SEBI strictens RPT approval regime, ease certain CG norms for HVDLEs

Notifies amendment as COREX timeline set to expire

– Team Corplaw | corplaw@vinodkothari.com

March 28, 2025 | Team Vinod Kothari & Company

Just before the expiry of the ‘Comply or Explain’ timeline of March 31, 2025 for HVDLEs, SEBI notified SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2025 inserting a separate chapter viz. Chapter VA: Corporate Governance Norms for a Listed Entity which has listed its Non-Convertible Debt Securities effective from March 27, 2025. The proposal for amendments were made in the Consultation Papers of October 31, 2024 and February 8, 2023, and was approved by SEBI in the board meeting held on December 18, 2024. A summary of the changes notified, comparison of the new compliance requirements vis-à-vis the earlier norms have been captured in this write-up. 

HVDLEs: Meaning, Applicability, Sunset Clause

The only criteria for being categorized as an HVDLE is the amount of outstanding value of listed non-convertible debt securities, which has now been revised from Rs. 500 crores or more to Rs. 1,000 crores or more. This upward revision is aligned with the criteria for being identified as a Large Corporate, i.e. outstanding long-term borrowing amounting to Rs. 1,000 crores or more, and has been introduced with the dual objective of tightening the regulatory regimes for debt listed entities while simultaneously promoting ease of doing business in the corporate bond market.  

The provisions of the Chapter VA, a chapter exclusive to entities having listed only their non-convertible debt securities, the outstanding value  of which is exceeding Rs. 1,000 crores, and not specified securities, shall apply with effect from April 1, 2025. Explanation(1) appended to Regulation 62C clarifies that HVDLEs shall be determined on basis of value of principal outstanding of listed debt securities as on March 31, 2025, irrespective of the date of notification of this amendment. 

A doubt may arise arise with regards the applicability of this chapter to an entity whose outstanding value of NCDs exceeds the threshold during the year, i.e. after March 31, 2025 – the Explanation(2) to the same regulation makes it clear that such entity shall ensure compliance with the provisions of Chapter VA within six months from the date of such trigger and the disclosures of such compliance may be made in corporate governance compliance report on and from third quarter, following the date of the trigger.

However, the earlier conception of “Once an HVDLE, always an HVDLE” has now been removed with the introduction of a sunset clause, in Regulation 62C(2), which specifies that the provisions of this chapter shall cease to be applicable, after three consecutive years of the value of outstanding NCDs being below the Rs. 1,000 crores threshold, as determined on March 31 of any given year. 

Related Party Transactions by  HVDLEs

While the scope of RP and RPTs continue to be the same as defined in regulation 2(1) (zb) and (zc) respectively, the present amendment introduces a revised RPT approval regime for HVDLEs particularly for Material RPTs. The restriction for related parties to not vote to approve the material RPT, provided under regulation 23, resulted in impossibility of compliance for HVDLEs as most HVDLEs were closely held companies.  Accordingly, SEBI introduced a two step approval process for material RPTs with first obtaining NOC from the debenture holders (of listed debt securities issued on or after April 01, 2025) not related to the issuer and holding at least more than 50% of the debentures in value, on the basis of voting including e-voting, followed with approval of shareholders through ordinary resolution. The provisions of Reg. 62K is applicable to RPTs entered into on or after April 1, 2025. Refer to our FAQs to understand the implications and manner of seeking approval.

While the other requirements are similar to corresponding requirements under regulation 23 for equity listed entities (for e.g., framing of policy, prior approval of audit committee, half yearly disclosures etc.), recent amendments made in December, 2024 in relation to ratification of RPTs and exemption from approval requirements of audit committee and shareholders have not been inserted in reg. 62K.

Prior to this amendment, so long the debt was continued to be serviced and the terms and conditions of borrowing was met, the debenture holders were not required to intervene in the regular operations of the company. If there was a covenant to that effect in the debenture subscription agreement or Debenture Trust Deed or terms of issue, in that case, irrespective of whether the RPT is material or immaterial, the borrowing entity was required to comply. With this amendment, the debenture holders will also have a say in corporate governance, especially in case of material RPTs pursuant to a provision of law. Other lenders extending term loan and other facilities, and who have a larger exposure on such companies, will not have this opportunity.

Differing requirements under CG norms for an HVDLE vis-a-vis an equity listed entity

The provisions of Reg. 16 to 27 of Chapter IV have been suitably modified and inserted in the context of HVDLEs in Chapter VA. While largely the flow of the provisions and requirements are aligned, there exists certain gaps in certain provisions. The tabular comparison below highlights the same (excluding those differences that are linked with market capitalization related requirements/ outstanding SR equity shares related requirements that only apply to equity listed entities): 

Particulars	Reqt. under Chapter IV for equity listed entities	Reqt. under Chapter VA for HVDLEs	Remarks
Meaning of IDs	Defined under Reg. 16(1)(b)	Reg. 62B (1) (b) refers to definition in Chapter IV and additionally provides for considering the NEDs other than nominee directors, in following listed entities: A body corporate mandated to constitute its board as per the law under which it is constituted; or Set up under public private partnership [PPP] model	In the case of the PPP model, the composition of the board is pre-decided or mutually decided between the public authority and private entity, hence the exemption.  Further, for HVDLEs that are private limited companies, having IDs as per the criteria given under Chapter IV, becomes explicit.
Timeline for obtaining shareholders’ approval for board appointments	Reg. 17 (1C) To be obtained within 3 months from appointment or ensuing general meeting, whichever is earlier. Carve outs: Time taken for obtaining approval of regulatory, government or statutory authorities, shall be excluded.Provisions not applicable to appointment or re-appointment of a person nominated by a financial sector regulator, Court or Tribunal to the board of the listed entity	Reg. 62D To be obtained within 3 months from appointment or ensuing general meeting, whichever is earlier. Both the carve outs are not available for HVDLE.	The corrections made to corresponding provision in Reg. 17 (1D) vide LODR Third Amendment Regulations, 2024 have not been made in Chapter VA. The carve out under Reg. 62D (4) pertains to that sub-regulation and not the entire Reg. 62D.
Continuation of director on the  board  subject to shareholders’ approval once in every five years	Carve outs provided in provisos to Reg. 17 (1D): To the director appointed pursuant to the order of a Court or a Tribunal or to a nominee director of the Government on the board of a listed entity, other than a public sector company, or to a nominee director of a financial sector regulator on the board of a listed entity.To a director nominated by a financial institution registered with or regulated by RBI under a lending arrangement in its normal course of business or nominated by a SEBI registered DT under a subscription agreement for the debentures issued by the listed entity.	Carve outs in Reg. 62D (4) are broadly similar. Reg. 62D (4) additionally exempts director appointed under the public private partnership model/structure.	As composition is pre-decided or is as per mutual terms between the public authority and private entity.
Nature of listed entities considered and limits  for maximum no. of directorships	Reg. 17A- LEs shall be cumulative of those whose equity shares are listed on a stock exchange and HVDLEs. Director in not more than 7 LEsID in not more than 7 LEsIf WTD/ MD in any LE, ID in not more than 3 LEs  Further, to give sufficient time to all the listed entities to ensure compliance with the provision, a period of 6 months or till the time AGM is held from the date of applicability of the provision to the entity, whichever is later, has been provided.	Reg 62E provides the same limits. LEs shall be cumulative of those whose equity shares are listed on a stock exchange and HVDLEs. Carve out for directorships in PSUs and entities set up in PPP arrangements are not to be included.	In order to ensure that directors devote adequate time to listed entities including HVDLEs and in the interest of investor protection.
Composition of NRC, SRC and RMC	Reg. 19, 20 & 21:Each of the committees viz. Nomination and Remuneration Committee, Stakeholders Relationship Committee and Risk Management Committee (top 1000 based on market cap) are required to be constituted.	Reg. 62G – The functions of NRC may either be discharged by the board or by NRC.Reg. 62H – The functions of SRC may either be discharged by the board or by SRC.Reg. 62I – The functions of RMC may either be discharged by the board or by audit committee or by RMC.	In order to avoid the constitution of multiple committees by HVDLEs.
Exemption from  prior approval of AC of the holding  LE, in case, provisions  of Reg 23 is applicable  to the subsidiary	Reg 23(2)(d): Prior approval of the audit committee of the listed entity shall not be required for a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.	Reg 62K: Identical provisions, however, position is not clear where the subsidiary is also an HVDLE.	The exemption should be available even in case of an HVDLE subsidiary, as such a subsidiary will be required to independently comply with Regulation 62K, similar to that provided in Reg. 62K(6).
Exemption from approval of AC w.r.t. remuneration and sitting  fees paid to Director, KMP and SMP (non-promoter)	Reg 23(2)(e): remuneration and sitting fees paid by the listed entity or its subsidiary to its Director, KMP and SMP (non-promote, shall not require approval of the audit committee provided that the same is not material.	No such carve out in Reg. 62K (3)	The amendments made in Reg. 23 vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62K.
Ratification of RPT	Reg 23(2)(f): The members of the audit committee, who are independent directors, may ratify related party transactions subject to the certain conditions and timelines	No such provisions  are included  in Reg. 62K (3)	The amendments made in Reg. 23 vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62K.
Omnibus approval proposed to  be undertaken by subsidiary  companies	Reg 23(3): Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity or its subsidiary subject to the certain conditions	Reg 62K: Identical provisions, However, subsidiary companies of HVDLE are not included in the ambit of  omnibus approval  provisions  for  HVDLE	The amendments made in Reg. 23 vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62K.
Approval regime for material related party transactions	Reg 23(4): All material related party transactions and subsequent material modifications shall require prior approval of unrelated members.	Reg 62K(5): All material related party transactions and subsequent material modifications shall require prior NOC from the DT and the DT shall in turn obtain No-Objection/approval from the unrelated DH who hold atleast > 50% of the debentures in value, on the basis of present and voting including e-voting. 62K(6): approval of shareholders shall be required after obtaining NOC from DT, however, no restriction has been placed on shareholders that are RPs from voting to approve the resolution.	Several HVDLEs are closely held companies, holding a negligible portion of the equity or none at all, in which case the entity was not able to transact such RPTs because of ‘impossibility of compliance’ with the provisions of LODR Regulations. Therefore, taking cue from Sec. 186 (5), SEBI tried to address this issue by mandating NOC from debenture holders.
Exemption from Material RPT approval in case of listed subsidiaries	Reg 23(4): Available if regulations 23 and 15 (2) are applicable to such listed subsidiaries.	Reg 62K(6): Prior approval of the shareholders and NOC by DT of a HVDLE, shall not be required for a RPT to which the listed subsidiary is a party but the listed entity is not a party, if regulation 62K of these regulations is applicable to such listed subsidiary, however, position is not clear i.r.t. Listed subsidiary, if reg 23  is applicable to such subsidiary.	This  situation is inverse for obtaining audit committee approval in case of HVDLE. In the context of equity listed entities, the exemption is not available in case of Material RPTs undertaken by an HVDLE subsidiary.
Exemption from AC & S/h approval requirements for certain RPTs	Reg 23(5): Following transactions are exempt from the applicability of approval provisions: (a) transactions entered into between two public sector companies;(b) transactions entered into between a holding company and its WOS (c) transactions entered into between two WOS of the LE(d) transactions which are in the nature of payment of statutory dues, statutory fees or statutory charges entered into between an entity on one hand and the Central Government or any State Government or any combination thereof on the other hand. (e) transactions entered into between a public sector company on one hand and the Central Government or any State Government or any combination thereof on the other hand.	Reg 62K(7): The exemptions are not identical:(i) under point (a) exemption available for government companies and not public sector  companies;(ii) point (b) and (c) are identical(iii) point (d) and (e)  are excluded.	The amendments made in Reg. 23 vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62K.
CG requirements with respect to subsidiary	Requirements of Reg. 24 apply to unlisted subsidiaries.Reg 24 (1) – appointment of atleast 1 ID of the parent listed entity on the board of the unlisted material subsidiary (whose turnover or net worth exceeds 20% of the consolidated turnover or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year) Reg 24(2): Review of financial statements of the unlisted subsidiary by the audit committee of the listed entity.Reg 24(3): Review of board minutes of the unlisted subsidiary by the board of the listed entity. Reg 24(4): Review by the board of significant transactions/arrangements entered into by the unlisted subsidiary.Reg 24 (5): Shareholders’ approval for disposal of shares of material subsidiary whose turnover or net worth exceeds 10% of the consolidated turnover or net worth respectively, of the listed entity) resulting in  reduction to less than or equal to  50% or cessation of  control.Reg 24 (6): Shareholders’ approval for sale, disposal and leasing of assets of material subsidiary (whose turnover or net worth exceeds 10% of the consolidated turnover or net worth respectively, of the listed entity)	Reg 62L: All requirements apply only to unlisted material subsidiary (whose income or net worth exceeds 20% of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year)	CG requirement pertaining to subsidiary is relaxed for HVDLE in comparison to that of equity listed entity
Secretarial Audit and Secretarial Compliance (ASC)  Report	Reg 24A: LE and its material unlisted Indian subsidiaries ((whose turnover or net worth exceeds 10% of the consolidated turnover or net worth respectively, of the listed entity) to undertake Secretarial audit by Peer Reviewed Secretarial Auditor.  Further, the regulations also deal with tenure of appointment, rotation of secretarial auditors,  eligibility, qualifications and  disqualifications for appointment of a secretarial auditor, and prohibited services prescribed w.r.t Secretarial Auditors of the listed entity.  ASC report to be submitted within 60 days from the end of FY by the listed entity.	Reg 62M: HVDLEs and its Indian material unlisted subsidiary (no definition provided) to undertake secretarial audit and annex the report in annual report. Further, HVDLEs to submit ASC report within 60 days. The requirement of peer reviewed CS to conduct Sec audit or issue ASC,  tenure of appointment, rotation of secretarial auditors,  eligibility, qualifications and  disqualifications for appointment of a secretarial auditor, and prohibited services prescribed w.r.t Secretarial Auditors etc not applicable.	The amendments made in Reg. 24A vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62M. Further, the scope of material subsidiary is not provided as the definition under Reg. 16 and Reg. 62L may not apply unless expressly indicated.
Agreement pertaining to profit sharing or in connection with dealings in securities of the company	Reg 26(6): Any agreement entered into by the employees, KMP/director/promoter for himself/herself or on behalf of any other person with regard to compensation or profit sharing in connection with dealings in the securities of listed entity, requires prior approval by the board and public shareholders by way of ordinary resolution. Interested persons involved in the transaction are required to abstain from voting.	Reg 62O(5): The regulation is similar to that provided in Reg. 26(6) with the exception that there is no restriction for voting by the interested persons.	The amendments made in Reg. 26(6) vide LODR Third Amendment Regulations, 2024 have not been made in Reg. 62O.

Other Amendments

Related Party Transactions by SME Listed entities

A listed entity which has listed its specified securities on the SME Exchange are not required to comply with the CG norms otherwise applicable to a Main Board listed entity which have either paid up capital exceeding Rs. 10 crore or net worth exceeding Rs. 25 crore). In order to plug the risk of siphoning of funds to related parties, as observed by SEBI in certain instances, the present amendment harmonizes and aligns the RPT norms applicability by extending it to SME listed entities other than those which  have  paid  up  capital  not  exceeding  Rs.  10  crores  and  net  worth  not exceeding Rs. 25 crores. Further, considering the size of SMEs, the threshold limit for Material RPTs have been set to Lower of INR 50 Cr or 10% of annual consolidated turnover as per last audited financial statements. Where the provisions become applicable at a later date, SMEs will have 6 months time to ensure compliance. The provisions shall continue to apply till both the conditions w.r.t equity share capital and networth falls below the threshold and remains below the threshold for 3 consecutive FYs.

Business Responsibility and Sustainability Reporting

Regulation 34(2)(f) of the Listing Regulations so far required assurance of the BRSR Core Report, which has now been modified to term it as ‘assessment or assurance of the specified parameters’ to prevent unwarranted association with a particular profession (specifically audit profession). Assessment defined as third-party assessment undertaken as per standards notified by the Industry Standards Note on BRSR Core, developed in consultation with SEBI. 

Similar modification has been reproduced for obtaining BRSR Core Report from Value Chain Partners of the Listen Entity, and a clause of voluntary disclosure of the same for HVDLEs has been added in Regulation 62Q(3). 

Read More:

Bo[u]nd to ask before transacting: High value debt issuers bound by stricter RPT regime

SEBI proposes to ease HVDLEs from equity linked CG norms 

FAQs on Business Responsibility and Sustainability Report (BRSR)

Presentation on CG Norms for HVDLEs