First Notes - 13 January 2016

First Notes - 13 January 2016

SEBI issues Frequently Asked Questions (FAQs) on certain provisions of the SEBI Listing Regulations, 2015


The Securities and Exchange Board of India (SEBI) on 2 September 2015 notified the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations). The Listing Regulations consolidate detailed requirements covering listing obligations and disclosure requirements of various types of securities e.g. equity shares, debt securities, preference shares and Indian Depository Receipts (IDRs). Further, in case of absence of specific requirement or in case of ambiguity in detailed requirements, the Listing Regulations, applicable from 1 December 2015 (subject to a few exceptions), provide broad principles to be followed by listed entities
New development

Several representations have been made by various stakeholders highlighting the issues arising from the implementation of the aforesaid regulations. Accordingly, based on the queries/comments received from the market participants, SEBI recently issued FAQs on certain provisions of the Listing Regulations which provide guidance/clarifications on various issues raised by

This issue of First Notes aims to provide an overview of the key clarifications/guidance provided in the FAQs issued by SEBI.
I. Definitions 

S.No  Listing Regulation no.  Issue Clarification/guidance provided in the FAQs 
  1 2(1)(b) What is the definition of an 'associate company'? Definitions under the Companies Act, 2013 (2013 Act) and applicable accounting standards need to be examined. If either of the two are met, such an entity would be classified as an associate company.
  2 2(1)(zb) What is the definition of a ‘related party’ (RP)? Same as above

II. Corporate governance

S.No Listing Regulation no. Issue Clarification/guidance provided in the FAQs
  1 17(8) In reference to compliance certificate to the board of directors as specified in Part B of Schedule II – could a managing director or whole time director certify the compliance certificate if a company has not designated a CEO? Officials who hold power, duties and responsibilities of a CEO/CFO (irrespective of their designation) may sign the compliance certificate.
  2 23(4) Whether only those RPs who are related to the concerned transaction/ contract should abstain from voting or RPs should altogether abstain from voting? The requirement under Regulation 23(4) is applicable to listed entities subject to the provisions of Regulation 15.  Hence, for applicable entities, the regulations clearly provide that all material related party transactions would require approval of the shareholders through resolution and the RPs would abstain from voting on such resolutions whether the entity is a RP for the particular transaction or not.
  3 24(1) and 24(2),(3),(4) Whether at least one independent director of a listed entity is required on board of directors of an ‘unlisted material subsidiary incorporated in India’ or to all ‘unlisted subsidiaries’?  It is clarified that wherever ‘unlisted material subsidiary’ and ‘unlisted subsidiaries’ have been distinctly mentioned in a particular sub-regulation, such sub-regulation should be applicable to material unlisted subsidiaries or all unlisted subsidiaries, as the case may be. 


III. Disclosure of events and information

S.No Listing Regulation no. Issue Clarification/guidance provided in the FAQ
  1 30(8) Should posting of disclosures on the website of a listed entity (which have been disclosed to stock exchange(s) for a minimum period of five years be applied prospective for disclosure of events occurring on or after 1 December 2015?  This regulation is applicable prospectively from 1 December 2015. It is clarified that a listed entity should disclose on its website such events/information which have been disclosed to the stock exchange(s) on or after 1 December 2015 for a minimum period of five years from the date of disclosure to the stock exchange.
  2 30(9) Regarding disclosure of all events/information with respect to subsidiaries which are material. If both parent and subsidiary are listed entities, is it sufficient compliance if the subsidiary makes the disclosure and not the parent entity?  It is clarified that both the parent and subsidiary (if listed) in their own right would be listed entities.  Therefore, they are required to make disclosures separately as applicable under the Listing Regulations.
  3 16(1)(c) and 30(9) Regulation 16(1)(c) contains the definition of a ‘material subsidiary’ and prescribes certain thresholds to be classified as a ‘material subsidiary’. The explanation to the aforesaid regulation states that the listed entity should formulate a policy for determining ‘material subsidiary’. Whether a listed entity can adopt different criteria for determining material subsidiary for the purpose of disclosures under Regulation 30(9)?

The definition of ‘material subsidiary’ under Regulation 16(1)(c) defines a subsidiary that is material to the listed entity.  Further, the explanation to the aforesaid provision allows a listed entity to formulate a policy for the same i.e. a listed entity can develop criteria that are stricter than what has been provided in the Regulations.

Additionally, it is clarified that Regulation 30(9) of the Listing Regulations requires disclosure of all events/information with respect to subsidiaries which are material for the listed entity. Emphasis is on materiality of the event/information. Therefore, irrespective of whether a subsidiary is material or not as per definition in Regulation 16(1)(c), a disclosure of events/information originating from the subsidiary would be required in case those events or information is material to the listed entity.

  4 Schedule III Part A, Para A, Clause 1(ii)(a) Schedule III requires disclosures in case of acquisition/agreements to acquire shares or voting rights in a company whether directly or indirectly, such that the listed entity holds shares or voting rights aggregating to five per cent or more of the shares/voting rights in the said company. Is such a disclosure required only in case where the target company is a listed company or it is applicable to unlisted companies also? It is clarified that the Schedule III refers to the listed entity’s acquisition of shares/voting rights in a company. This would apply irrespective of whether the target company is listed or unlisted.


IV. Other clarifications

S.No Listing Regulation no. Issue Clarification/guidance provided in the FAQs
  1 33(3)
Whether unaudited financial results can be submitted to stock exchanges for the last quarter? It is clarified that the financial results for the quarter should be audited. This is in line with the erstwhile Listing Agreement. 

Our comments
The clarifications/guidance provided in the FAQs to the Listing Regulations
indicates SEBI’s continuing effort to address the concerns/issues raised by
various stakeholders while complying with the provisions of the Listing Regulations.
The clarifications on disclosure of material events/information with respect to
subsidiaries are welcome and showcases the importance of substance over form that SEBI is striving to achieve through these Listing Regulations.

While SEBI’s FAQs on the Listing Regulations address the concern around the definition to be followed in case of an ‘associate company’ and ‘related party’, however, this seems to be in contradiction to the clarification provided by the Ministry of Corporate Affairs (MCA) in the past. The MCA had acknowledged that there is a conflict in the definition used in the Accounting Standard (AS) and the 2013 Act. Accordingly, the MCA through its notification dated 4 September 2015 had added a new Rule 4A to the 2013 Act which clarifies that financial statements should be prepared in accordance with the definitions and other requirements as specified in the AS (Accounting Standards) or in the Ind AS, as the case may be.

The listed companies may have to maintain comprehensive listing of associates for the purpose of compliance with SEBI Listing Regulations and 2013 Act e.g. for RP transactions.
To access the text of the FAQs on the Listing Regulations issued by SEBI, please click here

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