The Securities and Exchange Board of India (SEBI) introduced significant amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) on April 14, 2025. These amendments, primarily effective from April 1, 2025, strengthen corporate governance frameworks, with a particular focus on entities with high-value listed non-convertible debt securities, i.e., High-Value Debt Listed Entities (HVDLEs). The changes aim to enhance transparency, protect debenture holders, and align with global sustainability and governance standards.
Expansion of the Scope of Corporate Governance for HVDLEs
The changes address the need for robust governance in entities with significant debt obligations, ensuring protection for debenture holders and alignment with global standards.
Under Regulation 15 and the newly introduced Chapter V-A of the LODR Regulations, the governance framework for HVDLEs now includes the following key provisions, summarized below:
Increased Debt Threshold: The threshold for non-convertible debt securities triggering governance requirements is raised from ₹500 crore to ₹1,000 crore.
Board Composition: Mandates a balanced board with at least one woman director, 50% non executive directors, and independent directors based on the chairperson's status.
Audit Committee Oversight: Requires approval for related party transactions (RPTs), with conditions for omnibus approvals.
Stakeholders Relationship Committee: Addresses debenture holder grievances, including issues related to charge creation, interest/principal payments, and covenant maintenance.
RPT Approvals: Mandates No-Objection Certificates from Debenture Trustees for material RPTs, followed by shareholder approval.
Subsidiary Governance: Ensures independent director representation and financial oversight for material unlisted subsidiaries.
Secretarial Audit: Requires annual secretarial audits and compliance reports within 60 days of the financial year-end.
Independent Director Norms: Sets strict rules for appointment, tenure, liability, and mandatory annual performance review meetings.
Key Managerial Vacancies: Mandates filling critical roles like CEO and CFO within three to six months.
Risk Management Committee: Requires assessment of financial and operational risks.
Vigil Mechanism: Mandates a whistleblower policy to report unethical practices.
Modifications to Existing Provisions
- Regulation 3(2)(b) of the LODR Regulations now requires listed entities to assess or assure compliance with prescribed sustainability criteria, replacing the earlier requirement of submitting a report.
- Regulation 34(2)(f) of the LODR Regulations clarifies that Environmental and Sustainable Governance (ESG) disclosures involve assessment or assurance of prescribed criteria, aligning with sustainability goals.
Deferred Compliance Timeline
Post-amendment, a new proviso under Regulation 15 of the LODR Regulations allows HVDLEs exceeding the ₹1,000 crore threshold to comply with governance provisions within six months, with reporting in the immediate next quarterly corporate governance report.
Debenture Holder Protections
As per the new provisions under Regulation 62K of Chapter V-A of the LODR Regulations, material RPTs require No-Objection Certificates from Debenture Trustees and approval from debenture holders holding more than 50% of the debentures in value, ensuring enhanced investor protection.
MHCO Comments
The amendments to the LODR Regulations expanding the scope of corporate governance for HVDLEs underscore SEBI's focus on enhancing transparency and accountability in India's capital markets. By introducing stringent governance norms, robust RPT oversight, and a strong emphasis on ESG compliance, SEBI signifies its commitment to a regulatory framework that adapts to evolving market dynamics. Further, the harmonization of governance requirements with global sustainability standards ensures consistency, reducing ambiguity for listed entities in meeting their obligations.
This article was released on 17 April 2025.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
