SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 – Securities Laws and Capital Markets Important Questions

SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 – Securities Laws and Capital Markets Important Questions

Question 1.
Write a short note on Types of Listing [Dec. 2016 (4 Marks)]
Answer:
Listing of securities falls under five groups:

  • Initial Listing: If the shares or securities are to be listed for the first time by a company on a stock exchange is called initial listing.
  • Listing for Public Issue: When a company whose shares are listed on a stock exchange comes out with a public issue of securities, it has to list such issues with the stock exchange.
  • Listing for Rights Issue: When companies whose securities are listed on the stock exchange issue securities to existing shareholders on a rights basis, it has to list such rights issues on the concerned stock exchange.
  • Listing of Bonus Shares: It is a listing of shares issued as a result of capi¬talisation of profit through a bonus.
  • Listing for merger or amalgamation: When new shares are issued by an amalgamated company to the shareholders of the amalgamating com¬pany, such shares are also required to be listed on the concerned stock exchange.

Question 2.
“Listing of securities with stock exchanges is a matter of great importance for companies and investors.” Comment on this statement and list out the benefits of listing for the companies and investors. [June 2017 (4 Marks)]
Answer:
Benefits to the Company: The following benefits are available to the company when securities are listed by a company in the stock exchange:

  • The public image of the company is enhanced.
  • The liquidity of the security is ensured making it easy to buy and sell the securities in the stock exchange.
  • Tax concessions are made available both to the investors and the companies.
  • The listing procedure compels company management to disclose important information to the investors enabling them to make crucial decisions with regard to keeping or disposing of such securities.
  • Listed companies command better support such as loans and investments from Banks and FIs.

Benefits to the investors:

  • It affords liquidity to their holdings.
  • It affords them to obtain the best prices for the securities they want to sell-off.
  • The Stock Exchange quotation helps the investors to keep themselves abreast of the price changes of the securities owned or held by them.
  • The investors get maximum protection in regard to their holdings because the Stock Exchange rules and regulations have been formulated with the end in view.
  • The listing gives an added collateral value to the securities held by investors, for banks in making loans and advances prefer security quoted on the Stock Exchange.
  • Listing is also advantageous in the matter of income-tax, wealth-tax, estate duty, and other taxes payable by shareholders in their capacity as assessee.

Question 3.
Explain briefly: Multiple listing [June 2013 (3 Marks)]
Answer:
A company with a paid-up capital above ₹ 5 Crore should list its securities or have its securities permitted for trading, on at least one stock exchange having Nationwide Trading Terminals.

The benefit of multiple listing: Multiple listing provides arbitrage opportunities 1 to the investors, whereby they can make a profit based on the difference in the | prices prevailing in the said exchanges.

Question 4.
Explain: Multiple Listing [June 2016 (2 Marks)]
Answer:
A company with a paid-up capital above ₹ 5 Crore should list its securities or have its securities permitted for trading, on at least one stock exchange having Nationwide Trading Terminals.

The benefit of multiple listing: Multiple listing provides arbitrage opportunities to the investors, whereby they can make a profit based on the difference in the prices prevailing in the said exchanges.

Question 5.
Discuss the duties of a ‘Compliance Officer’ in a listed company. [Dec. 2006 (4 Marks)]
Answer:
Compliance Officer and his Obligations [Regulation 6]: A listed entity; shall appoint a qualified Company Secretary as the Compliance Officer.

The Compliance Officer of the listed entity shall be responsible for:

  • Ensuring conformity with the regulatory provisions applicable to the listed entity in letter and spirit.
  • Coordination with and reporting to SEBI recognized stock exchanges, and depositories with respect to compliance with rules, regulations, and other directives of these authorities in a manner as specified from time to time.
  • Ensuring that the correct procedures have been followed would result in the correctness, authenticity, and comprehensiveness of the information, statements, and reports filed by the listed entity under these regulations.
  • Monitoring email address of grievance redressal division as designated by the listed entity for the purpose of registering complaints by investors. However, requirements of this regulation shall not be applicable in the case of units issued by mutual funds which are listed on the recognized stock exchange but shall be governed by the provisions of the SEBI (Mutual Funds) Regulations, 1996.

Question 6.
State any four regulations of the SEBI (LODR) Regulations, 2015. [Dec. 2008 (5 Marks)]
Answer:
Some of the regulations of the SEBI (LODR) Regulations, 2015 are as follows:

Scheme of Arrangement [Regulation 11] The listed entity shall ensure that any scheme of arrangement/ amalgamation/merger/reconstruction/reduction of capital etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchanges.
Payment of dividend etc. [Regulation 12] The listed entity shall use an electronic mode of payment facility approved by the RBI for the payment of dividends, interest, redemption, or repayment principle amounts. However, where it is not possible to use an electronic mode of payment, ‘payable- at par warrants or cheques may be issued.
Fees and other charges [Regulation 14] The listed entity shall pay all such fees or charges, as applicable, to the recognized stock exchanges, in the manner specified by the SEBI or the recognized stock exchanges.
Annual Information Memorandum [Regulation 35] The listed entity shall submit to the stock exchanges an Annual Information Memorandum in the manner specified by the SEBI from time to time.
Minimum Public Shareholding [Regulation 38] The listed entity shall comply with the minimum public shareholding requirements specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957 in the manner as specified by the SEBI from time to time. However, this provision shall not apply to entities listed on the institutional trading platforms without making a public issue.
Dividends [Regulation 43] The listed entity shall declare and disclose the dividend on a per-share basis only. The listed entity shall not forfeit unclaimed dividends before the claim becomes barred by law and such forfeiture, if effected, shall be annulled in appropriate cases.
Accounting Standards [Regulation 48] The listed entity shall comply with all the applicable and notified Accounting Standards from time to time.

Question 7.
You are Company Secretary of All Season Travels Ltd., which is listed on the stock exchange after an IPO is made by the company. Your Board of directors desires to understand the compliance requirements relating to the publication of financial results. Write a Board note on ‘Regulation 33 of the SEBI (LODR) Regulations, 2015’, [Dec. 2011 (7 Marks)]
Answer:
Financial Results [Regulation 33]:
1. While preparing financial results, the listed entity shall comply with the following:
(a) The financial results shall be prepared on the basis of accrual ac¬counting policy and shall be in accordance with uniform accounting practices adopted for all the periods.

(b) The quarterly and year to date results shall be prepared in accor¬dance with the recognition and measurement principles laid down in AS-25 or IAS-3 f (AS 25/Ind AS 34 – Interim Financial Reporting), as applicable, specified in Section 133 of the Companies Act, 2013 read with relevant rules framed thereunder or as specified by the ICAI, whichever is applicable.

(c) The standalone financial results and consolidated financial results shall be prepared as per Generally Accepted Accounting Principles in India. In addition to the above, the listed entity may also submit the financial results, as per the IFRS notified by the IASB.

(d) The listed entity shall ensure that the limited review or audit reports submitted to the stock exchange(s) on a quarterly or annual basis are to be given only by an auditor who has subjected himself to the peer review process of ICAI and holds a valid certificate issued by the Peer Review Board of the ICAI.

(e) The listed entity shall make the disclosures specified in Part A of Schedule IV.

2. The approval and authentication of the financial results shall be done by a listed entity in the following manner:
(a) The quarterly financial results submitted shall be approved by the board of directors. However, while placing the financial results before the board of directors, the CEO and CFO of the listed entity shall certify that the financial results do not contain any false or misleading statements or figures and do not omit any material fact which may make the statements or figures contained therein misleading.

(b) The financial results submitted to the stock exchange shall be signed by the Chairperson or Managing Director, or a Whole Time Direc¬tor or in the absence of all of them; it shall be signed by any other director of the listed entity who is duly authorized by the board of directors to sign the financial results.

(c) The limited review report shall be placed before the board of direc¬tors, at its meeting which approves the financial results, before being submitted to the stock exchange.

(d) The annual audited financial results shall be approved by the board of directors of the listed entity and shall be signed as stated above.

3. The listed entity shall submit the financial results in the following manner:
(a) The listed entity shall submit quarterly and year-to-date standalone financial results to the stock exchange within 45 days of the end of each quarter, other than the last quarter.

(b) In case the listed entity has subsidiaries, the listed entity shall also submit quarterly/year-to-date consolidated financial results.

(c) The quarterly and year-to-date financial results may be either audited or unaudited subject to the following:
1. In case the listed entity opts to submit unaudited financial results, they shall be subject to limited review by the statutory auditors of the listed entity and shall be accompanied by the limited review report. In the case of public sector undertakings, this limited review may be undertaken by any practicing Chartered Accountant.

2. In case the listed entity opts to submit audited financial results, they shall be accompanied by the audit report.

(d) The listed entity shall submit annual audited standalone financial results for the financial year, within 60 days from the end of the financial year along with the audit report and Statement on Impact g of Audit Qualifications for audit report with modified opinion. If the ig listed entity has subsidiaries, it shall, while submitting annual audited standalone financial results also submit annual audited consolidated financial results along with the audit report and Statement on Impact of Audit Qualifications for audit report with modified opinion.

In case of audit reports with unmodified opinion, the listed entity shall furnish a declaration to that effect to the Stock Exchange while f publishing the annual audited financial results,

(e) The listed entity shall also submit the audited or limited reviewed financial results in respect of the last quarter along with the results for the entire financial year, with a note stating that the figures of last quarter are the balancing figures between audited figures in respect f of the full financial year and the published year-to-date figures up
to the third quarter of the current financial year.

(f) The listed entity shall also submit as part of its standalone or consolidated financial results for the half-year, by way of a note, a statement of assets and liabilities as at the end of the half-year.

(g) The listed entity shall also submit as part of its standalone and consolidated financial results for the half-year, by way of a note, statement of cash flows for the half-year.

(h) The listed entity shall ensure that, for the purposes of quarterly consolidated financial results, at least eighty percent of each of the consolidated revenue, assets, and profits, respectively, shall have been subject to audit or in case of unaudited results, subjected to limited review.

(i) The listed entity shall disclose, in the results for the last quarter in the financial year, by way of a note, the aggregate effect of material adjustments made in the results of that quarter which pertain to earlier periods.

4. The applicable formats of the financial results and Statement on Impact of Audit Qualifications (for audit report with modified opinion) shall be in the manner as specified by the SEBI.

5. For the purpose of this regulation, any reference to “quarterly/quarter” in case of the listed entity which has listed their specified securities on SME Exchange shall be respectively read as “half-yearly/half-year” and the requirement of submitting ‘year-to-date’ financial results shall not be applicable for a listed entity which has listed their specified securities on SME Exchange.

6. The Statement on Impact of Audit Qualifications (for audit report with modified opinion) and the accompanying annual audit report shall be reviewed by the stock exchange.

7. The statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/companies whose accounts are to be consolidated with the listed entity as per AS-21 in accordance with guidelines issued by the SEBI on this matter.

Annual Report [Regulation 34]:
1. The listed entity shall submit to the stock exchange and publish on its website –
(a) A copy of the annual report sent to the shareholders along with the notice of the annual general meeting not later than the day of commencement of dispatch to its shareholders.

(b) In the event of any changes to the annual report, the revised copy along with the details and explanation for the changes shall be sent not later than 48 hours after the AGM.

2. The annual report shall contain the following:
(a) Audited financial statements i.e. balance sheets, profit and loss accounts, and Statement on Impact of Audit Qualifications, if applicable.

(b) Consolidated financial statements audited by its statutory auditors.

(c) Cash flow statement presented only under the indirect method as prescribed in AS-3 or IAS-7, as applicable, specified in Section 133 of the Companies Act, 2013 read with relevant rules framed thereunder or as specified by the ICAI, 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 500 listed entities based on market capitalization, business responsibility report describing the initiatives taken by them from an environmental, social, and governance perspective, in the format as specified by the SEBI from time to time.

Listed entities other than top 500 listed companies based on market capitalization and listed entities that have listed their specified securities on SME Exchange, may include these business responsibility reports on a voluntary basis in the format as specified.

3. The annual report shall contain any other disclosures specified in the Companies Act, 2013 along with other requirements as specified in Schedule V.

Question 8.
Write a short note on Whistle Blower Policy [June 2015 (4 Marks)]
Answer:
Regulation 22 of the SEBI (LODR) Regulations, 2015 makes the following provisions on Whistle Blower Policy.
Vigil Mechanism [Regulation 22]: The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns:
The vigil mechanism shall provide for adequate safeguards against victimization of directors or employees or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

‘Whistle-Blower Policy’/‘vigil mechanism’ explained:
The concept of ‘Whistle-Blower Policy’/‘vigil mechanism’ is borrowed from western thinking. The concept is that there are many employees at various levels in the organization who feel that something is going wrong e.g. corruption, violation of law, wastages, unethical practices, etc. The policy/mechanism to report such corruption, violation of law, wastages, and unethical practices is known as the vigil mechanism.

In many cases when lower-level employee reports such incidence and they are victimized – may be demoted or removed from his job. In fear of losing job, he will not report such incidence hence regulation provides that vigil mechanism shall provide adequate safeguards against victimization of directors or employees or any other j person who avail the mechanism.

Question 9.
State any six regulations of the SEBI (LODR) Regulations, 2015. [June 2012 (5 Marks)]
Answer:
Some of the regulations of the SEBI (LODR) Regulations, 2015 are as follows:

Scheme of Arrangement [Regulation 11] The listed entity shall ensure that any scheme of arrangement/ amalgamation/merger/reconstruction/reduction of capital etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchanges.
Payment of dividend etc. [Regulation 12] The listed entity shall use an electronic mode of payment facility approved by the RBI for the payment of dividends, interest, redemption, or repayment principle amounts. However, where it is not possible to use an electronic mode of payment, ‘payable- at par warrants or cheques may be issued.
Fees and other charges [Regulation 14] The listed entity shall pay all such fees or charges, as applicable, to the recognized stock exchanges, in the manner specified by the SEBI or the recognized stock exchanges.
Annual Information Memorandum [Regulation 35] The listed entity shall submit to the stock exchanges an Annual Information Memorandum in the manner specified by the SEBI from time to time.
Minimum Public Shareholding [Regulation 38] The listed entity shall comply with the minimum public shareholding requirements specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957 in the manner as specified by the SEBI from time to time. However, this provision shall not apply to entities listed on the institutional trading platforms without making a public issue.
Dividends [Regulation 43] The listed entity shall declare and disclose the dividend on a per-share basis only. The listed entity shall not forfeit unclaimed dividends before the claim becomes barred by law and such forfeiture, if effected, shall be annulled in appropriate cases.
Accounting Standards [Regulation 48] The listed entity shall comply with all the applicable and notified Accounting Standards from time to time.

Question 10.
Nikhil Ltd., a listed company is confused about the composition of the Board of directors, seeks your advice regarding the composition of the Board of directors as per SEBI (LODR) Regulations, 2015. As a Company Secretary of Nikhil j Ltd., offer your suggestions by highlighting provisions of applicable regula¬tion. [Dec. 2015 (6 Marks)]
Answer:
Board of Directors [Regulation 17]: The composition of the 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.

However, the Board of directors of the top 500 listed entities shall have at least 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 financial year.

(b) Where the chairperson of the board of directors is a non-executive direc¬tor, at least 1 / 3rd of the board of directors shall comprise independent directors.

Where the listed entity does not have a regular non-executive chairper¬son, at least 50% of the board of directors shall comprise 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 man¬agement 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 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 financial year.

(d) Where the listed company has outstanding SR equity shares, at least half of the board of directors shall comprise independent directors. Appointment of a non-executive director having age more than 75 years:

No listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of 75 years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person.

Chairperson of the board: With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson of the board of such listed entity shall –
(a) be a non-executive director;
(b) not be related to the Managing Director or the Chief Executive Officer as per the definition of the term “relative” defined under the Companies Act, 2013.

However, this provision shall not be applicable to the listed entities which do not have any identifiable promoters as per the shareholding pattern filed with stock exchanges.

Question 11.
What are the policies required to be framed under SEBI (LODR) Regulations, 2015? [June 2017 (4 Marks)]
Answer:
Following policies are required to be framed under the SEBI (LODR)
Regulations, 2015:

  • The listed entities other than the top 500 listed entities based on market capitalization may disclose their dividend distribution policies on a voluntary basis in their annual reports and on their websites.
  • Significant changes in accounting policies during the year and that the same should be disclosed in the notes to the financial statements.
  • Changes in accounting policies and practices and reasons for the same.
  • The listed entity shall formulate a policy on the materiality of related party transactions and on dealing with related party transactions.
  • Vigil mechanism/Whistle Blower policy.
  • Policy on dealing with related party transactions.
  • Policy for determining ‘material subsidiaries’.
  • The nomination and remuneration committee shall devise a policy on the diversity of the board of directors.
  • Risk policy.
  • Policy for the preservation of documents.

Question 12.
A listed entity shall not be allowed to change its name more than once. [Dec. 2017 (5 Marks)]
Answer:
Change in name of the listed entity [Regulation 45 of the SEBI (LODR) Regulations, 2015]: The listed entity shall be allowed to change its name subject to compliance with the following conditions:
(a) A time period of at least one year has elapsed from the last name change.
(b) At least 50% of the total revenue in the preceding one-year period has been accounted for by the new activity suggested by the new name.
(c) The amount invested in the new activity/project is at least 50% of the assets of the listed entity. However, if any listed entity has changed its activities that are not reflected in its name, it shall change its name in line with its activities within a period of 6 months from the change of activities in compliance with provisions as applicable to change of name prescribed under the Companies Act, 2013.

On satisfaction of the above conditions, the listed entity shall file an application for name availability with ROC.

On receipt of confirmation regarding name availability from ROC, before filing the request for change of name with the ROC, the listed entity shall seek approval from Stock Exchange by submitting a certificate from CA stating compliance with required conditions.

Question 13.
For ensuring independence in the spirit of Independent Directors and their active participation in the functioning of the company, SEBI has accepted many recommendations of the Committee set up under the Chairmanship of Shri Uday Kotak and made amendments in the SEBI (Listing Obligations and Disclo¬sure Requirements) Regulations, 2015. Explain any four amended provisions related to Independent Directors. [Dec. 2018 (4 Marks)]
Answer:
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 financial 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) fulfillment of the independence criteria as specified in these regula¬tions 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. A person shall not serve as an independent director in more than seven listed entities, [w.e.f. 1.4.2019]

Question 14.
MCS Ltd. is a listed company with Bombay Stock Exchange Ltd. The company enters into related party transactions frequently with MAP Ltd. in which one of the directors of MCS Ltd. holds 3% paid-up capital of MAP Ltd. MCS
Ltd. feels that getting the approval of the Audit Committee for each transaction is time-consuming and delaying the operational plan. You, being a Company Secretary of MCS Ltd., advise the management with reference to SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 for approval of the related party transactions from the Audit Committee for the next year. Will your answer be different if MAP Ltd. is a wholly-owned subsidiary of MCS Ltd.? [Dec. 2018 (4 Marks)]
Answer:
As per Regulation 23(3) & (4) of the SEBI (LODR) Regulations, 2015, all related party transactions shall require prior approval of the audit committee.

The audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions:
(a) The audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions that are repetitive in nature.

(b) The audit committee shall satisfy itself regarding the need for such omni¬bus approval and that such approval is in the interest of the listed entity.

(c) The omnibus approval shall specify:

  1. the names of the related party, nature of the transaction, period of transaction, the maximum amount of transactions that shall be entered into,
  2. the indicative base price/current contracted price and the formula for variation in the price if any; and
  3. such other conditions as the audit committee may deem fit. However, where the need for related party transactions cannot be foreseen and aforesaid details are not available, the audit committee may grant omni¬bus approval for such transactions subject to their value not exceeding t 1 Crore per transaction.

(d) The audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given.

(e) Such omnibus approvals shall be valid for a period not exceeding 1 year and shall require fresh approvals after the expiry of 1 year.

Above provisions shall not be applicable in the following cases:
(a) transactions entered into between two government companies;
(b) transactions entered into between a holding company and its wholly-owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Considering the above provisions, the answer to the given problem is as follows:

  1. The audit committee of MCS Ltd. can grant omnibus approval for related party transactions subject to fulfillment of the above-stated conditions of the SEBI (LODR) Regulations, 2015.
  2. The provisions of clauses (3), (4) & (5) stated above shall not be applicable for transactions entered into between a holding company and its wholly-owned subsidiary if the accounts are consolidated and placed before the shareholders at the general meeting for approval. Hence, in this case, transactions with related parties can be entered without prior approval.

Omnibus approval explained:
Black’s Law Dictionary defines ‘omnibus’ as ‘relating to or dealing with numerous objects or items at once; including many things or having various purposes ’. In the context of the related party transaction, ‘omnibus’ refers to the collective approval of the transaction instead of the piecemeal/individual approval

Question 15.
A listed company can apply to the 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 a 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)]
Answer:
As per Regulation 31 A(3)(h) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the promoters seeking re-classification and persons related to the promoters seeking re-classification shall not:

  1. together, hold more than 10% of the total voting rights in the listed entity;
  2. exercise control over the affairs of the listed entity directly or indirectly;
  3. have any special rights with respect to the listed entity through formal or informal arrangements including through any shareholder agreements;
  4. be represented on the board of directors (including not having a nominee ‘ director) of the listed entity;
  5. act as a KMP in the listed entity;
  6. be a ‘wilful defaulter’ as per the RBI Guidelines;
  7. be a fugitive economic offender.

As per Regulation 31A(3)(c) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the listed entity shall:

  1. be compliant with the requirement for minimum public shareholding as required under regulation 38 of these regulations;
  2. not have traded in its shares suspended by the stock exchanges;
  3. not have any outstanding dues to the Board, the stock exchanges, or the depositories.

Keeping in view the above provisions, the answer to the given case is as follows:

  • The promoter who is declared as a wilful defaulter as per RBI Guideline cannot apply for re-classification.
  • Promoter holding 12% of the total voting rights in the listed entity cannot apply for re-classification.
  • Promoter acting CEO cannot apply for re-classification being a key managerial person of the company.
  • Promoter companies having outstanding listing fees cannot apply for reclassification.

Question 16.
Corporate governance is the application of best management practices. Comment. [June 2009 (4 Marks)]
Answer:
Corporate Governance is a system of rules, practices, and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company – these include its shareholders, management, customers, suppliers, financiers, government, and the community.

Corporate Governance stipulates parameters of accountability, control, and reporting functions of the board of directors. It is a set of systems and procedures to ensure that the company is managed to suit the best interest of all stakeholders.

In India, requirements of corporate governance have been specified by SEBI through Clause 49 of the Listing Agreement.

Question 17.
Explain the term: Corporate Governance [Dec. 2009 3 Marks)]
Answer:
Corporate Governance is a system of rules, practices, and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of the many stakeholders in a company – these include its shareholders, management, customers, suppliers, financiers, government, and the community.

Corporate Governance stipulates parameters of accountability, control, and reporting functions of the board of directors. It is a set of systems and procedures to ensure that the company is managed to suit the best interest of all stakeholders.

In India, requirements of corporate governance have been specified by SEBI through Clause 49 of the Listing Agreement.

Question 18.
Discuss briefly the composition, role, and responsibilities of an audit committee under the listing regulations. [Dec. 2010 (7 Marks)]
Answer:
Regulation 18 o[ the SEBI (LODR) Regulations, 2015 makes the following provisions on the audit committee.

Audit Committee [Regulation 18]:
1. Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:
(a) The audit committee shall have a minimum of 3 directors as members.
(b) 2/3rd of the members of the 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.
(c) All members of the audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

The explanation I: ‘Financially literate’ shall mean the ability to read and understand basic financial statements ¿e. balance sheet, profit and loss account, and statement of cash flows.

Explanation 2:A member shall be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officers with financial oversight responsibilities.

(d) The chairperson of the audit committee shall be an independent di¬rector and he shall be present at the Annual general meeting to answer shareholder queries.

(e) The Company Secretary shall act as the secretary to the audit com¬mittee.

(f) The audit committee at its discretion shall invite the finance director or head of the finance function, head of the internal audit, and a repre¬sentative 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.

2. The listed entity shall conduct the meetings of the audit committee in the following manner:
(a) The audit committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings.
(b) The quorum for an audit committee meeting shall either be 2 members or 1 /3rd members, whichever is greater, with at least 2 independent directors.
(c) The audit committee shall have powers to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice, and secure attendance of outsiders with relevant expertise if considers necessary.

3. The role of the audit committee and the information to be reviewed by the audit committee shall be as specified in Part C of Schedule II.

Question 19.
Discuss briefly the composition of the ‘audit committee’ in terms of listing agreement and enumerate its role and responsibilities. [June 2013 (9 Marks)]
Answer:
Regulation 18 o[ the SEBI (LODR) Regulations, 2015 makes the following provisions on the audit committee.

Audit Committee [Regulation 18]:
1. Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:
(a) The audit committee shall have a minimum of 3 directors as members.
(b) 2/3rd of the members of the 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.
(c) All members of the audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

The explanation I: ‘Financially literate’ shall mean the ability to read and understand basic financial statements ¿e. balance sheet, profit and loss account, and statement of cash flows.

Explanation 2:A member shall be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officers with financial oversight responsibilities.

(d) The chairperson of the audit committee shall be an independent di¬rector and he shall be present at the Annual general meeting to answer shareholder queries.

(e) The Company Secretary shall act as the secretary to the audit com¬mittee.

(f) The audit committee at its discretion shall invite the finance director or head of the finance function, head of the internal audit, and a repre¬sentative 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.

2. The listed entity shall conduct the meetings of the audit committee in the following manner:
(a) The audit committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings.
(b) The quorum for an audit committee meeting shall either be 2 members or 1 /3rd members, whichever is greater, with at least 2 independent directors.
(c) The audit committee shall have powers to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice, and secure atten¬dance of outsiders with relevant expertise if considers necessary.

(3) The role of the audit committee and the information to be reviewed by the audit committee shall be as specified in Part C of Schedule II.

Question 20.
Good governance in the capital market has always been high on the agenda of SEBI. Comment. [Dec. 2014 (4 Marks)]
Answer:
Good Governance in the capital market has always been high on the agenda of SEBI. Corporate Governance is looked upon as a distinctive brand and benchmark in the profile of Corporate Excellence. This is evident from the continuous updating of guidelines, rules, and regulations by SEBI for ensuring transparency and accountability.

In the process, SERT had constituted a Committee on Corporate Governance under the Chairmanship of Shri Kumar Mangalam Bina. The Committee in its report observed that Hythe strong Corporate Governance is indispensable to resilient and vibrant capital markets and is an important instrument of investor protection. Ills the blood that fills the veins of transparent corporate disclosure and high-quality accounting practices. It is the muscle that moves a viable and accessible financial reporting structure.”

Based on the recommendations of the Committee, the SEBI had specified principles of Corporate Governance and introduced a new clause 49 in the Listing Agreement of the Stock Exchanges in the year 2000.

Currently, in India, requirements of corporate governance have been specified by SEBI through SEBI (LODR) Regulations, 2015.

Question 21.
Write a short note on the Corporate Governance Compliance Certificate [June 2015 (4 Marks)]
Answer:
As per SEBI (LODR) Regulations, 2015, the company shall obtain a cer¬tificate from either the Statutory Auditors or Practicing Company Secretary regarding the compliance of conditions of corporate governance.

Compliance Certificate is required to be annexed with the Directors’ Report, j which is sent annually to all the shareholders of the company.

The Compliance Certificate shall also be sent to the Stock Exchanges along | with the Annual Report filed by the company.

Question 22.
You are the Company Secretary of Sunglow Ltd., which is listed on the Stock Exchange after an IPO is made by the company. The Managing Director desires to know about quarterly compliance requirements under the listing agreement. Prepare a list of quarterly compliances as per the listing regulations. [Dec. 2018 (4 Marks)] j
Answer:
Following quarterly compliances are required to be made under the SEBI (LODR) Regulations, 2015:

Particulars Compliance to be made Time limit
Statement of investor complaints [Regulation 13] The listed entity shall file with the recognized stock exchange, a statement giving the number of investor complaints:

(a) pending at the beginning of the quarter,
(b) those received during the quarter,
(c) disposed of during the quarter and
(d) those remaining unresolved at the end of the quarter.

Within 21 days from the end of the quarter.
Corporate Governance Report [Regulation 27] The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by SEBI from time to time to the recognized stock exchange(s). Within 15 days from the end of the quarter.
Shareholding Pattern [Regulation 31] The listed entity shall submit to the stock exchange(s) a statement showing holding of securities and shareholding pattern separately for each class of securities, in the format specified by SEBI from time to time. Within 21 days from the end of the quarter.
Statement of deviation [Regulation 32] The listed entity shall submit to the stock exchange a statement of deviation or variation
Financial Results [Regulation 33] The listed entity shall submit quarterly and year-to-date financial results to the stock exchange Within 45 days from the end of the quarter other than last quarter.

Question 23.
Bombay Stock Exchange Ltd. had suspended trading in shares of XYZ Ltd. for violating conditions of the listing agreement. The company has now com¬plied with the listing regulations requirements. By referring to SEBI circular/ “z regulations, discuss the criteria for suspension of the trading in the shares of § the listed entities. [Dec. 2018 (4 Marks)]
Answer:
As per Circular No. CIR/CFD/CMD/12/2015 dated November 30, 2015 T issued by SEBI, criteria for suspension of the trading in the shares of the listed j entities is as follows:

  • Failure to comply with Regulation 27(2) with respect to submission of corporate governance compliance report for 2 consecutive quarters.
  • Failure to comply with Regulation 31 with respect to submission of share¬holding pattern for 2 consecutive quarters.
  • Failure to comply with Regulation 33 with respect to submission of finan¬cial results for 2 consecutive quarters.
  • Failure to comply with Regulation 34 with respect to submission of Annual Report for 2 consecutive financial years.
  • Failure to submit information on the reconciliation of shares and capital audit report, for 2 consecutive quarters.
  • Receipt of the notice of suspension of trading of that entity by any other recognized stock exchange on any or all of the above grounds.

Securities Laws and Capital Markets Questions and Answers

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