans and advances in the nature of loans to associates by name and amount. Loans and advances in the nature of loans to firms/companies in which directors are interested by name and amount. |
| 2. | Subsidiary | Same disclosures as applicable to the parent company in the accounts of subsidiary company |
| 3. | Holding Company | Investments by the loanee in the shares of parent company and subsidiary company, when the company has made a loan or advance in the nature of loan. |
For the purpose of above disclosures directors’ interest shall have the same meaning as given in Section 184 of Companies Act, 2013.
3. The above disclosures shall be applicable to all listed entities except for listed banks.
Question 20.
Write short notes on
(a) Initial Disclosure (Regulation 7 (1)) as per SEBI (Prohibition of Insider Trading) Regulations, 2015.
(b) Continual Disclosures: Regulation 7(2) as per SEBI (Prohibition of Insider Trading) Regulations, 2015.
(c) Code of Fair Disclosure (Regulation 8) as per SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015.
Answer:
(a) Initial Disclosures [Regulation 7(1)]:
(a) Every person on appointment as a key managerial personnel or a director of the company or upon becoming a promoter shall disclose pis holding of securities of the company as on the date of appointment or becoming a promoter, to the company within seven days of such appointment or becoming a promoter.
(b) Continual Disclosures [Regulation 7(2)]
1. Every promoter, member of the promoter group, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified;
2. Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of receipt of the disclosure or from becoming aware of such information.
Explanation: It is clarified for the avoidance of doubts that the disclosure of the incremental transactions after any disclosure under this sub-regulation, shall be made when the transactions effected after the prior disclosure cross the threshold specified in clause (a) of sub-regulation (2).
3. The above disclosures shall be made in such form and such manner as may be specified by the Board from time to time.
(c) Code of Fair Disclosure (Regulation 8)
1. The board of directors of every company, whose securities are listed on a stock exchange, shall formulate and publish on its official website, a code of practices and procedures for fair disclosure of unpublished price sensitive information that it would follow in order to adhere to each of the principles set out in Schedule A to these regulations, without diluting the provisions of these regulations in any manner.
This provision intends to require every company whose securities are listed on stock exchanges to formulate a stated framework and policy for fair disclosure of events and occurrences that could impact price discovery in the market for its securities. Principles such as, equality of access to information, publication of policies such as those on dividend, inorganic growth pursuits, calls and meetings with analysts, publication of transcripts of such calls and meetings, and the like are set out in the schedule.
2. Every such code of practices and procedures for fair disclosure of unpublished price sensitive information and every amendment thereto shall be promptly intimated to the stock exchanges where the securities are listed.
This provision is aimed at requiring transparent disclosure of the policy formulated in sub-regulation (1).
Corporate Policies and Disclosures Notes
The key policies required for companies under the Companies Act, 2013 include:
- Corporate Social Responsibility Policy
- Risk Management Policy
- Vigil Mechanism Policy
- Nomination and Remuneration policy
Policies under the SEBI (LODR), Regulations, 2015
- Risk Policy
- Policy for Preservation of Documents
- Archival Policy
- Policy for Determining ‘Material’ Subsidiary
- Policy on Materiality of Related Party Transactions
- Policy for determination of materiality of events
- Whistle Blower Policy
- Policy Relating to the Remuneration of Directors, KMPs & Other Employees
- Policy on Diversity of Board
- Dividend Distribution Policy
Policies under other Laws and Voluntary Policies
- Insider Trading Policy
- Policy for prevention of sexual harassment at workplace
- Voluntary Policies
CSR
Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable – to itself, its stakeholders, and the public.