SEBI revisits enforcement framework under LODR By CS Nikita Snehil | Manager at Vinod Kothari & Co.


Dear Professional Colleagues, 

SEBI in its meeting held on March 28, 2018 [1] decided to revise the mechanism to take action in case of non-compliance with the requirements of the Listing Regulations. As per SEBI, the revised framework is expected to promote a better compliance culture apart from putting in place an appropriate system for effective enforcement of continuous compliance of requirements by listed entities and their promoter and promoter group.

Features of the revised framework

a) Will cover a wide gamut of listing regulations, viz.

  • The composition of Board and its committees;
  • Submission of corporate governance compliance report;

  • Submission of financial results;

  • Submission of voting results etc.

Non-compliance with these regulations will lead to the imposition of fines by stock exchanges.

b) Right to the stock exchange to freeze the shareholding of the promoter and promoter group in such non-compliant entity as well as their shareholding in other securities.

c) Suspension, if non-compliance persists.

Current Scenario

It is pertinent to note that, SEBI had earlier introduced a uniform fine structure [2] for non-compliance with   Listing   Regulations regarding non-submission of certain periodic reports, under Regulation 98 of the Listing Regulations vide SEBI Circular on November 30, 2015.

This uniform fine structure provided penalties for non-submission/ delay in submission of reports/ documents to recognized stock exchange under the following Regulations: -

Sl. No.:

Regulation

 

Fine payable for 1st non-compliance

 

Fine Payable for each subsequent and consecutive non-compliance

 

1.

Regulation 27 (2)- Non-submission of the Corporate governance compliance report within the period provided under this regulation

INR 1,000 per day of non-compliance till the

date of compliance

INR 2,000 per day of non-compliance till the date of compliance

2.

Regulation 31-

Non-submission of the Shareholding pattern within the period prescribed under this regulation;

INR 1,000 per day of non-compliance till the date of compliance and If non-compliance continues for more than 15 days, the additional fine of 0.1 % of paid-up capital* of the entity or INR 1 crore, whichever is less.

INR 2,000 per day of non-compliance till the date of compliance

and If non-compliance

continues for more than 15 days, the additional fine of 0.1 % of paid-up capital* of the entity or INR 1 crore, whichever is less.

3.

Regulation 33

Non-submission of the financial results within the period prescribed under this regulation

INR 5,000 per day of non-compliance till the date of compliance and if non-compliance continues for more than 15 days, the additional fine of 0.1 % of Paid Up capital* of the entity or INR 1crore, whichever is less.

INR 10,000 per day of non-compliance till the date of compliance

and If non-compliance

continues for more than 15 days, the additional fine of 0.1 % of Paid Up capital* of the entity or INR 1 crore, whichever is less.

4.

Regulation 34 –

Non-submission of the Annual Report within the period prescribed under this regulation

If non-compliance

continues for more than 5 days, INR 1,000 per day till the date of compliance

INR 2,000 per day of non-compliance till the

date of compliance


* Paid up capital as on the first day of the financial year in which the non-compliance occurs.

Apart from providing monetary penalties, SEBI even provided that if a listed entity commits two or more consecutive defaults in compliance with the aforesaid provisions of the Listing Regulations within 15 days from date of the notice issued by the stock exchanges, the concerned recognised stock exchange shall, in addition to imposing fine as specified above, move the scrip of the listed entities to "Z" category wherein trades shall take place on 'Trade for Trade' basis. The recognized stock exchange shall move back the scrip of the listed entity to the normal trading category if it complies with respective provisions of the Listing Regulations and completely pays fine as prescribed by SEBI.
 
Further, in order to ensure effective enforcement of the Listing Regulations, the depositories, on receipt of intimation from concerned recognized stock exchange were authorized by SEBI to freeze or unfreeze, as the case may be, the entire shareholding of the promoter and promoter group in such defaulting entity. 

Conclusion

Apart from the above-mentioned, SEBI as decided in its meeting on March 28, 2018, will provide penal provisions, which will now cover more regulations. In view of the proposed change in the composition of Board and committees pursuant to recommendations made in Uday Kotak Committee report [3] read with the revised framework that will be issued by SEBI, ensuring timely compliance will be necessary. 

For any clarification, mail us at  corplaw@vinodkothari.com
 

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