Clarity to the Disclosure Framework: Industry Standards Note on Disclosures by Listed Entities Receives SEBI Recognition

In order to facilitate ease of doing business, the Securities and Exchange Board of India (SEBI) has formally recognized the ‘Industry Standards Note on Regulation 30 of the of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations)’ developed by the Industry Standards Forum comprising of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), Confederation of Indian Industry (CII) and Federation of Indian Chambers of Commerce and Industry (FICCI) (Note, which can be viewed by clicking on this link). This recognition, formalized through SEBI circular dated February 25, 2025 (Circular, which can be viewed by clicking on this link), provides much-needed clarifications on the disclosure requirements for listed entities.

 

The Note offers detailed interpretations and guidance on various aspects of Regulation 30 (read with Part A of Schedule III) of LODR Regulations. The Note aims to promote consistency in disclosures while reducing compliance ambiguities that have challenged listed entities. Key aspects of the Note are inter alia as follows:

 

1. Interpretation of “Value or Expected Impact in terms of Value”

The Note clarifies that when computing the expected impact of an event/information, listed entities should consider the expected impact over four ensuing quarters (including the quarter in which the event occurs if the event occurs in the first 60 days of the quarter). Further, listed entities may rely on applicable accounting standards for measuring value, such as the PPR test under Ind AS 37.

2. Tailored Materiality Thresholds

Events/information provided under Para B of Part A of Schedule III of the LODR Regulations (Para B) are required to be disclosed if the value or expected impact (in terms of value) of such events/information exceeds the prescribed materiality thresholds. The Note recognizes that all three thresholds (turnover, net worth, and profit after tax) may not be relevant for determining materiality of every event/information prescribed under Para B. In this regard, the Note introduces specific materiality thresholds for different types of events under Para B, which are as follows:

S. No.	Para B Events	Comparable with individual threshold limit (Numerator to Denominator)
1.	Commencement or postponement of commercial operations of any unit/division	Lower of: a. Expected impact on turnover to 2% of consolidated turnover; or b. Expected impact on profit/ loss to 5% of average profit after tax (PAT).
2.	Closure of operations of any unit, division or subsidiary (in entirety or in piecemeal)
3.	Disruption of operations of any one or more units or division of the listed entity due to natural calamity (earthquake, flood, fire etc.), force majeure or events such as strikes, lockouts, etc.
4.	Effects arising out of change in regulatory framework applicable to a listed entity
5.	Pendency/outcome of litigation/dispute which may have an impact on the listed entity
6.	Fraud/default by employees which may has or may have an impact on the listed entity
7.	Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals
8.	Arrangements for strategic, technical, manufacturing, or marketing tie-up;	Lower of: a. Capital invested or to be invested for such tie-up to 2% of consolidated net worth; or b. Expected impact on turnover to 2% of consolidated turnover; or c. Expected impact on profit/ loss to 5% of average PAT.
	Adoption of new line(s) of business;	Lower of: a. Capital invested or to be invested for new line of business to 2% of consolidated net worth; or b. Expected impact on turnover to 2% of consolidated turnover; or c. Expected impact on profit/ loss to 5% of average PAT.
9.	Capacity addition or product launch	Lower of: a. Capital invested or to be invested for capacity addition/product launch to 2% of consolidated net worth; or b. Expected impact on turnover to 2% of consolidated turnover; or c. Expected impact on profit/ loss to 5% of average PAT.
10.	Awarding, bagging/ receiving, amendment or termination of awarded/bagged orders/contracts not in the normal course of business	Lower of: a. Expected capital expenditure to 2% of consolidated net worth; or b. Expected impact on turnover to 2% of consolidated turnover; or c. Expected impact on profit/ loss to 5% of average PAT.
11.	Agreements (viz. loan agreement(s) or any other agreement(s) which are binding and not in normal course of business) and revision(s) or amendment(s) or termination(s) thereof	Lower of the below, as applicable: a. Expected impact on balance sheet (increase in liability in terms of amount of loan) to 2% of consolidated net worth; or b. Expected impact on turnover to 2% of consolidated turnover; or c. Expected impact on profit/ loss to 5% of average PAT.
12.	Options to purchase securities including any ESOP/ESPS Scheme	Lower of: a. Expected increase in capital to 2% of consolidated net worth; or b. Expected impact on profit/ loss to 5% of average PAT.
13.	Giving of guarantees/indemnities/sureties for third parties	Lower of: a. Expected impact on balance sheet (increase in liability in terms of amount of guarantee, indemnity, surety, etc.) to 2% of consolidated net worth; or b. Expected impact on profit/ loss in case the guarantee / indemnity / surety is invoked to 5% of average PAT.
14.	Delay/default in payment of statutory dues/fines	Threshold to be linked with Clause 20 of Para A of Part A of Schedule III of the LODR Regulations (Para A).

3. Significant Market Reaction

Currently, under Regulation 30(4)(i)(b), an event/ information is considered material if its omission is likely to result in a significant market reaction. Now, this may be assessed by the listed entity with reference to movements in its scrip price, based on parameters prescribed by the stock exchange(s).

4. Disclosures Relating to Other Persons

Actions and orders involving directors, key managerial personnel, senior management, promoters or subsidiaries under Clause 19 and 20 of Para A now require disclosure only if they are ‘in relation to the listed entity’ and impact its operations, financial position, or reputation.

5. Interpretation of ‘Cumulative Basis’ for Litigations

Disclosures regarding pending litigations (including tax matters) involving similar facts or legal issues such that there is a likelihood of similar outcome of proceedings (i.e., negative outcome for the listed entity in one proceeding which may lead to similar negative outcomes in the other matters) must be aggregated/cumulated to assess materiality. However, aggregation/cumulation is not required merely because the opposite party is the same or because litigation involves both the listed entity and its subsidiaries.

6. Show Cause Notices

Receipt of show cause notices from governmental or regulatory authorities would not trigger automatic disclosure under Clause 20 of Para A but it would fall under Clause 8 of Para B, requiring a materiality assessment.

7. Timelines for Disclosure

The Note has clarified that timelines for making disclosures under Regulation 30 will commence once an officer of the listed entity has become aware of the occurrence of an event / information, through credible and verifiable channels of communication.

8. Disclosures Regarding Guarantees

For Clause 11 of Para B, it has been clarified that indemnity / guarantee / surety, by whatever name called, provided by listed entities for their wholly owned subsidiaries which are consolidated in their financials, would not require disclosures. Further, contractual performance guarantees given by listed entities, involved in business activities where such performance guarantees are required to be furnished in the normal course of business, need not be disclosed. A disclosure requirement for such indemnity / guarantee / surety will be triggered if the same are subsequently invoked.

Overall, the Note represents a significant development for listed entities that streamlines compliances and provides much needed clarity, while ensuring overall market transparency.