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Consequences-of-Non-Compliance-of-SEBI-LODR-Provisions
Consequences of Non-Compliance of SEBI LODR Provisions
The Securities and Exchange Board of India (SEBI) has established the Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, to ensure transparency, enhance governance, and protect shareholder interests in listed companies. Compliance with these regulations is mandatory for all listed entities. Non-compliance may lead to serious consequences, ranging from monetary penalties to the suspension of trading and even delisting.
This article provides a detailed overview of the repercussions faced by companies failing to comply with SEBI LODR provisions.
1. Significance of SEBI LODR
The SEBI LODR regulations are crucial as they ensure transparency and timely disclosure of material information. They aim to promote corporate governance and accountability while safeguarding the rights and interests of shareholders and investors. Moreover, they establish clear guidelines for board composition, financial reporting, and operational transparency.
Regulation 30 of SEBI LODR is particularly significant as it mandates the disclosure of material events, ensuring shareholders have access to all relevant information for making informed decisions.
2. Consequences of Non-Compliance
Failure to comply with SEBI LODR regulations triggers disciplinary actions as per the Standard Operating Procedure (SOP) issued by SEBI. These consequences are applied progressively, depending on the severity and duration of the non-compliance.
Phase 1: Imposition of Fine
The first course of action taken for non-compliance is the imposition of a fine, calculated on a per day basis until the issue is resolved. The stock exchange issues a notice specifying the fine amount. Companies are required to rectify the non-compliance and pay the fine within 15 days of receiving the notice.
If the entity fails to rectify the issue within the stipulated period, the fine continues to accrue until the stock exchange is satisfied that compliance has been achieved.
Phase 2: Freezing of Promoter’s Shareholding
If the company fails to pay the fine and remains non-compliant, the stock exchange may instruct the depositories to freeze the entire shareholding of the promoters and any other securities held in their demat accounts. The promoters are informed immediately about the reason for the freeze. Once the non-compliance is rectified, and the fine is paid, the stock exchange notifies the depositories to unfreeze the shareholding.
Phase 3: Suspension of Trading and Delisting
Continuous non-compliance with specific SEBI LODR provisions can lead to the suspension of trading in the company’s shares. If the non-compliance remains unresolved for 6 months, the stock exchange may initiate the compulsory delistingprocess.
Specific Provisions Leading to Suspension:
| S.No | Regulation | Provision Description | Non-Compliance Frequency |
|---|---|---|---|
| 1 | Regulation 17(1) | Board composition, including the appointment of a woman director. | Two consecutive quarters |
| 2 | Regulation 18(1) | Constitution of the Audit Committee. | Two consecutive quarters |
| 3 | Regulation 27(2) | Submission of Corporate Governance Report. | Two consecutive quarters |
| 4 | Regulation 33 | Submission of financial results. | Two consecutive quarters |
| 5 | Regulation 34 | Submission of the Annual Report. | Two financial years |
If compliance is achieved within 6 months of the suspension and applicable fines are paid, trading can be reinstated. However, if the non-compliance continues, the stock exchange will initiate the process of delisting as per the applicable regulations.
3. Standard Operating Procedure (SOP) for Non-Compliance Management
The SOP outlines the following steps for handling non-compliance:
The first step involves the identification of non-compliance by the recognized stock exchanges through routine monitoring and reporting. Upon detection, the exchange issues a notice to the company specifying the violation and the fine imposed. Companies are then granted 15 days to resolve the issue and pay the fine. If no corrective action is taken, the exchange escalates the matter by instructing the depositories to freeze the promoters' shareholding.
In cases of prolonged non-compliance, the exchange may proceed with the suspension of trading. If the company fails to comply within 6 months of suspension, the exchange initiates the compulsory delisting process.
4. Conclusion
Compliance with SEBI LODR regulations is vital for maintaining market integrity and protecting investor interests. The consequences of non-compliance, ranging from monetary fines to freezing of promoter shares and trading suspension, act as deterrents against corporate governance lapses.
By adhering to the regulations, companies can foster investor confidence, ensure operational transparency, and avoid severe repercussions. Listed entities are encouraged to stay updated on regulatory changes and promptly address any instances of non-compliance to uphold market credibility and maintain shareholder trust.
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Disclaimer: Every effort has been made to avoid errors or omissions in this material in spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition In no event the author shall be liable for any direct indirect, special or incidental damage resulting from or arising out of or in connection with the use of this information Many sources have been considered including Newspapers, Journals, Bare Acts, Case Materials , Charted Secretary, Research Papers etc.
CS J SWARNALAKSHMI