SEBI Proposes Stricter Rules For Listed Companies Due To THIS Reason...

New Delhi: The Securities and Exchange Board of India (SEBI) has proposed new rules to improve corporate governance in listed companies. The key changes include updating the Annual Secretarial Compliance Report (ASCR), setting rules for appointing auditors, and setting limits on Related Party Transactions (RPTs).

To boost transparency, SEBI wants the ASCR to be more detailed and included in the annual report, making it easier to confirm if companies are following securities laws. Adding further, the SEBI has proposed making ASCR a mandatory part of the annual report, which would enhance accountability.

For auditor appointments, it has suggested incorporating provisions from the Companies (Audit and Auditors) Rules, 2014, into the Listing Obligations and Disclosure Requirements (LODR) Regulations. This will ensure that statutory auditors have the necessary qualifications and experience suited to a company’s size and complexity.

The SEBI has also proposed that audit committees should carefully evaluate the qualifications of signing partners before appointing them. To improve transparency in auditor appointments, it has recommended that key details about the selection or re-appointment of statutory and secretarial auditors should be disclosed to the audit committee, board of directors, and shareholders. It has also suggested introducing a standard format for such disclosures.

The SEBI has further proposed monetary limits for RPTs conducted by subsidiaries of listed companies. It has suggested two approval thresholds for these transactions. For subsidiaries with a financial track record, the approval threshold will be the lower of either 10 per cent of turnover or a monetary limit -- Rs 1,000 crore for main-board companies and Rs 50 crore for SMEs.

For subsidiaries without a financial track record, the threshold will be based on 10 per cent of the subsidiary’s net worth or the same monetary limits. 

If the subsidiary has a negative net worth, share capital plus securities premium will be considered instead. To ensure better compliance, the SEBI has also suggested clarifying the definition of RPTs. The amendments will specify whether exemptions for transactions between a parent company and its wholly-owned subsidiary apply to both listed and unlisted entities. 

The SEBI has invited public comments on these proposals until February 28. (With IANS Inputs)