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

March 28, 2025/0 Comments/in Companies Act 2013, corporate governance, Corporate Laws /by Staff

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).

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

SEBI proposals to ease overheated SME IPO market

November 21, 2024/0 Comments/in Corporate Laws, SEBI /by Staff

SEBI proposes amendments in ICDR and LODR Regulations owing to recent concerns around SME listing

– Sakshi Patil, Executive and Sourish Kundu, Executive| corplaw@vinodkothari.com

SME IPOs are constantly increasing at an evergrowing rate, with 31 companies listed on SME in FY 21-22 to a total of 138 companies listed in FY 23-24, and 117 companies already listed on SME as of the current FY (till 15th October, 2024) on NSE alone. Not only the number of SME IPOs, the investor participation in such IPOs has also increased substantially, with the applicant to allotted investor ratio from 4X in FY 22 to 46X in FY23 and 245X in FY24. A data on the SME listings during the current and previous FY suggests that, while majority of listed SMEs have booked listing gains, approx 20-30% of such entities have subsequently witnessed a price drop (39 out of 224 companies listed on NSE, 26 out of 91 companies listed on BSE¹).

The recent surge in SME IPOs over the last few years, including substantial investor participation in such IPOs, coupled with the recent regulatory concerns w.r.t. diversion of issue proceeds, funding to shell companies, misinflation of revenues etc. has required a re-look into the existing regulatory universe under which SMEs are listed and operate post listing. In August 2024, an advisory was also issued by SEBI regarding investment in the securities of entities listed on SMEs. NSE rolled out stricter eligibility criteria effective September 1, 2024. Greater emphasis on positive cashflow pre listing (w.e.f. Sept 1), capping of 90% over issue price during special pre-open session for SME IPO (w.e.f. July 4) signal the emphasis for investor protection. Following the same, a Consultation Paper has been issued by SEBI, proposing amendments to the provisions of ICDR and LODR Regulations, with a view to strengthen the pre and post-listing requirements for SMEs. Key proposals include restricting the access of SME Exchange to informed investors, and ensuring such IPOs serve the original purpose of making finance available to SMEs for their business growth, and not for funding the promoters’ requirements.

A brief of the 27 proposals, as against the existing requirements and our comments are presented below:

Particulars	Existing requirement	Proposal under CP	Rationale and Our Comments
Stricter eligibility conditions for SME IPO
Ineligibility conditions for IPO (Proposal 8)	Currently based on PromotersDirectors Selling shareholders in some cases.	To be extended to promoter group as well.	SME companies are closely held by promoter and promoter groups. Hence, any action against the promoter group may also have a significant bearing on the issuer.
Additional eligibility requirements for SME IPO(Proposal 9A & 9B)	Firm/ LLP converted into company can apply for IPO without any cooling period – track record requirements are considered on a combined basis.	Co. which has been converted from LLP or partnership firm, shall be in existence for at least 2 yrs, with restated financial statements post conversion drawn in accordance with Schedule III of CA, 2013.Cooling off of 2 years in case of change of promoter, or introduction of new promoter acquiring 50% or more shareholding prior to filing of DRHP.	Helps in bringing a clearer picture of financial position post conversion. Cooling period in case of change in promoter is to bring steadiness in IPO.Track record should be based on the effective management of new promoter(s) and not past promoter(s).
Operating profits (EBIDTA)(Proposal 11)	Positive.	Rs. 3 cr for at least 2 out of 3 immediately preceding FYs.	To ensure financial viability of the company. *Our Comments:* NSE additionally mandates positive Free cash flow to Equity (FCFE) for at least 2 out of 3 financial years preceding the application.
Conversion of Pre-IPO outstanding convertible securities before IPO(Proposal 20)	Conversion not mandatory	Conversion mandatory	In line with the requirement for Main Board IPO. Provides clarity to investors on the company’s capital structure before they invest.
Structure of IPO and allotment
Minimum issue size(Proposal 10)	Not specified	Rs. 10 cr	To ensure companies with significant growth potential access the market.Loans and alternative funding sources typically cater to smaller amounts.Is aligned with BSE’s and NSE’s requirement for Main Board listing.
Offer for sale(Proposal 4A & 4B)	No restriction	Dual limits proposedOFS restricted upto 20% of issue size and for selling shareholders, OFS shall not exceed 20% of pre-issue shareholding on a fully diluted basis.	To prevent use of SME listing for dilution of promoter stake.
Face value(Proposal 12)	Not Specified	Rs. 10/- per share for existing issued capital and proposed new shares to be issued.	To enable better comparison amongst various issuers.
Minimum application size (Proposal 1)	Rs. 1 lakh	Rs. 2 lakh with existing minimum allocation of 35% (book-build issue)/ 50% (fixed price issue) to RIIs, ORRs. 4 lakh (resulting in deletion of RII category for minimum allocation requirements).	Limit participation of retail investors (bidding for upto Rs. 2 lakhs) to protect interest of smaller retail investors;Attract investors with risk taking appetite; Enhance the overall credibility of the SME segment.
Minimum no. of allottees (Proposal 3)	50	200	To ensure sizeable no. of investors Provide liquidity
Allotment methodology for Non – institutional investors (NII) category (Proposal 2)	Proportional allotment for NIIs	Draw of lots for minimum bid lot to NIIs divided into 2 categories: ⅓ rd of allocation for application size upto 10L⅔ rd of allocation for application size exceeding 10L	Align allocation methodology with Main Board IPO; Proportional allotment may encourage over-leveraging, over statement of interest and thus at times encourage mispricing.
Objects of issue & utilisation of proceeds
Raising funds for General corporate purpose (GCP) and unidentified acquisition (Proposal 7A & 7B)	GCP < – 25% of issue sizeGCP + unidentified acquisition < – should not exceed 35% of issue size	GCP restricted to lower of 10% of issue size or Rs. 10 cr;Prohibition on raising funds for unidentified acquisition	To reduce the risk of misuse of issue proceeds
Repayment of loan of promoter/ promoter group as an object of issue(Proposal 14)	No express prohibition.	Not allowed	To ensure that funds raised through IPO are used for business growth, not for repayment of promoters’ liabilities
Funding for working capital (Proposal 15)	No specific requirement	Mandatory statutory auditor certificate on a half-yearly basis for use of working capital funds raised exceeding Rs. 5 Crore, with disclosure of the same in financial statements.	Ensures that working capital funds are appropriately used *Our Comments:* The requirement of statutory auditor’s certificate is proposed to be made mandatory for all SME IPOs where a monitoring agency is not required to be appointed (see below). A specific mandate for working capital monitoring may not serve any additional purpose.
Monitoring of issue proceeds (Proposal 5A, 5B & 5C)	Monitoring agency mandatory if issue size >100 cr	Monitoring agency mandatory if: Issue size >20 cr ORObject of issue includes:funding subsidiary, repay loans/ borrowing of the subsidiary investment in JV/ subsidiaryacquisition In other cases, utilization certificate from statutory auditor on half-yearly basisPlace before AC and board Submit to stock exchange	Reduce risk of misuse or diversionBring more transparency for investors and accountability for issuer *Our Comments:* Presently, Reg 32(5) of LODR requires statutory auditors to certify the statement w.r.t. Utilisation of funds on an annual basis. The proposal will additionally require the same to be done on a half-yearly basis, in cases where a monitoring agency is not required to be appointed.
Disclosure of sources in case of requirement of having firm arrangement of finance for a project(Proposal 16)	No such requirement	Sanction letter to be disclosed in draft offer document and offer document where partial funding is by bank/NBFCs.	Additional diligence and disclosure for investors w.r.t. project appraisal by financial institutions.
Exit opportunity for dissenting shareholders in case of change in objects(Proposal 23)	No specific provision	Post-listing exit opportunity for dissenting shareholders in case of changes in the objects or terms, in line with Main Board provisions	Protects the interests of dissenting shareholders, ensuring they have an exit option in case of significant changes post-listing.
Promoter contribution and lock-in requirements
Lock-in of promoter holding(Proposal 6A & 6B)	Minimum Promoter Contribution (MPC) – 3 yrs Excess holding – 1 yr	MPC – 5 yrsExcess – Lock in on 50% to be released after 1 yr and;For remaining 50% to be released after 2 yrs.	To ensure that entire holding is not diluted post the lock in periodTo ensure promoter continues to have skin in game till company is on SME Exchange
Securities ineligible for MPC(Proposal 24)	No clarification w.r.t. adjustment of price for corporate action	Price per share for determining MPC eligibility should be adjusted for corporate actions (e.g., bonus, stock split)	Clarifies the pricing mechanism and ensures fairness in determining MPC eligibility, preventing manipulation through corporate actions.
Other additional disclosures
Disclosure of senior level management(Proposal 17)	KMP and SMP details are required to be disclosed in offer document	Disclosure of senior-level employees (e.g., head of sales, plant head, etc.), with their experiencesAdditional disclosure on ESIC/EPF detailsSite visit by merchant banker to form part of DD report and included in material inspection documents in offer document.	Better disclosure w.r.t. Employee strength of the company
Merchant banker fees(Proposal 18)	No requirement to disclose issue related fees	Merchant banker fees, by any name, to be disclosed in RHP	Increased transparency – presently such costs exceeds 30-40% of issue size, defeating the primary purpose of fundraising
Public comments on DRHP (Proposal 19)	No requirement.	At least 21 days’ for public comments; Disclose on website of SEs and lead managers;Public announcement in 3 newspapers – English, Hindi and regional.	Allows the public to provide feedback during draft offer document stage instead of opening of offer
Due diligence certificate by merchant banker(Proposal 21)	Required at the time of submission of offer document to SEs.	Mandatory submission to SE at the time of filing draft offer document.	Ensures that the due diligence process is completed and certified before the public sees the draft offer document.
Migration to Main Board
Migration from SME to Main Board(Proposal 13)	Post-issue face value of capital > Rs. 25 crores pursuant to fresh issue.	Where listed SME is not eligible to migrate, fund raising to be still permitted beyond Rs. 25 crores, subject to compliance with corporate governance norms and disclosure requirements under LODR.	Ensures that company can remain listed on SME platform having post issue face value more than 25cr with light touch of regulations applicable to them related to LODR
Corporate Governance Requirements
Related Party Transactions(Proposal 25)	Exempt from Reg 23 pursuant to Reg 15(2)(b). Compliance as per Companies Act applicable: Meaning of RP [as per section 2(76)]Approval of AC (for all RPTs)Approval of Board (for specified transactions if not in ordinary course or arm’s length)Approval of shareholders (for material RPTs requiring board approval as above)	Reg 23 to be made applicable to SME listed entities.De minimis exemption continues for smaller listed entities [Reg 15(2)(a)]Material RPTs based on turnover thresholds (10% of annual consolidated turnover)Absolute limits of Rs. 1000 crores not applicable.	Enhanced requirements to mitigate risk of circular transactions and abusive RPTs
Quarterly corporate governance report [Reg 27](Proposal 26)	Not applicable	Quarterly disclosure w.r.t. composition and meetings of the board and its committees to the stock exchange(s)	Harmonize disclosure requirements for SME and Main Board entitiesEnhancing transparency on functioning of board and committee *Our comments:* The CP mentions about disclosure of board and committees, however, it is not clear as to whether the other disclosures as are applicable to Main Board entities under the corporate governance report, is also proposed to be extended to SMEs
Periodic filings to stock exchanges(Proposal 27)	Half yearly filing of:: Shareholding pattern [Reg 31], Statement of deviation(s) or variation(s) [Reg 32],Financial Results [Reg 33]	To be made on a quarterly basis, at par with Main Board listed entities.	Reflects the financial health and fund utilization by companies; Aligned with requirements applicable to the Main Board.