Sebi Extends Deadline for Comments on Proposed Revised Format for Secretarial Compliance Report

Sebi on Friday extended the deadline till March 7 to submit public comments on the proposed revised format for the annual secretarial compliance report, eligibility criteria for the appointment of auditors and inclusion of monetary thresholds for related party transactions (RPTs) approvals.

These proposals are aimed at strengthening corporate governance at listed firms.

On February 7, the markets regulator issued a consultation paper on aspects relating to the 'secretarial compliance report, appointment of auditors and related party transactions' of a listed entity and sought comments from the public and other stakeholders by February 28.

Now, it has been decided to extend the timeline for submission of comments to March 7, 2025, the Securities and Exchange Board of India (Sebi) said in a report.

In its consultation paper, Sebi proposed changes to improve the format and content of the Annual Secretarial Compliance Report (ASCR), aiming for more explicit confirmation of compliance with securities law.

The suggestions were made for exemptions related to corporate governance certifications and secretarial auditor reports when ASCR is attached to the annual report. The proposals include better enforcement mechanisms and making the ASCR a mandatory part of the annual report.

On specifying eligibility criteria for appointment of statutory auditors, the regulator proposed incorporating provisions in the LODR Regulations similar to those in the Companies (Audit and Auditors) Rules 2014, which ensure that auditors' qualifications and experience match the listed entity's size and complexity.

It proposed that the audit committee consider the qualifications and experience of the signing partner(s) to ensure alignment with the listed entity's needs.

"While there is no provision in the LODR Regulations regarding the size, qualification or experience of the statutory auditor, Companies (Audit and Auditors) Rules, 2014 requires that audit committee/board of directors should consider that the qualifications and experience of the auditor are commensurate with the size and requirements of the company," Sebi had stated.

With regards to disclosures related to auditor appointments, Sebi proposed mandating the disclosure of key information related to the appointment or re-appointment of statutory and secretarial auditors to the audit committee, board of directors, and shareholders at the time of such appointments. It also suggested standardising the format for these disclosures to improve transparency.

Further, Sebi recommends monetary thresholds for RPTs conducted by subsidiaries of listed entities to determine whether approval from the audit committee is required.

The proposal suggested setting two approval thresholds for RPTs by the audit committee of listed entities' subsidiaries. For subsidiaries with a financial track record, the lower of a 10% turnover-based threshold or a monetary threshold (Rs 1,000 crore for the main board and Rs 50 crore for SME-listed subsidiaries) will apply.

For subsidiaries without a financial track record, the threshold will be 10% of the subsidiary's net worth, certified by a chartered accountant, or the same monetary limits. In case of negative net worth, share capital plus securities premium will be considered instead. This ensures consistency in thresholds for both types of subsidiaries.

Also, Sebi proposed clarifying the definition of RPTs to ensure that transactions involving subsidiaries of listed entities are compliant with RPT norms.

It suggested amendments to LODR norms to clarify whether exemptions for RPTs between holding and wholly-owned subsidiaries apply to listed and unlisted entities.