News from the desk of Ministry of Corporate Affairs (MCA) and Securities and Exchange Board of India (SEBI)

News from the desk of Ministry of Corporate Affairs (MCA)

Upon receipt of several references and representations from the stakeholders seeking clarifications on the various issues related to Corporate Social Responsibility (“CSR”), Ministry of Corporate Affairs (MCA) had on 25^th day of August, 2021 issued Frequently Asked Questions (“FAQs”) on the framework of provisions of CSR as regulated under the Companies Act, 2013, vide a General Circular No. 14/2021.

The FAQs have been issued on various queries including but not limited to applicability/qualification criteria for Companies to fall under the CSR, requirement of composition of the CSR Committee in case of listed companies, Unlisted public companies, Private Companies, Foreign Company, functions of the CSR Committee, Responsibilities of the Board in relation to the CSR provisions, provision with regard to the administrative overheads, provision relating to surplus left out of CSR activities and its permitted use,  tax benefits, if any under CSR,  Different modes of implementation of CSR activities, registration of implementing agency with the MCA, requirement of opening a separate ’Unspent CSR Account’ for each ongoing project, Objective of providing impact assessment of CSR activities, penal provisions of non-compliance with the provisions relating to CSR, reporting of CSR activities in board’s report, etc.

The complete text of the Circular may be viewed at below link:

https://www.mca.gov.in/bin/dms/getdocument?mds=GTatbQatWaZKl7Zzifcd9Q%253D%253D&type=open

News from the desk of Securities and Exchange Board of India (SEBI)

Securities and Exchange Board of India (“SEBI”) had on 07^th day of September, 2021 issued Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021 (“Amended Regulations”) for the purpose of amending Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Regulations”).

The Securities and Exchange Board of India has now introduced new rules, compliances, and corporate governance norms for the listed entities which have their debt securities and have an outstanding value of such debt securities of Rs. 500 crores and above. The existing regulations has been amended to give effect to these norms, rules, and compliances. SEBI (LODR) (Fifth Amendment) Regulations, 2021 would apply to ‘high value debt listed entity’ on a ‘comply or explain’ basis until March 31, 2023. After March 31, 2023, it would be applicable on a mandatory basis.

The key amendments in the Regulations are as under:

1. Regulation 3: This regulation provides the applicability criteria of these regulations, In the said regulation, a new sub- regulation (3) has been inserted which states that the provisions of these regulations which become applicable on listed entities on the basis of the criterion of the value of outstanding listed debt securities shall continue to apply to such entities even if they fall below such thresholds.
2. The provisions of Regulation 21 related to the Risk Management Committee shall now be applicable to ‘a high-value debt listed entity’ along with the top 1000 listed entities, determined based on market capitalization as at the end of the immediately preceding financial year.
3. Regulation 15: This regulation provides applicability of chapter (iv) on a listed entity which has listed its specified securities on any recognized stock exchange. In the said regulation, a new sub- regulation (1A) has been inserted which states that the provisions of this regulation and regulation 16 to regulation 27 of this chapter shall apply to a listed entity which has listed its non-convertible debt securities and has an outstanding value of listed non-convertible debt securities of Rs. 500 Crore and above.
4. Regulation 23: This regulation provides that every listed entity is required to formulate a policy on dealing with related party transactions. A new proviso has been inserted in sub-regulation (9) of this regulation which directs every ‘high value debt listed entity’ to submit certain disclosures along with its standalone financial results for the half year.
5. Regulation 25: This regulation provides for certain obligations with respect to independent directors. In the said regulation, a new sub-regulation (12) has been inserted which directs every ‘high value debt listed entity’ to undertake Directors and Officers insurance (D and O insurance) for all its independent directors for such sum assured and for such risks as may be determined by its board of directors.
6. Regulation 50: The amendment provides that the listed entity shall give prior intimation to the stock exchange of at least two (2) working days in advance, excluding the date of the intimation and the date of the meeting of the board of directors, about the Board meeting in which the Board is going to consider any of the proposals relating to an alteration in the form or nature of non-convertible securities that are listed on the stock exchange or in the rights or privileges of the holders or the date of any payment of non-convertible securities, financial results viz. quarterly or annual, any matter affecting the rights or interests of holders of non-convertible securities.
7. Regulation 52: It talks about the disclosure of information having bearing on performance/operation of a listed entity and/or price sensitive information. In the regulation, a new sub-regulation (7A) has been inserted which states that in case of any material deviation in the use of proceeds as compared to the objects of the issue, the same shall be indicated in the format as specified by the Board.
8. Regulation 53: It talks about the annual report of the listed entity. In the regulation, a new sub-regulation (2) has been inserted which directs every listed entity to submit to the stock exchange and the debenture trustee and publish on its website, a copy of the annual report sent to the shareholders and in the event of any changes to the annual report, the revised copy along with the details and explanation for the changes, not later than 48 hours after the annual general meeting.
9. Regulation 54: It directs the listed entity in respect of its listed non-convertible debt securities, to maintain 100% asset cover sufficient to discharge the principal amount at all times for the non-convertible debt securities issued. In this regard, a new sub-regulation (3) has been inserted which directs the listed entity to disclose the asset cover available in case of non-convertible debt securities along with its financial results in the format as specified by the Board.
10. A new Regulation 61A has also been inserted in the amended regulations which provides that a listed entity cannot forfeit unclaimed interest, dividend, or redemption amount. If the interest, dividend, or redemption amount has not been claimed for 30 days from the date on which it became due, the entity must first transfer the unclaimed amount to an escrow account within seven days from the expiry of thirty days. Any amount in the escrow account will be transferred to the ‘Investor Education and Protection Fund’ if it has not been claimed for a period of seven years. SEBI has also directed that any unclaimed amount for a period of 7 years from the date of notification of this subsection, which is September 7th, 2021 will be transferred to an escrow account within thirty days.

The complete text of the Amendment may be viewed at below link:

https://www.sebi.gov.in/legal/regulations/sep-2021/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-fifth-amendment-regulations-2021_52488.html

Last updated: 20/09/2021

Article contributed by:

Luv Malhotra

Associate Director- Corporate Secretarial

MBG Corporate Services