I&B Codes: SEBI Compliance Norms for Companies Under IRP

11 min readJun 21, 2021

The Companies which are listed on stock exchanges have to mandatorily comply with the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2018 or SEBI (LODR). These companies need to comply with the Quarterly/half-yearly/annual and general compliances as per SEBI Listing Regulations (LODR), which are as follows:

Event-Based Compliances

Regulation 28 (1): Refers to In-principle approval from recognized stock exchange(s) before issuing securities.
Regulation 7(5): Intimation of Share Transfer Agent appointment within 7 days of Agreement with the RTA.
Regulation 29 (2) (b) to (f): Intimation of the Board meeting concerning Buyback, Dividend, Fundraising, Voluntary Delisting, etc. should be done at least two working days in advance. It should exclude the date of the intimation and the date of the meeting.
Regulation 29(3): Intimation of Board Meeting to alter the nature of securities, etc. should be given at least 11 days in advance.
Regulation 29 (2) (a): Intimation of the Board meeting for Financial Results should be given at least five working days prior to the meeting day. This excludes the date of the intimation and date of the meeting.
Regulation 30 (6): Disclosure of all events to stock exchange(s), as specified in Part A of Schedule III, or inform them as soon as possible. The time period of intimation should not be later than twenty four hours from the occurrence of event.
Regulation 39(3): Intimating two days prior to getting information concerning loss of share certificates or issue of the duplicate certificates.
Regulation 37(2): Draft Scheme for the arrangement and obtain observation letter or NOC from the stock exchange(s) before filing the scheme to any tribunal or court.
Regulation 6: Submit Annual Report within 21 working days of approval.
Regulation 51:

(i) Listed entities must make disclosure of loan defaults including dynamic facilities like cash credit from banks or any other financial institutions that continue for more than 30 days. Such disclosure should be done promptly, and not later than 24 hours from the 30th day of default.

(ii) For unlisted debt securities like NCDs and NCRPS, the disclosure should be made promptly before 24 hours from the occurrence of default.

Additionally, a listed entity is needed to report within seven days from the end of the quarter concerning any outstanding amount in the following scenario on the last date of any quarter. Any loan including facilities like cash credit from banks/financial institutions where default time could extend beyond 30 days should come under the quarterly compliances.

Quarterly Compliances

Regulation 33: Within 45 days post the end of each quarter, the unaudited quarterly results should be submitted along with the review report. The same should also be submitted within 60 days after the close of the financial year.
Regulation 27(2): Submission of corporate governance report must be done within 15 days after the end of each quarter.
Regulation 13(3): Submission of statement containing the number of investor’s complaints received at the beginning and the no. of complaints disposed of and remaining unsolved during the quarter within 21 days at the end of quarter.
Regulation 31: Submission of shareholding pattern of the company within 21 days at the end of quarter.

Note: Applicable only to listed Companies with paid-up equity and net worth exceeding Rs. 10 crores and 25 crores respectively.

Half Yearly Compliances

Regulation 40(9): Submission of the compliance certificate from the practising company secretary within 1 month after the end of half financial year.
Regulation 7(3): Submission of compliance certificate signed by a share transfer agent and compliance officer within one month after the end of half financial year.

Annual Compliances

Regulation 33 (3) (d): Submission of Financial Results along with Auditor’s Report within 60 days post the end of each financial year.
Regulation 14: Fees and other requisite charges to be paid to recognized stock exchange(s) within one month after the end of each financial year.
Regulation 24A: Submission of the Annual Secretarial Compliance Report concerning. compliances related to SEBI Regulations, deviations, and actions taken thereof within 60 days after the end of each financial year.
Regulation 44: Submission of voting results within 48 hours after the conclusion of the general meeting.
Regulation 34: Submission of Annual Report within 21 working days after approval and adoption.

Changes After the Insolvency Law or IBC 2016

After the introduction of the Insolvency and Bankruptcy Code 2016, the Corporate Debtors and Resolution professionals were facing several issues, concerning meeting various statutory compliance criteria for which every company and its management was responsible. Prior to the commencement of the Corporate Insolvency Resolution Process (CIRP), the filing of financial statements, maintaining board’s reports, and the appointment of the auditor, etc. were affected. The compliance requirement also involved informing the Registrar of Companies (RoC) that a corporate debtor is going through a CIRP.

CIRP is the process responsible for the resolution of insolvency proceedings of a corporate debtor as per the provisions of IBC. Where the corporate debtor is a listed entity working under SEBI Regulations, the applicable regulatory framework required modification to facilitate insolvency resolution. This was also needed to ensure that the interests of investors in securities of such corporate debtors are protected.

The Insolvency and Bankruptcy Board of India (“IBBI”) has clarified through a circular released on January 03, 2018 that a corporate undergoing an insolvency resolution process needs to comply with the norms of the applicable laws. In such process, unless the norms is specifically exempted by the governing authority, it becomes applicable by operation of law to the corporate. IBBI has further directed that while acting as an IRP or a Liquidator for a corporate under the IBC, an insolvency professional should exercise reasonable diligence and take all essential steps to ensure that the corporate undergoing any procedure under IBC complies with the applicable norms.

Considering that there are fundamental changes involved in the management and regulation of a listed entity under CIRP. SEBI and other concerned authorities came up with the following notification, which listed the provisions for listed entities going through insolvency.

On 14 August 2017, SEBI came up with the Notification by amending the regulations of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. These regulations were called the SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2017. The regulations incorporated the following provisions:

(i) In sub-regulation (1), in clause ©, after the words “Sick Industrial Companies (Special Provisions) Act, 1985” and before the words “the Tribunal”, the words “the resolution plan approved by” should be inserted.

(ii) On 28 March 2018, SEBI came up with a discussion paper wherein proposals were made for further amendments concerning SEBI Regulations.

SEBI has issued four notifications amending its provisions to accommodate corporates going through insolvency procedures. These amendments were introduced through notifications on 31 May, 2018 and became effective from 01 June, 2018.

The following sections discuss the changes that have been introduced in the SEBI regulations.

Takeover Regulations

These Regulations were called the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2018 and incorporated the following important provisions:

In regulation 3, in sub-regulation (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, before the explanation of the sub-regulation (2), the following provisons shall be inserted, namely,-

“Provided that, any acquisition done as per the resolution plan approved under section 31 of the IBC, 2016 will be exempted from the obligation under the provision of the sub-regulation (2) of regulation 3”.

Earlier provisions of the Takeover Regulations (proviso to regulation 3(2)), inhibit an acquirer from taking over or entering into any agreement to takeover shares or voting rights exceeding the no. of shares above the maximum permissible non-public shareholding i.e. 75% (seventy five percent).

Pursuant to the notification of May 31, 2018, the Takeover Regulations were amended to state that an acquisition of shares by an acquirer, pursuant to a resolution plan under section 31 of the Codes would be exempted from the obligation under the regulation 3(2) of the Takeover Regulations.

In light of the aforesaid amendment, a resolution plan can include a resolution applicant’s proposal to acquire 75% of the share capital of the company going through CIRP. This, reducing the shareholding of the public shareholders below 25% (twenty five percent).

With this amendment, further consolidation of share capital beyond 75% is permitted. For example, Tata Steel, which received only 72% through its initial investment into Bhushan Steel in the resolution plan can now invest an additional Rs. 45 billion contemplated under the resolution plan and take its holding to 98% in the firm.

Delisting Regulations

These Regulations are called the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2018.

(i). In regulation 3, post sub-regulation (2), the following sub-regulation (3) was inserted. The amendment under the said regulations exempts listed entities with approved resolution plan under the IBC from complying with the norms, if the resolution plan:

Lays down a specific procedure to complete delisting of such shares; or
Provides an exit option to public shareholders of the firm at a price specified therein.
It further provides exit option to shareholders of listed entities at a price not less than the set liquidation value determined under regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, after paying of the necessary dues in the order of priority defined under section 53 of the IBC.
If the existing promoters or any other shareholders are given an opportunity to exit the company under the resolution plan at a price higher than the price determined in terms of Codes, then even the existing public shareholders should be given the exit opportunity at a price which should not be less than the price offered to the promoters or other shareholders.
The details of delisting of shares along with the justified exit price with respect to delisting will be disclosed to the recognized stock exchanges within one day of resolution plan’s approval under section 31 of the IBC, 2016.

An amendment was brought to effect the shares of the company which has been delisted as per the above rule and can re-apply for listing without any restriction in the tenure.

(ii). In regulation 30, after sub-regulation (2) and before sub-regulation (3), the following was inserted, namely,

“(2A) Notwithstanding anything contained in sub-regulation (1), an application for the listing of delisted equity shares can be made related to a company which has undergone a CIRP under the IBC, 2016.

LODR Regulations

These regulations are referred as SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2018.

The LODR Amendment makes the following disclosures mandatory for a listed firm going through CIRP under the IBC:

Filing of application by an applicant for initiation of CIRP, also specifying the default debt amount.
Filing of application by financial creditors to initiate CIRP against the corporate debtor, also specifying the amount of debt.
Approval of the application by the NCLT, along with the amount of debt as applicable.
The public announcement made with respect to the order passed by the NCLT under section 13 of the Codes.
Appointment/Replacement of the RP (resolution professional).
Prior or post-facto intimation of the meetings of the CoC.
Particulars of the resolution plan devised under section 25(2)(h) of the Codes in the format specified under regulation 36 A(5) of the CIRP Regulations.
Number of resolution plans received by the IRP.
Filing of the resolution plan with the NCLT.
Approval of the final resolution plan by the NCLT or rejection, (whichever applicable).
Salient features (not including the commercial secrets) of the resolution plan approved by the Tribunal.
Any other relevant information that doesn’t involve commercial secrets.

Listed companies undergoing CIRP don’t have to comply to the norms of the LODR Regulations dealing concerning roles and responsibilities of the board of directors and committees. These roles and responsibilities are fulfilled by the RP as per the Codes. The corporate debtor’s management and governance function is given to the resolution professional and CoC (committee of creditors). However, the RP needs to be careful in the interpretation and application of some of the norms of LODR Regulations (e.g. certain board responsibilities need shareholder’s approval, but this is a redundant requirement in context of the CIRP under IBC).

Shareholder’s approval is not needed in the following matters:

(i) Approval of points related to party transactions.

(ii) Cessation of majority shareholdings or exercise of control over a subsidiary; and

(iii) Transfer or lease of over 20% of a subsidiary’s assets (on an aggregate basis, for a given fiscal year).

The stock exchange preclearance needs are not applied to any schemes under the IBC’s resolution plan. This will be a welcome step for acquirers as they won’t have to face the pressure of 270 day IBC deadline while obtaining pre-clearance.

Certain norms of the LODR Regulations related to promoters reclassification (e.g. the restriction on promoters to have the post-reclassification special rights) will not apply if the reclassification is devised under the resolution plan. The promoter or the promoter’s group being reclassified as public shareholders don’t have any control of the company. The intent here is to inhibit any involvement of the former promoters posts a resolution plan’s approval.

A number of IBC and CIRP related disclosures are required from the listed company. The disclosable matters include details regarding application filings and admission, appointment or replacement of the RP (resolution professional), notification of meetings of the CoC, and salient features of resolution plans. This is similar to the information mentioned above in points no (i) to (xiii). These additional disclosures are a positive step towards the enhancement of transparency in the CIRP for a listed company’s shareholders.

ICDR REGULATION:

These Regulations are termed as the SEBI (Issue of Capital and Disclosure Requirements) (2nd Amendment) Regulations, 2018.

In regulation 70, in sub-regulation (1) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 following changes were made:

the proviso to sub-regulation (1) will be omitted.

In regulation 70, post sub-regulation (1) and before sub-regulation (2), the sub-regulation was inserted which is interpreted as:

“(1A) The provisions of this Chapter, except the lock-in provisions, will not apply where the preferential issue of specified securities is given in form of a rehabilitation scheme approved by the BIFR (Board of Industrial and Financial Reconstruction) as per the Sick Industrial Companies (Special Provisions) Act, 1985 or a resolution plan approved under section 31 of the IBC 2016 (whichever is applicable).”

On 24 July 2018, the Ministry of Finance came up with a notification and amended the rules called Securities Contracts (Regulation) (Amendment) Rules, 2018.

In rule 19A of above rule, post sub-rule (4), the following sub-rule was inserted:–

“(5) Whenever the public shareholding in a listed firm falls below 25% due to the implementation of a resolution plan approved under section 31 of the IBC, 2016, such a firm will have to bring the public shareholding back to 25% within period of three years from the date of such fall. The procedure to bring back the shareholding will be as per the rules suggested by the Securities Exchange Board of India. Also, if the public shareholding falls below 10%, the same should be increased to at least 10%, within a maximum period of 1.5 year from the date of such fall, in a manner specified by the SEBI.”

The board (SEBI) came up with these norms and amendments to the existing regulations to keep them consistent with the newly brought IBC norms. Companies that were listed in the Stock exchanges and were facing insolvency were uncertain about how to go with the existing regulations at the time of IBC’s introduction in 2016. This is why the new amendment procedures have helped the corporate debtors and Insolvency personnel a lot.