– Payal Agarwal, Partner | corplaw@vinodkothari.com
See our webinar on the same here: https://youtu.be/quOA5A9G0II
Secretarial auditors for listed entities: FAQs on disqualifications and prohibited services
FAQs on SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations,2024
Nitu Poddar, Partner | corplaw@vinodkothari.com
After over two years of implementing CG norms for HVDLE on a ‘comply or explain’ basis, a new Chapter VA has been inserted in the LODR on March 28, 2025, governing CG norms for pure HVDLEs. Among other things, the new chapter outlines the requirements relating to board and committee composition, subsidiary governance, RPT framework for HVDLEs, etc.
As regards the RPT framework, the one for HVDLE (reg 62K) introduces an additional requirement: consent from debenture holders through NOC from the debenture trustees.
This criteria has been added to fix the “impossibility of compliance” (of getting approval from unrelated shareholders for material RPTs) in case of HVDLEs as most of these have either nil or negligible unrelated shareholders. This also underscores the requirement to protect the interest of the lenders, particularly the debenture holders – aligned with s. 186(5) of the Companies Act, 2013.
However, there are a few practical implementation issues and inconsistencies, possibly arising from the CG norms (prior to the LODR 3rd Amendment in 2024) for an equity listed entity (chapter IV) being the drafting template for this new chapter. This article highlights these issues, particularly those affecting 62K, given the structure of HVDLEs.
Structural difference between HVDLE and an equity listed company
Before beginning to list such inconsistencies, it is important to highlight the structural difference between an HVDLE and an equity listed company – the very reason why a separate chapter for CG has been rolled out for an HVDLE!
HVDLEs are mostly closely held companies with all or close to all shareholders being related parties, approval from unrelated shareholders often becomes an impossibility. Further, considering that the funding to HVDLEs is by the debenture holders, protection of their interest becomes paramount. Accordingly, approval from the debenture holders have been made mandatory for undertaking any material RPTs by a HVDLE.
13.3.3 Since, both banks and debenture holders are lenders to the borrowing entity, it is felt that a similar approach should be adopted for debenture holders. This provides a layer of protection to the debenture holders who might be at risk of unfair treatment due to some RPTs which may also have an impact on the repayment capability of an entity. It is noted that the debenture holders’ interest is intended to be safeguarded by a debenture trustee [SEBI Consultation Paper date October 31, 2024]
Present exemptions – some extra; some missing
Lets now discuss the inconsistencies that needs to be fixed:
The shareholders of the holding and its WOS are effectively the same and any benefit / resources, if at all transferred to the WOS, in case of an RPT between a holding and WOS, is to consolidate in the holding company and remain within the enterprise. Therefore, such transactions are exempted u/r 23(5). But this theory holds correct in case of an equity listed company only where the interest of equity shareholders needs to be protected.
However, in a debt-listed structure, the concern shifts from the ‘enterprise’ to the individual ‘entity’. The exposure of debenture holders is required to be protected. A debenture holder may have exposure only to the WOS, not the holding company. In such case, exempting RPTs between the holding company and its WOS (or between two WOS) overlooks the distinct legal and financial obligations of each entity. The interest of debenture holder can be considered only by seeking “their” approval for a RPT. The relationship of holding company and WOS between the transacting company does not ensure any protection to the debenture holders. The exemption in 62K(7), mirroring 23(5), places debenture holders at the mercy of equity shareholders in the holding company – contradicting the spirit of the rest of Regulation 62K, which otherwise mandates their approval.
Think of a situation where a WOS (which has issued the debentures) upstreams value to its parent. While equity shareholders in the parent may remain unaffected, the WOS may be left with insufficient resources to repay its debenture obligations. Debenture holders cannot claim recourse against the parent; their exposure is limited to the WOS.
Remuneration paid to KMP and SMP who are not promoters, payment of statutory dues, transactions between PSU and CG / SG which are exempted for an equity listed entity have not been replicated under 62K. There is no reason why these exemptions which are provided to an equity listed entity, shall not be provided to an HVDLE, when the underlying intent of these exemptions aligns with an HVDLE.
Our related resources on the topic:
– Sourish Kundu, Executive | corplaw@vinodkothari.com
Every year, as companies close their books on 31st March, a silent timer begins ticking — one that could turn a minor delay into a major compliance miss. 30th April isn’t just another date on the calendar; it’s a hard stop for companies to take action regarding their unspent CSR (Corporate Social Responsibility) obligations.
Why 30th April? What must you do? What if you don’t? Let’s walk through it — step by step.
In terms of Section 135(6) of the Companies Act, 2013:
“Any amount remaining unspent under sub-section (5), pursuant to any ongoing project, fulfilling such conditions as may be prescribed, undertaken by a company in pursuance of its Corporate Social Responsibility Policy, shall be transferred by the company within a period of thirty days from the end of the financial year to a special account in any scheduled bank called the ‘Unspent Corporate Social Responsibility Account.'”
Thus, by 30th April, companies must transfer unspent CSR amounts related to ongoing projects into a special CSR account.
If the company:
In short:
1. Unspent on non-ongoing projects? → Transfer to a Schedule VII Fund within 6 months of FY end (i.e., by 30th September).
2. Unspent on ongoing projects? → Transfer to Unspent CSR Account by 30th April, then spend it within 3 years, failing which again transfer to a Fund.
Rule 2(1)(i) of Amendment Rules defines the term ‘ongoing project’ as:
The same should have commenced within the financial year to call it ‘ongoing’. This includes a project that was initially not approved as a multi-year project. The intent is to include a project which has an identifiable commencement and completion. The expenses which are recurring in nature should not be included in the ongoing project.
For example, if a company contributes to the annual running expense of a cancer hospital, the spending for the next year cannot be regarded as an “ongoing project”. However, if installation of a new facility at the same hospital is already undertaken during the year, such expense should be regarded as an “ongoing project”.
The auditor must specifically report:
Thus, both the Board and Auditor are responsible for ensuring, documenting, and reporting CSR compliance – and failure can attract regulatory scrutiny and penal consequences.
Read more:
Knowledge Centre for Corporate Social Responsibility (CSR)
Need for strategic vision in CSR spending by companies
Corporate law changes: small steps towards procedural simplification
– Application of RPT controls for transactions with Wholly owned Subsidiaries
– Payal Agarwal, Partner | corplaw@vinodkothari.com
Wholly owned Subsidiaries (WoS) form a particular paradox in corporate laws with two contradictory positions – (a) the transactions entered into between the holding company and its WoS are viewed as transactions within a group, thus, permitting a seamless flow of resources between the two without any objection, looking at an “enterprise” level whereas, (b) limiting the access of the shareholders and creditors of the holding company and the WoS to the respective entity’s resources, thereby separation of the two at an “entity” level.
Section 185 of CA 2013 exempts any financial assistance to the WoS from the compliance requirements under the section, and the limits on loans, guarantees, investments or provision of security under section 186 do not apply for transactions with WoS. Section 177(4)(iv) and 188 of CA 2013, pertaining to RPT controls, also extend certain exemptions for transactions with WoS. Reg 23(5) of SEBI LODR also exempts transactions with WoS as well as between two WoS from approval requirements, at both the Audit Committee and shareholders’ level. Reg 37A of SEBI LODR contains an exemption from shareholders’ approval requirements for sale, lease or disposal of an undertaking to the WoS. In each of the aforesaid provisions, the underlying presumption remains the same – the accounts of the WoS are consolidated with that of the holding company, and hence, the flow of resources remain within the same ‘enterprise’, despite change of ‘entity’. Thus the law takes an ‘enterprise’ wide view instead of an ‘entity’ level view while providing for such exemptions.
On the other hand, the outreach of shareholders of a company is limited at an ‘entity’ level, that is to say, the shareholders of the holding company do not have access to the general meetings of the WoS. Similarly, the creditors of each entity do not have any recourse against the other entity. For instance, where the holding company has outstanding dues, but there are resources at the WoS level, can the creditors reach to the assets of the WoS? The answer is no. Similarly, a vice versa situation is also not possible. In fact, under the Insolvency and Bankruptcy Code too, the assets of the subsidiary are kept outside the purview of the liquidation estate of the holding corporate debtor [Section 36(4)(d)].
Further, the board of a WoS is different from its holding company. The board of the holding company does not have any rights over the board of the subsidiary. Therefore, under these situations, transactions between the holding company and its WoS, though between companies that are 100% belonging to the same group, cannot be viewed as completely seamless or free from any corporate governance concerns.
The aforesaid discussion makes it clear that while an ‘enterprise’ wide approach is taken in granting exemptions to WoS, the separation of legal entities cannot be completely disregarded, because the outreach of the shareholders, creditors and the board of directors remain limited. Now from the point of view of related party transactions, can it be argued that the transactions between a holding company and WoS are without any restraint altogether? For example, does the concept of arm’s length has no relevance in case of a transaction between a holding company and WoS?
A light touch regulation or inapplicability of certain controls or approvals does not mean that arm’s length precondition becomes unnecessary. If such a view is taken, then the flow of resources between the holding company and the WoS will be completely without any fetters, thus breaching the concept of corporate governance at an entity level. For instance, can the board of directors of the holding company be absolved from its responsibilities to safeguard the assets of the holding company where the same flows to the subsidiary without any consideration? The answer surely is a no. Both ‘entity’ level and ‘enterprise’ level are significant, and hence, one cannot disregard the separation of legal entities, particularly, in the context of protection of assets of the entity (also see discussion under Role of Board below).
As regards the concept of arm’s length, the same is omnipresent – required to be ensured in transactions with related parties as well as unrelated entities. The meaning of arm’s length transaction, as defined under SA 550 pertaining to Related Parties, is as follows:
A transaction conducted on such terms and conditions as between a willing buyer and a willing seller who are unrelated and are acting independently of each other and pursuing their own best interests.
Therefore, ‘independence’ and ‘own interests’ are important elements of an arm’s length transaction. If compromised in RPTs with WoS, absence of arm’s length criteria could lead to uncontrolled flow of wealth from the holding company to WoS, and may also lead to abusive RPTs.
The exemptions w.r.t. transactions with WoS make the same prone to misuse, through use of the WoS as a conduit or a stop-over for giving effect to arrangements with non-exempt RPs. For instance, a listed entity in the FMCG sector is required to provide financial assistance to its upstream entities (promoter group entities). There may be a lack of business rationale and commercial justification for such a transaction, and therefore, it is highly unlikely that such a transaction would get the approval of the AC. Therefore, in order to give effect to the transaction, the company may route the same through its WoS, and thus escape RPT controls at its AC level. The WoS may, in turn, pass on the benefit to the promoter group entities, through a series of transactions, in order to cover the real character of the transaction (see figure below).
A guidance note published by NFRA also, requires identification of indirect transactions, including through ‘connected parties’. In order to ensure no such indirect transactions have occurred, the management is expected to establish procedures to identify such transactions, and to obtain periodic confirmations from the directors, promoter group, large shareholders and other related parties that there are no transactions that have been undertaken indirectly with the listed company or its subsidiaries or its related parties.
The role of the board towards avoiding conflicts of interests is deep-rooted under the corporate laws and securities laws, under various applicable provisions. For instance, the directors have a responsibility towards safeguarding the assets of the company and for preventing and detecting fraud and other irregularities [Section 134(5)(c) of CA 2013]. Section 166 of CA 2013 specifies the duties of directors. These include, among others, the duty to act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company [Section 166(2)].
The key functions of the board, as contemplated under Reg 4 of LODR, also includes monitoring and managing potential conflicts of interest of management, members of the board of directors and shareholders, including misuse of corporate assets and abuse in related party transactions.
As stated above, Reg 23(5) of SEBI LODR exempts RPTs entered into between a holding company and its WoS from the approval requirements of both the AC and the shareholders.
Apart from Reg 23 of LODR, the RPT provisions are contained under Section 177 and 188 of CA 2013. Under section 177(4)(iv) of CA 2013, all RPTs require approval of the AC. The fourth proviso to the said sub-section exempts RPTs entered into with WoS from AC approval requirements. However, the said exemption is not absolute. The proviso reads as follows:
Provided also that the provisions of this clause shall not apply to a transaction, other than a transaction referred to in section 188, between a holding company and its wholly owned subsidiary company.
Thus, the exemption for RPTs with WoS does not apply in case of a transaction referred u/s 188 of CA 2013. In other words, where an RPT with WoS triggers approval requirements u/s 188, the same will also be required to be approved by the AC u/s 177 first.
Section 188(1) of CA 2013 provides a list of 7 types of transactions. The list is wide enough to cover almost all types of transactions, except financial assistance in the form of loans etc. However, section 188 becomes applicable, only, in cases where any one or more of the two most crucial elements of a transaction are missing – (i) ordinary course of business and (ii) arm’s length terms. In cases where a transaction does not meet the ordinary course of business or the arm’s length criteria, the same is referred to the board of directors u/s 188 of CA 2013, and requires prior approval of the board.
The fifth proviso to section 188(1) also contains an exemption for RPTs between the holding company and its WoS. Note that the said exemption is applicable only with respect to the approval of the shareholders, the approval of board is still required for RPTs that lack one of the two elements stated above, even though with WoS.
Provided that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall be entered into except with the prior approval of the company by a resolution:
XXX
Provided also that the requirement of passing the resolution under first proviso shall not be applicable for transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval:
The conditional exemption given u/s 177 and the absence of any exemption from board’s approval u/s 188 clearly confirms the requirement of ensuring arm’s length terms in transactions with WoS.
The AC is the primary decision-making authority in respect of matters relating to related party transactions. NFRA, the audit regulator of the country, has published the Audit Committee – Auditor Interactions Series 3 dealing with audit of Related Parties. The guidance sets out potential points on which the AC may interact with the auditors in the context of RPTs. Where a company avails exemptions w.r.t. AC and shareholders’ approval, the guidance note requires documentation of the rationale for not obtaining Audit Committee’s and Shareholders’ approvals.
Thus, the AC is expected to be the scrutinising authority in ensuring that the terms on which a transaction is proposed to be entered into with a WoS are at an arm’s length, which, in turn, would require bringing the transaction before the AC, if not for approval, then for a pre-transaction scrutiny and information.
Ind AS 24 pertaining to Related Party Disclosures require disclosures to be made in the financial statements that the RPTs were made on terms equivalent to those that prevail in arm’s length transactions. However, such disclosure can be made only if such terms can be substantiated. Note that the Ind AS 24 does not contain any exemption for WoS. In the absence of a strict scrutiny of RPTs with WoS for satisfaction of arm’s length basis of the terms of the transaction, such an assertive statement in the financial statements for arm’s length of the terms is not possible.
In view of the expectations from the AC, board and the auditors, and the potential risks of abusive RPTs using WoS as an intermediary, the following approach may be undertaken before entering into a transaction with WoS:
Read more:
Related Party Transactions- Resource Centre
Bo[u]nd to ask before transacting: High value debt issuers bound by stricter RPT regime
FAQs on Standards for minimum information to be disclosed for RPT approval
Simrat Singh – corplaw@vinodkothari.com | finserv@vinodkothari.com
An Infrastructure Investment Trust (InvIT) is a pooled investment vehicle designed to facilitate collective investment in infrastructure assets. It allows investors to earn returns from assets such as roads, power plants, and telecom towers without direct ownership. Structured as a trust, InvITs generate revenue through various avenues such as toll collections, power tariffs and lease payments etc depending upon the underlying asset class. This mode of investment provides investors with a stable income stream through regular dividends while offering potential capital appreciation.
InvITs attract both institutional and retail investors seeking long-term, predictable returns, making them a crucial instrument in bridging the funding gap for infrastructure development. By serving as an efficient alternative to traditional financing methods, they contribute significantly to the sector’s growth and sustainability.
This article explores the progress of InvITs in India, examining the key asset classes they encompass, emerging asset categories, and a brief overview of the regulatory framework governing their operations.
Since the launch of India’s first InvIT, the IRB InvIT Fund, in March 2016, InvITs have evolved significantly. Since FY 2020, InvITs have mobilized a remarkable ₹129,267 crore, helping bridge a portion of the USD 1.4 trillion investment required in infrastructure to achieve India’s goal of a $5 trillion economy by 2030.
Source: SEBI’s statistics on Fund raising by REITs and InvITs
InvITs have emerged as a viable investment avenue for those seeking long-term, stable returns. Foreign investors hold a substantial share of equity in InvITs, reflecting the strong global interest in India’s infrastructure sector. However, retail participation remains limited due to a lack of awareness and high ticket size. As of September 30, 2024, the total AUM of InvITs stood at ₹5.87 lakh crore. Calculating returns on InvITs can be challenging, especially for privately placed InvITs, due to the lack of readily available data. However, when it comes to capital appreciation in publicly listed InvITs, returns have generally been unimpressive (a glimpse of this is shown in the chart below which has been prepared after analysing the listing price and the price as on 1.04.2024 of units of Public InvITs). This is primarily because investors in these units prioritize steady income through interest and dividend payments over capital gains. At this juncture, it will be interesting to note that out of the 25 registered InvITs in India, only 5 have had public issues.
Legally, any asset listed under the Ministry of Finance notification dated October 7, 2013, can be included in an InvIT. However, in practice, as of March 31, 2024, InvITs primarily manage assets worth ₹5.87 lakh crore in the following categories and in the following proportions:
Source: CareEdge Ratings
After reviewing the websites and placement memorandums of all the InvITs registered in India, we can categorize them based on the following asset classes in which they operate:
| Sr. No. | Name of InvIT | Underlying asset class |
| 1 | Digital Fibre Infrastructure Trust | Telecom & data transmission |
| 2 | Altius Infra Trust | |
| 3 | Capital Infra Trust | Roads |
| 4 | Highways Infra trust | |
| 5 | IRB InvIT Fund | |
| 6 | Shrem Invit | |
| 7 | Roadstar Infra Investment Trust | |
| 8 | Interise Trust | |
| 9 | Oriental InfraTrust | |
| 10 | Nxt-Infra Trust | |
| 11 | Maple Infrastructure Trust | |
| 12 | IRB Infrastructure Trust | |
| 13 | Indus Infra Trust | |
| 14 | Cube Highways Trust | |
| 15 | Athaang Infrastructure Trust | |
| 16 | Anantham Highways Trust | |
| 17 | Powergrid Infrastructure Investment Trust | Power transmission |
| 18 | IndiGrid Infrastructure Trust | |
| 19 | Energy Infrastructure Trust | Pipeline infrastructure |
| 20 | TVS Infrastructure Trust | Warehousing |
| 21 | NDR InvIT Trust | |
| 22 | Intelligent Supply Chain Infrastructure Trust | |
| 23 | Sustainable Energy Infra Trust | Renewable energy |
| 24 | Anzen India Energy Yield Plus Trust | |
| 25 | SchoolHouse InvIT | Educational infrastructure |
Telecom InvITs, such as Digital Fibre Infrastructure Trust (DFIT) and Altius Infra Trust, generate revenue by leasing telecom infrastructure to operators. DFIT, for instance, owns and operates fiber optic networks leased to large companies like Reliance Jio. It also earns interest income from its 51% stake in Jio Digital Fibre Private Limited (JDFPL). Altius generates revenue through long-term Master Service Agreements (MSAs), including rental charges, location premiums and infrastructure expansion fees. These structured agreements ensure predictable cash flows, enhancing the financial resilience of telecom InvITs.
One of the major players in this sector, Powergrid Infrastructure Investment Trust (PGInvIT) generates revenue through long-term Transmission Service Agreements (TSAs), typically spanning over 35 years. These agreements ensure stable income by collecting transmission charges from power distribution companies (DISCOMs) and state electricity boards. Revenue is pooled and managed by the Central Transmission Utility of India Limited, reducing counterparty credit risks and ensuring timely payments.
One of the most popular and growing asset class, road InvITs generate income through:
For example, National Highways Infra Trust (NHIT), backed by the National Highways Authority of India (NHAI), monetizes highway assets under the Built-Operate-Transfer (BOT) model. NHIT raised ₹46,000 crore through InvIT issuances, providing investors with steady income while enabling NHAI to reinvest in new projects.
Warehousing InvITs in India generate revenue primarily through long-term lease agreements with logistics companies, e-commerce firms, and manufacturers. These leases often follow a triple net lease, ensuring stable cash flows.
As on date there is only one InvIT which operates pipeline assets and it generates revenue through tariff-based gas transportation fees, regulated by the Petroleum and Natural Gas Regulatory Board. This InvIT secures long-term contracts and capacity reservation fees, ensuring stable revenue. They also benefit from interconnection fees with third-party pipelines, expanding income streams.
SchoolHouse InvIT, India’s first educational asset focused InvIT, earns revenue by leasing school and student housing properties to educational institutions under long-term agreements (15-30 years). The triple net-lease model, where tenants cover maintenance, property tax, and insurance, ensures minimal revenue leakage.
The SEBI (Infrastructure Investment Trusts) Regulations, 2014 (‘InvIT Regulations’) categorize InvITs into three types. The key conditions related to their issuance, distribution, and borrowings are summarized in the table below:
| Feature | Public | Private Listed | Private Unlisted |
| Mode of initial offer | Public issue | Private placement | Private placement |
| Minimum asset value | Rs. 500 Cr. | Rs. 500 Cr. | Rs. 500 Cr. |
| Minimum initial offer size | Rs. 250 Cr. | Rs. 250 Cr. | Rs. 250 Cr. |
| Listing requirement | Mandatory | Mandatory | Not permitted |
| Minimum subscription in initial offer from any investor | INR 10,000 – INR 15,000 | INR 1 Crore / 25 Crore | INR 1 Crore / 25 Crore |
| Distribution requirement | At least 90% of NDCF ; at least once every six months | At least 90% of NDCF; at least once every year | At least 90% of NDCF; at least once every year |
| Permitted investors | Can invite funds from public as well (subject to minimum public float as per Reg 14(1A) | Institutional investors and body corporates, whether Indian or foreign | Institutional investors and body corporates, whether Indian or foreign |
| Borrowing limit | Up to 25% of asset value – no approval required More than 25% but up to 49% of asset value:Obtain credit ratingApproval of unit holders More than 49% but up to 70% of asset value:AAA ratingRecord of at least 6 distributions.Approval of unit holders. (75%) | As per trust deed | |
| Number of investors | Minimum 20 | Minimum 5 and maximum 1,000 | Minimum 5 and maximum 1,000 |
To ensure that sponsors maintain a minimum stake in the investment, Regulation 12 of the InvIT Regulations outlines the following lock-in requirements based on a gliding platform approach.
| Minimum holding period | Lock-in requirement |
| For a period of 3 years from listing. (Units in excess of 15% to be locked in for a period of 1 year from listing) | 15% of total Units |
| From the beginning of 4th year and till the end of 5th year from the date of listing | 5% of total Units or Rs. 500 crores, whichever is lower |
| From the beginning of 6th year and till the end of 10th year from the date of listing | 3% of total Units of the InvIT or Rs. 500 crores, whichever is lower |
| From the beginning of 11th year and till the end of 20th year from the date of listing | 2% of total Units of the InvIT or Rs. 500 crores, whichever is lower |
| after completion of the 20th year from the date of listing | 1% of total Units of the InvIT or Rs. 500 crores, whichever is lower |
Regulation 26G of the InvIT Regulations specifies the applicability of certain provisions of the Listing Regulations to InvITs, with necessary modifications. These provisions includes:
InvITs have significantly transformed India’s infrastructure investment landscape, providing an alternative financing mechanism that bridges the funding gap while offering investors stable returns. Their evolution from road and power transmission assets to emerging categories like warehousing, pipeline infrastructure, and educational institutions highlights their growing versatility. Despite challenges such as limited retail participation and moderate capital appreciation in public InvITs, the segment continues to attract institutional investors, particularly foreign investors, signaling strong confidence in India’s infrastructure sector.
As the regulatory framework evolves to enhance transparency, governance, and investor confidence, InvITs are poised to play an even greater role in India’s economic growth. By enabling long-term capital infusion into essential infrastructure projects, they not only support the nation’s $5 trillion economy vision but also ensure sustainable development across key sectors. Looking ahead, increased awareness, improved accessibility, and regulatory refinements could unlock further potential for InvITs, making them a more attractive and robust investment avenue in the years to come.
– Sourish Kundu, Executive | corplaw@vinodkothari.com
The Ministry of Micro, Small, and Medium Enterprises (MSME), through its notification dated March 21, 2025, has revised the classification criteria for Micro, Small, and Medium Enterprises. While the proposed revision was mentioned in the Union Budget 2025, the formal notification confirms the upward revision of classification limits, effective April 1, 2025. This revision will permit several enterprises to qualify as MSMEs, as also allow existing MSMEs to expand, without losing their present classification.
During the 2025 Budget Speech, the Hon’ble Finance Minister emphasized the critical role played by MSMEs in India’s economy:
“Currently, over 1 crore registered MSMEs, employing 7.5 crore people, and generating 36 per cent of our manufacturing, have come together to position India as a global manufacturing hub. With their quality products, these MSMEs are responsible for 45 per cent of our exports. To help them achieve higher efficiencies of scale, technological upgradation, and better access to capital, the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times, respectively. This will give them the confidence to grow and generate employment for our youth.”
| Category | Investment in Plant and Machinery or Equipment (₹ crores) | Annual Turnover (₹ crores) | ||
| Current | Revised | Current | Revised | |
| Micro | ≤1 | ≤2.5 | ≤5 | ≤10 |
| Small | ≤10 | ≤25 | ≤50 | ≤100 |
| Medium | ≤50 | ≤125 | ≤250 | ≤500 |
It is important to note that MSME classification follows a composite criterion, meaning that if an enterprise exceeds either the investment or turnover limit, it will be reclassified into the next higher category.
With effect from FY 2025-26, a substantial rise in eligible enterprises is expected, leading to a new influx of registrations on the UDYAM portal. The notification dated June 26, 2020 (the principal circular) prescribes the process for UDYAM registration.
A pertinent question arises regarding enterprises currently classified as Medium or Small Enterprises: Will they be downgraded to Small or Micro Enterprises due to the reclassification? Clause 8(6) of the principal circular clarifies:
“In case of reverse graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.”
This means that enterprises eligible for reverse graduation will retain their existing status until March 31, 2025, with the revised classification taking effect from April 1, 2025.
The reclassification is expected to have far-reaching consequences across various economic sectors. Some key implications include:
One of the major benefits for Micro and Small Enterprises (MSEs) over Medium Enterprises is derived from Section 43B(h) of the Income Tax Act, 1961, which allows deductions for payments made to MSEs only on a cash basis (i.e., upon actual payment rather than accrual). This provision aligns with Section 15 of the MSMED Act, 2006, which mandates payment within 45 days.
With a larger number of enterprises falling under the MSE category, buyers availing goods and services from these entities will need to ensure timely payments. Delays beyond the prescribed timelines may lead to tax disallowances and potential compliance issues.
In addition to disallowance of deductions under the Income Tax Act, 1961, such debtors, also have to comply with the requirement of filing Form MSME-1 on a half yearly basis, as discussed below.
The Ministry of MSME, via its notification dated March 25, 2025, has mandated that companies receiving goods or services from MSEs and failing to make payments within 45 days must file Form MSME-1 on a half-yearly basis, disclosing outstanding amounts and reasons for delay.
The form was revised by MCA’s order dated July 15, 2024; however, the revised classification criteria will not impact filings for the six months ending March 2025. Companies must ensure that subsequent filings accurately reflect payments owed to newly classified MSEs.
Furthermore, the Budget 2025 proposed enhancements in credit guarantee coverage:
These initiatives are expected to bolster MSME financing through schemes like the Emergency Credit Line Guarantee Scheme (ECLGS), Credit Guarantee Fund Schemes (CGS-I & CGS-II), Credit-Linked Capital Subsidy Scheme (CLCSS), and the Micro Finance Programme. A comprehensive overview of these schemes can be accessed here.
The expansion of MSME eligibility is set to widen the scope of financing options available to these enterprises. Under RBI’s Master Directions on Priority Sector Lending, loans extended to MSMEs are considered part of banks’ priority sector obligations. The increase in eligible entities may result in higher loan disbursements across both manufacturing and service sectors.
As per the Master Direction – Priority Sector Lending (PSL) – Targets and Classification, domestic Scheduled Commercial Banks (SCBs) and foreign banks must allocate 40% of their Adjusted Net Bank Credit (ANBC) to priority sectors, including Micro, Small, and Medium Enterprises (MSMEs). Specifically, domestic SCBs and foreign banks with 20+ branches must lend at least 7.5% of ANBC or Credit Equivalent Amount of Off-Balance Sheet Exposure (whichever is higher) to Micro enterprises.
With a broader pool of eligible MSMEs, platforms such as TReDS (Trade Receivables Discounting System) and other supply chain financing mechanisms may witness an upsurge in receivables for securitization. This could lead to improved liquidity and lower financing costs for MSMEs. A detailed discussion on MSME receivables securitization is available here.
Apart from credit-related benefits, MSMEs receive various non-financial support from the government. Some of these are highlighted below:
These targeted initiatives collectively strengthen MSME growth, market access, and technological advancement.
While the upward revision of MSME classification limits may appear to be a simple adjustment, its implications are widespread. The surge in registrations will not only affect enterprises seeking MSME benefits but also influence businesses procuring goods/services from them and financial institutions extending credit. Companies and financial stakeholders must revisit internal policies to adapt to the evolving MSME landscape and ensure smooth compliance with the revised framework.
Read more on MSMEs here:
Critical Reg. 30 events assimilate into ‘illustrative guidance list’ of UPSI as SEBI strives for EoDB and easier compliance requirement
Team Vinod Kothari & Company | corplaw@vinodkothari.com
The idea of unpublished price sensitive information (‘UPSI’) is something which companies have to guard as confidential until disclosed to investors, as it may materially impact the stock prices. Price sensitivity of an event has to do with the impact of the event on the company’s profitability, turnover, long-term or short-term prospects, shareholding base, etc. The identification of these events is done based on the materiality of the event to the business and business model. The more prescriptive the list supplied by the lawmaker is, the more one takes away the sense of responsibility and accountability to the corporate team that flags corporate events as material. If the lawmakers flag them all, or flag a lot, the very seriousness of tagging an information as price sensitive is taken away.
Pursuant to SEBI (Prohibition of Insider Trading) Amendment Regulations, 2025 (‘present amendment’) SEBI has amended UPSI definition, effective from June 10, 2025[1] inserting a longer list of information, some of which may seem purely operational or business-as-usual for listed companies. Whether each of this information will be regarded as “deemed UPSI”, thereby requiring compliance officers to do the drill of structured digital database entry to even trading window closure every time such an event occurs? While the amended definition seems indicative of this, the intent of the regulator seems otherwise. This article tries to explain.
The idea of linking UPSI determination with Reg 30 events is not new. In fact, the definition of UPSI under PIT Regulations originally included “material events in accordance with the listing agreement”, within the definition of UPSI. The same was subsequently omitted vide Amendment Regulations, 2018 effective from 1st April, 2019.
The omission of material events under LODR from the definition of UPSI was a result of the recommendations of the Committee on Fair Market Conduct, under the Chairmanship of Shri T.K. Viswanathan. The Committee noted that every material event under LODR is not necessarily price sensitive, and therefore, the explicit inclusion of the same as UPSI is not appropriate.
The Committee noted that the aforesaid regulation require disclosures of material events or information which may or may not be price sensitive. Accordingly, the Committee is of the view that all material events which are required to be disclosed as per the Regulation 68 of the LODR Regulations may not necessarily be UPSI under the PIT Regulations. Since, the definition of UPSI is inclusive, the Committee recommends the removal of explicit inclusion of “material events in accordance with the listing agreement” in the definition of UPSI.
Thereafter, SEBI vide a Consultation paper dated May 18, 2023, proposed restoration of material events under LODR in the definition of UPSI. The public feedback largely pointed out that all events or information under Regulation 30 of LODR Regulations may not have an impact on the price of securities, hence, it is not rational to extend the UPSI definition to all material events under Reg 30 of LODR.
In view of the same, another Consultation Paper was floated on 9th November, 2024 on expansion of the list of UPSI to include some specific events from Reg 30. Based on the public comments received on the Consultation Paper, SEBI in its Board Meeting dated 18th December, 2024 approved the said amendments to the definition of UPSI.
As mentioned above, the amendments have been notified vide the Amendment Regulations, 2025 effective from June 10, 2025 providing a long list of Reg 30 events within the meaning of UPSI.
The definition of UPSI contains two parts – (a) subjective meaning of UPSI, and (b) a list of events that may be considered as UPSI. To this end, the definition of UPSI reads as:
“unpublished price sensitive information” means … and shall, ordinarily including but not restricted to, information relating to the following:
XXX
The present amendment pertains to the second part of the UPSI definition. A question would arise on whether the list of events may be considered as indicative, illustrative of what may constitute UPSI, or prescriptive, providing a deeming status of UPSI to such events/ information without assessment of the probability of price-sensitive impact of such information.
The answer to the aforesaid has to be traced back from the recommendations of the High Level Committee to Review the SEBI (Prohibition of Insider Trading) Regulations, 1992.
The Committee also felt that some illustrative examples of what would ordinarily constitute UPSI should be set out to clearly understand the concept. It would be important to ensure that regardless of whether the information in question is price-sensitive, no piece of information should mandatorily be regarded as ―UPSI. Towards this end, examples of events and developments information about which would ordinarily be regarded as UPSI, are listed – such as financial results, dividends, mergers and acquisitions, changes in capital structure etc.
XXX
To conclude, whether or not a piece of information is generally available or is unpublished would necessarily be a mixed question of fact and law. A bright line indicating the types of matters that would ordinarily give rise to UPSI are listed to give illustrative guidance. It could well also be possible that information from such events could be routine in nature and consistent with a long history. Information about the repetition of the same event on predictable lines would not render it to be UPSI unless deviated from. For example, the declaration of dividend at the same rate at which a company has declared dividend for the several years as per publicly stated dividend policy.
Hence, it can be well understood that the idea behind providing an illustrative list of events in the definition of UPSI is not to render the same as “deemed UPSI”, thus mandating the treatment of the same as UPSI. Rather, the intent is to provide illustrations for a better understanding of what may ‘ordinarily’, and not ‘mandatorily’, constitute UPSI.
As evident from the discussion in SEBI BM agenda, the events/ information added in the definition of UPSI pursuant to the present amendment are given for ‘illustrative guidance’. For instance, while addressing the comment in case of routine fund raising in the usual course of business, SEBI acknowledged the fact that if the fund raising is routine in nature and on predictable lines it would not materially affect the price and thus, may not be UPSI. Similarly, in response to the comment on providing specific meaning of ‘impact on management’, it was stated that the same would make it prescriptive, which is not the intent of law.
Therefore, listed entities continue to have the power to determine UPSI based on the expected impact of such an event or information on the price of securities of such entities. The list of events under the definition of UPSI only provides an indicative guidance.
The Amendment Regulations, though notified on 11th March, 2025, are effective on the 90th day from the publication of the same in the official gazette, that is, 10th June, 2025. Does that mean that the listed entities are not required to identify an event falling under the ‘illustrative list’ as UPSI during the said period, even if the same is price-sensitive? Can a listed entity contend that the categorisation of an event as UPSI, where such an event is falling under the elongated “attention list”, though price-sensitive, is not mandatory for UPSI originating prior to 10th June, 2025?
In our view, such a stance cannot be taken. The intent of the regulations have also been such that required companies to evaluate every event or information, for potential price-sensitivity, and based on such judgement, categorise an information as UPSI until made generally available to the public at large. Therefore, one cannot take a view that such an event was not UPSI prior to the amendments becoming effective, and will take the character of an UPSI only after 10th June, 2025.
An example will make the case clearer. Concrete discussions with respect to a proposed fund raising commenced from 1st May, 2025. The board meeting for approval of the fund raising proposal will take place on 12th June, 2025. Will the listed entity be required to categorise the information as UPSI from 10th June, 2025 (effective date of applicability of the amendments) to 12th June, 2025 (board meeting date on which the final decision will be made and Reg 30 intimation will be provided to the stock exchanges making the information generally available)?
Here, what needs to be evaluated is whether, in accordance with the UPSI guidelines of the entity, the person(s) in-charge of the identification of UPSI has considered the information to be of a price-sensitive nature. If the answer is yes, the information should have been categorised as UPSI from 1st May, 2025 itself, regardless of the applicability of the amendments.
On the other hand, if the same was evaluated and not considered to be price-sensitive at the time the information was concretised, assuming there has been no further developments subsequently that would give the information the character of being price-sensitive, such an information would not require UPSI categorisation even after 10th June, 2025. A third scenario would be where the information was, in fact, price-sensitive from the time of its concretisation, that is, 1st May 2025, however, not evaluated for price-sensitivity on the account of not explicitly covered under the definition of UPSI. In such a circumstance, the information was actually an UPSI since 1st May, and should have been categorised as such from that time itself. Pursuant to the present amendments, such information that was price-sensitive but not taken care of in the appropriate manner, would now come under the “attention list” of the listed entities.
The discussion above makes it clear that the elongated definition does not necessarily result in providing a deeming character of UPSI to the specified events/ information under Reg 30. In such a case, a question may arise on the relevance of providing such an elongated list of UPSI.
The need for the present amendment has been set out in the Consultation Paper and BM agenda of SEBI in the following manner:
However, contrary to expectations, a study conducted by SEBI along with stock exchanges, revealed that, after the amendment to the definition of UPSI in the PIT Regulations, which removed the expression “material events in accordance with the listing agreement”, by and large, companies were seen to be categorizing only the items explicitly mentioned in PIT Regulations as UPSI. The market feedback also suggested that most companies consider this to be a ‘uniform practice’. Therefore, in light of the above observations, SEBI felt that there exists a need to review the definition of UPSI.
| Insertion in definition of UPSI | Relevant clause in LODR | Discussion in CP/ BM Agenda | VKCo guidance on UPSI categorisation |
| Change in rating(s), other than ESG rating(s) | New Rating(s) or Revision in Rating(s) | Upward/ downward revision to be considered UPSI.New ratings for fresh issue of securities will get covered under ‘change in capital structure’ or ‘fund raising proposed to be undertaken;Considering ESG Ratings are at a nascent stage, SEBI has excluded ESG rating. | Instances of revision may ordinarily have a price-sensitive impact. Also, while withdrawal of ratings is not explicitly covered, it should also be covered |
| Fund raising proposed to be undertaken | the decision with respect to fund raising proposed to be undertaken including by way of issue of securities (excluding security receipts, securitized debt instruments or money market instruments regulated by the Reserve Bank of India), through … | If the fund raising is routine in nature and on predictable lines it would not “be likely to materially affect the price of the securities” and thus may not be UPSI | It is common for NBFCs and other financial sector entities to raise funds through issuance of NCDs. Being routine in nature, such fund-raising would not constitute UPSI pursuant to the present amendment. |
| Agreements, by whatever name called, which may impact the management or control of the company | Agreements covered by Clause (5) and (5A) of Para A of Part A | Original proposal under CP required two conditions: (i) agreements that impact the management and control of the company and (ii) are in the knowledge of the company However, pursuant to BM, agreements impacting either ‘management’ or ‘control’ have been included. | Usually agreements which may impact the management or control are price sensitive in nature. However, if the change is purely inter-promoter transfers or similar agreements, which may not impact the working or operations of the entity, a view may be taken |
| Fraud or defaults by the company, its promoter, director, KMP, or subsidiary or arrest of KMP, promoter or director of the company, whether occurred within India or abroad | Fraud or defaults by a listed entity, its promoter, director, KMP, SMP or subsidiary or arrest of KMP, SMP, promoter or director of the listed entity, whether occurred within India or abroad | SMP excluded considering the same may not generally have a material impact on the price of securities of the listed entity. Such fraud, default or arrest should be in relation to the listed entity. | In determination of the materiality and hence, price-sensitivity of information under this clause, guidance may also be drawn from the ISN on Reg 30. Refer a brief note on the ISN here. |
| Changes in KMP other than due to superannuation or end of term, and resignation of a Statutory Auditor or Secretarial Auditor | Change in directors, KMP senior management, Auditor and Compliance Officer | MD/WTD/CEO not proposed to be re-appointed may be potential UPSI. Resignation of CFO or CS may be usual movement across entities, and , may not be in the nature of UPSI. On the other hand, any resignation citing governance issues, including that of an independent director, though not covered explicitly in the definition, should be considered as UPSI. Similarly, every instance of resignation by the statutory or secretarial auditor may not be UPSI. For instance, resignation on account of bandwidth or personal limitations of the auditor. .Resignation on account of corporate governance concerns, or indicating frauds/ accounting lapses etc may be considered as UPSI. | |
| Resolution plan/ restructuring or one time settlement in relation to loans/borrowings from banks/financial institutions | Resolution plan/ Restructuring in relation to loans/borrowings from banks/financial institutions. One time settlement with a bank | No threshold limit provided since the same pertains to Para A item under Schedule III. | |
| Admission of winding-up petition filed by any party /creditors and admission of application by the Tribunal filed by the corporate applicant or financial creditors for initiation of corporate insolvency resolution process against the company as a corporate debtor, approval of resolution plan or rejection thereof under the Insolvency and Bankruptcy Code, 2016 | winding-up petition filed by any party / creditors events in relation to the corporate insolvency resolution process of a listed corporate debtor under the Insolvency Code | Filing a winding-up petition itself is a material event requiring intimation to the stock exchanges. Admission of such a petition is the second stage, and while the same may be ‘price-sensitive’, it is not clear as to what would be ‘unpublished’ for the purpose of ensuring PIT controls on the same. This appears to be one of the instances of events emanating from outside the entity, and hence, relaxations w.r.t. SDD entries and trading window closure may be availed (see discussion below). | |
| Initiation of forensic audit, by whatever name called, by the company or any other entity for detecting mis-statement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report | Initiation of Forensic audit a) The fact of initiation of forensic audit along-with name of entity initiating the audit and reasons for the same, if available; b) Final forensic audit report (other than for forensic audit initiated by regulatory / enforcement agencies) on receipt by the listed entity along with comments of the management, if any. | While it was suggested to not consider receipt of final forensic report as UPSI, the suggestion was not accepted since the information regarding outcome of such forensic audit may also be UPSI | In our view, once the initiation of forensic audit is considered as UPSI, the said event, although disclosed as a material event, should continue to be considered as UPSI till the time the final forensic audit report is not made public. |
| Action(s) initiated or orders passed within India or abroad, by any regulatory, statutory, enforcement authority or judicial body against the company or its directors, key managerial personnel, promoter or subsidiary, in relation to the company | Clause (19) and (20) of Para A of Part A of Schedule III | SMP excluded considering the same may not generally have a material impact on the price of securities of the listed entity | The explanation to the amended definition to UPSI provides that for the identification of events enumerated as UPSI, the guidelines for materiality referred to in para A of Part A will be applicable. Therefore, an imposition of penalty will require disclosure if the same exceeds the limits of Rs. 1 lakh by sector regulators/ enforcement agencies and Rs. 10 lakhs for other authorities. The materiality of an action taken vis-a-vis the price of the securities of the listed entity depends on various factors, such as criticality of the non-compliance warranting an action, severity of the action/ penalty, impact of the penalty on the reputation and profits of the listed entity etc. Hence, not each instance of action taken or penalty imposed would require identification as UPSI. Further, the UPSI under this clause, being an event emanating from outside the listed entity, relaxations with respect to SDD entries and trading window closure may be availed (see below) |
| Insertion in definition of UPSI | Relevant clause in LODR | Discussion in CP/ BM Agenda |
| Award or termination of order/contracts not in the normal course of business | Awarding, bagging/ receiving, amendment or termination of awarded/bagged orders/contracts not in the normal course of business | Expected to have a significant impact on the revenue and profitability of the company. Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30. |
| Outcome of any litigation(s) or dispute(s) which may have an impact on the company | Pendency of any litigation(s) or dispute(s) or the outcome thereof which may have an impact on the listed entity | Initial order and pendency or any litigation is available in the public domain, hence, not UPSI.Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30. |
| Giving of guarantees or indemnity or becoming a surety, by whatever named called, for any third party, by the company not in the normal course of business | Giving of guarantees or indemnity or becoming a surety , by whatever name called, for any third party. | Only such guarantees that are not in normal course of business will be UPSI Materiality will be based on thresholds provided under Reg 30(4) of LODR read with the ISN on Reg 30. |
| Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals. | Granting, withdrawal , surrender , cancellation or suspension of key licenses or regulatory approvals | As regards the suggestion of defining key licenses and regulatory approvals, the same being dependent on the industry or sector, the same has not been defined separately. Here again, emphasis has been given on the likelihood of materially affecting the price of security of a listed entity for UPSI identification. |
In our view, wherever an event is determined to be material by a listed entity, under Para B or Para C or any other residual clauses, such events are in the nature of UPSI. Thus, the clauses not expressly covered by the definition of UPSI, viz. product launch, capacity addition, strategic tie-up, loan agreements not in the normal course of business etc can also be in the nature of UPSI, based on its expected impact on the price of the securities of the listed entity.
As discussed above, the definition of UPSI, so far as the items specified thereunder is concerned, is illustrative and not prescriptive. Items that are of routine nature, or otherwise, are not expected to have a material impact on the price of securities of the listed entity can be excluded from UPSI categorisation. This requires a listed entity to first of all, have internal guidelines for identification of an event/ information as UPSI. Given the diverse items of information that may be material, it will be impossible to have a closed list of all; therefore, the list of potential UPSI items (UPSI Library) needs to be formulated by every listed entity based on probable impact on the relevant financial parameters (guidance may be drawn from the ISN on Reg 30 for Para B items), as well as feedback based on past events in the listed entity or relevant to such listed entity. The list should be (a) Dynamic – it will have to be populated regularly, based on a feedback system and (b) Granular – the more granular the items are, easier it will be to assign the first point of responsibility and to minimise the nodes or the stop-overs that information travels, from its first source of recognition to the ultimate centre.
Secondly, record is to be maintained with proper rationale for non categorization of an event or information as UPSI, particularly if the same falls within the illustrative list of UPSI as provided in the definition.
Needless to say, sensitisation of the relevant persons handling UPSI or such information that may be categorised as UPSI is crucial to ensure smooth functioning of the PIT controls.
In addition to the amendments made in the definition of UPSI, some guidance has been given with respect to UPSI not originating from within the listed entity.
For information not emanating from within the listed entity, the SDD entry may be done within 2 calendar days from the receipt of such information.
For UPSI not emanating from within the listed entity, trading window closure is optional.
The SEBI Consultation Paper or BM Agenda does not have reference to the aforesaid amendments. However, it can be understood that in case of events not emanating from within the listed entity, the UPSI is neither germinated from the listed entity, nor does it have a journey as an UPSI prior to disclosure, since the disclosure is required to be made within a maximum of 24 hours from the receipt of such information.
The intent of trading window closure is to caution the Designated Persons against trading, while in possession of UPSI. However, for events emanating from outside the listed entity, there is hardly much time between the receipt of information by the listed entity and the publication of such information through stock exchange intimation, thus making it generally available. Refer a presentation on the trajectory of an information from UPSI to material event disclosure here (slide 28 onwards).
Hence, the closure of the trading window is not relevant in such circumstances. The concept of trading window closure and related compliances has been discussed in a short video here. Having said that, any person in receipt of UPSI is bound by the primary charging section of the PIT Regulations to ensure that no trade is undertaken by the person while in possession of UPSI, irrespective of whether the trading window is closed or not.
The present amendments bring in an illustrative list of items that may ordinarily be considered as UPSI, to provide guidance to the listed entities in ensuring compliance with the PIT Regulations in letter and in spirit. As discussed above, this cannot be taken to mean that a list of deemed UPSI has been provided, and the determination of UPSI remains with the listed entities based on the expected impact on the price of the securities. Further, while the new amendments are inspired from Reg 30 of LODR, the definition of UPSI is common for both equity and debt-listed entities. Here, it is also to be noted that Reg 51 of LODR, as applicable to debt-listed entities, requires disclosure of all price-sensitive information to the stock exchanges.
[1] 90th day from the date of publication in the Official Gazette.
Read More:
Sebi elongates unpublished price sensitive information list
Prohibition of Insider Trading – Resource Centre
Critical Reg. 30 events assimilate into ‘illustrative guidance list’ of UPSI as SEBI strives for EoDB and easier compliance requirement
Refer amendment notified | Refer Consultation Paper
November 11, 2024 (updated on March 13, 2025)
– Vinita Nair | corplaw@vinodkothari.com
If your idea of unpublished price sensitive information (‘UPSI’), which companies have to guard as confidential until disclosed to investors, is something which may impact the stock prices, you now have a longer list of things, which may seem purely operational or business-as-usual for listed companies, but still sitting in the long list of “deemed UPSIs” that SEBI (Prohibition of Insider Trading) Amendment Regulations, 2025 has inserted, thereby making compliance officers do the drill of structured digital database entry to even trading window closure every time such an event occurs. The amendment takes effect from June 9, 2025 .
In our view, price sensitivity of an event has to do with the impact of the event on the company’s profitability, turnover, long-term or short-term prospects, shareholding base, etc. The identification of these events is done based on the materiality of the event to the business and business model. The more prescriptive the lists supplied by the lawmaker are, the more one takes away the sense of responsibility and accountability to the corporate team that flags corporate events as material. If the lawmakers flag them all, or flag a lot, the very seriousness of tagging an information as price sensitive is taken away.
Does the present amendment go in the same direction of making the regulations more prescriptive? May not be the case necessarily as SEBI BM agenda clearly demonstrates that the intent was to provide illustrative guidance and not define a scope making the regulations prescriptive, in view of the EODB perspective. For e.g. in case of routine fund raising in the usual course of business, SEBI acknowledged the fact that if the fund raising is routine in nature and on predictable lines it would not materially affect the price and thus, may not be UPSI. It also took note of certain suggestions and considered them in the final amendment., for e.g. doing away with trading window closure requirements where UPSI is not emanating from within the listed entity, excluding change in ESG ratings from UPSI ambit, excluding reference of senior management in some cases etc.
The N.K. Sodhi Committee Report of 2015 , while reviewing the definition of UPSI which included ‘material events in accordance with the listing agreement’, emphasized that it would be important to ensure that regardless of whether the information in question is price-sensitive, no piece of information should mandatorily be regarded as “UPSI”. Thereafter, in 2018, noting that all material events which are required to be disclosed as per the LODR Regulations may not necessarily be UPSI under the PIT Regulations, the Committee on Fair Market Conduct , recommended the removal of the explicit inclusion of “material events in accordance with the listing agreement” contained within the definition of UPSI. As listed entities did not follow the principles laid down in UPSI definition, it was decided to elongate the list of deemed UPSI events to guide the entities better in UPSI identification.
Earlier in May 2023, SEBI had proposed considering every material event as UPSI. Based on the feedback received for earlier CP citing concerns of significant increase in compliance management and potential perpetual closure of trading window, SEBI had kept the proposal on hold till revisiting the framework for material events disclosure, market rumour verification, trading plan provisions etc.
In December, 2024 SEBI notified LODR amendments in Reg. 30 & Schedule III for EoDB (effective December 12, 2024). The Industry Standards Note issued in relation to Reg. 30 disclosures guide on the manner of ascertaining the expected impact on value relevant for the purpose of determining the materiality (read our article here). Trading Plans were made flexible (effective November 1, 2024) to enable persons perpetually in possession of UPSI be able to trade.
A. Deemed material events (Para A of Schedule III) added to the UPSI list
B. Determined material events (Para B of Schedule III) added to UPSI list
While the present amendment indicating specific material events as illustrative guidance is better than the earlier proposal, law cannot prescribe an exhaustive list of UPSI events as it will differ from entity to entity. Given the diverse items of information that may be material, it will be impossible to have a closed list of all; therefore, the list of potential UPSI items (UPSI Library) needs to be formulated by every listed entity which is (a) Dynamic – it will have to be populated regularly, based on a feedback system and (b) Granular – the more granular the items are, easier it will be to assign the first point of responsibility and to minimise the nodes or the stop-overs that information travels, from its first source of recognition to the ultimate centre.