The MD, CEO, and whole-time directors (WTDs) of listed companies will have to bear the burden of non-compliance with SEBI’s listing obligation and disclosure regulations (LODR), even after they resign. The market regulator has proposed to freeze the demat accounts of these key managerial persons for their failure to adhere to the LODR norms and clear the pending penalty on time, even if they have resigned.
Earlier, SEBI had issued a circular in October 2016 directing stock exchanges to freeze the demat accounts of company promoters for defaulting on LODR norms and penalties, but now it has proposed to impose the same on key management.
LODR norms relate mainly to fair disclosures by listing companies and specify other rules that management should follow. The key aspects of the rules give SEBI most of its powers to regulate the markets and impose penalties or suspend trading in shares.
SEBI’s proposal
“It is proposed that the demat account of the WTDs, including the MD, and CEO may be frozen, in addition to the demat account of promoters, for continuing non compliance and non payment of fines by a listed entity. This may result in timely compliance and / or payment of outstanding fines by listed entities and would ensure that MD, WTD, and CEO are held accountable for non-compliance or non-payment of fines by listed entities. Further, this proposal would also be more relevant for professionally managed companies,” SEBI said in a paper it put out for public comments.
“That may be a bit too dramatic unless SEBI gives sufficient warning or a reasonable time period for compliance,” said Shriram Subramanian, founder of shareholder advisory firm InGovern.
SEBI has said that even if key management personnel resign, their demat accounts will remain frozen unless the company turns compliant again or for three months after they quit, whichever is earlier.
“The new MD, WTD, or CEO shall be given 90 days’ time from the date of assuming charge to ensure the listed entity’s compliance with the applicable provisions and payment of outstanding fines, failing which their demat account(s) will be frozen,” SEBI said.
SEBI also proposed to give newly listed companies 15 days to disclose their first financial results post-listing on exchanges, against the current provision of immediate disclosure. Further, SEBI has proposed a three-month deadline for listed companies to fill the vacancy on their board, especially independent directors, instead of the current scenario where there is no deadline.
SEBI has even proposed a three-month timeline for filling vacancies of compliance officers and chief financial officers from the date of such vacancies in listed companies. On all the provisions, SEBI has sought public comments until March 6.