Corporate governance enforced on debt listed entities

  • LODR (Fifth Amendment) Regulations, 2021 notified

Payal Agarwal, Executive (

Brief background

SEBI has, continuing with its trends of the recent months, notified SEBI (Listing Obligations and Disclosure Requirements) (Fifth Amendment) Regulations, 2021 [hereinafter referred to as the “Amendment Regulations”] on 7th September, 2021 to amend the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [hereinafter referred to as the “Listing Regulations”]. The amendments have huge implications on debt listed companies and provide for various mandatory requirements to be fulfilled by an entity which has listed its debt securities on stock exchanges. While some changes deal with alignment of the requirements with those under the Companies Act, 2013 [“Act”], some are significantly different calling for actionable on the part of debt listed companies.


Particulars Applicable entities Applicable dates
Chapter IV – Regulations 16 to 27

(“Corporate Governance Provisions”)

Entities which has listed its non-convertible securities (“NCS“) on a recognised stock exchange and has outstanding listed debt securities of Rs. 500 crores or more [hereinafter referred to as “high value debt listed entities” or “HVDs”]


Presently, limit has to be checked as on 31st March, 2021

Applicable w.e.f. 07th September, 2021 on “comply or explain” basis


Mandatory w.e.f. 31st March, 2023


·         Comply or explain shall mean –

a.       Comply with the requirements within 31st March, 2023

b.      In case of non-compliance/partial compliance, explain reasons for same along with steps initiated to ensure compliance

·         to be reported in the quarterly compliance report filed under Reg 27

Applicability attracted during the course of a year to be complied within six months of such applicability
Amendments relating to Chapter V of the Listing Regulations applicable on all entities which have listed its non-convertible securities on recognised stock exchange with effect from 7th September, 2021

Further, it is mentionable that vide amendment in Reg 3(3) of the Listing Regulations, the Corporate Governance Provisions once applicable on a HVD entity, has to be complied with and does not cease to apply subsequently unless the company has no listed debt outstanding.

Corporate governance requirements applicable on HVDs

The debt-listed companies are mostly private companies or public companies that are unlisted for the purposes of the Act, and therefore, the alignment of their board composition with that of other listed entities may call for various actionable and some practical difficulties during the course of implementation. Here, we have tried to present the composition of board and committees as will be required to be ensured by the debt-listed entities and the possible constraints that may follow.

Relevant head Under the Act Under the Listing Regulations
Private company Unlisted public company
Ratio of executive (ED) and non-executive directors (NED) NA NA optimum combination with at least 50% NEDs
No. of independent directors (IDs) NA 2 IDs 1/3rd if Chairperson (CP) is NED

½ if CM is ED

Maximum age of NED NA NA 75 years (if beyond that, a special resolution is required along with justification for such appointment)
Minimum no. of board meetings (BM) with maximum gap between two meetings 4 (with a max gap of 120 days between two subsequent meetings) Same Same
Remuneration/ commission to directors NA As per the limits of net profits u/s 197 of the Act read with Sc. V –

Special resolution of members required if exceeds limits

·         Aggregate remuneration to all – 11%

·         Single ED – 5%

·         All EDs in aggregate – 10%

·         All NEDs in aggregate – 1%/ 3% (if no NEDs)


Approval of members by way of shareholders’ resolution required if –

·         Commission to single NED > 50% of total commission payable to NEDs

·         Annual remuneration to each ED > Rs. 5 crores or 2.5% of net profits – HIGHER

·         Aggregate remuneration to all EDs > 5% of net profits

Performance evaluation of IDs NA criteria of evaluation to be formulated by NRC to be done by entire board
Maximum no. of directorships in 20 companies (out of which max 10 can be public cos.) in 20 companies (out of which max 10 can be public cos.) Not more than 8 directorships in listed entities (excludes debt listed entities)

Not more than 7 directorships in listed entities as ID (excludes debt listed entities)

Composition of Audit Committee (AC) NA  

●      Min 3- directors

●      Majority of IDs

●      Majority of members (inl. chairperson) shall be a person with ability to read and understand financial statements.

●      Min- 3 directors

●      At least 2/3rd of (ID)

●      All members to be financially literate and at least 1 member shall have accounting or related financial management expertise.)

●      Chairman – shall be ID

●      CS – Secretary of Committee.

Meetings and quorum of AC Not Specified. ●      At Least 4 times in a year and  (with a max gap of 120 days between two subsequent meetings)

●      Quorum – 2 or 1/3rd of the members, whichever is greater, with at least 2 IDs.


Composition of Nomination and Remuneration Committee (NRC) NA ●      Min- 3 NEDs

●      At least not less than half directors shall be ID.

●      Chairperson of the entity, Executive or not, may be member of committee but not the CM of Committee

similar requirements except that CM must be an ID
Meetings and quorum of NRC Not Specified. ●      Quorum – 2 members or 1/3rd of the members, whichever is greater, with at least 1 ID.

●       At least one meeting in a year.


Composition of Stakeholders Relationship Committee (SRC) Applicability- Company which consists of >1000 shareholders, debenture-holders, deposit-holders and any other security holders at any time during a FY.

●      CP- shall be a NED.

●      Members as decided by board.

●      CP- shall be a NED.

●      Min- 3 directors, with at least 1 being ID.


Meetings of SRC Not Specified. ●      Committee shall at least meet once a year.
Composition of Risk Management Committee (RMC) NA NA  

●      Min- 3 directors, with majority of them being members of BOD, including at least 1 ID

●      Chairperson- Member of BOD and Sr. executives may be members.


Meetings and quorum of RMC ●      Quorum – 2 members or 1/3rd of the members, whichever is higher, incl.  at least one member of BOD in attendance.

●      Committee shall meet at least twice in a year(w.e.f 5.5.2021)

Related Party Transactions (RPT) In case of private company –  second proviso to Sub-section (1) of Section 188  shall not apply. ●      Approval required only for specified transactions under Sec 188

●      All members of AC can vote

●      All RPTs shall require prior approval of the AC.

●      Only those members who are IDs shall approve RPT

Secretarial Audit Applicability- O/S loans or borrowings from banks or public financial institutions of 100 crore or more. Applicability-

PUSC- 50 cr or more, or

Turnover- 250 cr or more

O/S loans or borrowings from banks or public financial institutions of 100 crore or more.


Note- Material Unlisted company of a listed entity is also covered.

Every listed entity and its material unlisted subsidiaries incorporated in India shall undertake secretarial  audit.


Every listed entity shall submit a secretarial compliance report within 60 days of the end of FY.

Analysis of the amendments

As demonstrated in the table above, the compliances that will be made applicable to an HVD entity are much more diverse than that applicable to a private company/ unlisted public company. However, these debt listed entities are mostly non-banking financial companies (NBFCs), on which the corporate governance directions of RBI are applicable. Considering the same, the amendments may not result in wide impact and changes in the existing board and committee structure. Only minor modifications may be required to align the composition in such a way that it meets the criteria of both RBI (under Corporate Governance Directions) and SEBI (under Listing Regulations).

Maximum number of committees’ memberships – an anomaly in the language of law?

Reg 26 of the Listing Regulations specifies the maximum no. of committees in which a director can hold membership/chairmanship. It provides that a director cannot be a member in more than 10 committees and Chairman in more than 5 committees at any one time. In regard with the same, certain classes of companies are specifically included/ excluded as below –

Here, while the public companies are specifically included in one hand, HVDs have been excluded which can be public as well as private companies. Therefore, there arises an anomaly as to whether public companies, being HVDs, are exempted while calculating the number of committees, or whether the same has to be included?

A possible interpretation that may follow is that a company, only on account of being a HVD, will not get included for the purpose of counting committee memberships under this Regulations. However, a public company, being specifically included irrespective of being listed or not, committee memberships of such public companies should also be taken into account which are listed as HVD entities.

Board-level compliances


Increased compliance burden on debt listed entities

Besides the corporate governance provisions that have newly become applicable on the HVD entities, the regular compliances of the debt listed entities have also undergone vivid changes mostly in line with the requirements applicable to a listed entity having its equity shares listed in stock exchange. The compliance requirements are two fold – (i) increasing the disclosures required to be made to the stock exchanges and (ii) increasing the frequency of such reporting/ disclosures (shifting half yearly compliances into quarterly etc). The Amendment Regulations also provide clarity with regard to the time within which disclosures are required to be made. General terms have been replaced with more specific matters and timelines.

Quarterly compliances

Requirement with respect to financial results*

In the erstwhile Reg 52, the debt listed entities had an option to submit unaudited financial results followed by annual audited financial results once approved by the Board. However, vide the Amendment Regulations, it has been mandatory for the debt listed entities to submit audited financial results within 60 days from the end of the financial year. Some additional accounting ratios have also been specified to be disclosed by the companies. Further, the asset cover is also required to be disclosed along with the results.

A clarificatory change is with regard to the exemption of providing information related to debt service coverage ratio and interest service coverage ratio by Housing Finance Company (HFC) along with NBFC.

Half-yearly compliances

Website disclosures

Any change in the information has to be updated within two days. The stock exchange intimations are required to be kept in the website for a period of 5 years and archived thereafter.

Stock exchange intimations

Matters concerning the debenture holders are also required to be intimated to the debenture trustee simultaneously with intimation to the stock exchanges.

Material modifications in structure of NCS

Reg 59 deals with the approvals required for any material modifications to be made in the structure of NCS. The three step process requires –

  1. Approval of board and debenture- trustee
  2. Approval of debenture-holders
  3. Approval of stock exchanges

In the erstwhile Regulations, the consent of a requisite majority of securities holders was required to be taken before applying to the stock exchange for its approval. However, in the Amendment Regulations, the written consent of atleast 3/4th (by value)of the securities holders is required to be taken, before proceeding with any material modification in the structure of NCS. The company is further required to provide e-voting facilities in respect of the same.

Our comments –  Requirement of consent of 3/4th by value is in line with the requirements for variation of rights under Section 48 of the Act, which applies to variation in rights of shareholders. However, the same may not be practically possible in case of debenture holders, who may not care to vote at all. Moreover, considering that the debenture trustee is already approving the modification, adequate protection to debenture holders are already ensured.  Further, what is material modification is not a defined term and left to the discretion and judgement.

Concluding Remarks

The status of debt listed companies had undergone a change with effect from 1st April, 2021 after an amendment in the definition of listed companies under the Companies Act, 2013, vide which the debt listed companies were no more considered as a ‘listed’ company for the purposes of the Companies Act, 2013. This might have led to loose ends in the corporate governance of such debt listed companies. SEBI’s move of enforcing corporate governance provisions on HVD entities can be seen as a measure to refill the gaps. However, the corporate governance provisions under the Listing Regulations are quite stringent and will make it tougher for the private companies to get their debt securities listed. While there is a minimum outstanding listed debt threshold to determine applicability of such corporate governance provisions, however, the limits are very minimal from the viewpoint of companies and will take a huge chunk of debt listed companies under its ambit.


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