Consequences of Non-Compliance by Listed Non-Convertible Securities and/or Commercial Paper Issuers

Consequences of Non-Compliance by Listed Non-Convertible Securities and/or Commercial Paper Issuers

Executive Summary:

This article describes:

• • • The consequences of non-compliance by the issuers of listed Non-Convertible Securities (NCS) and/or Commercial Papers (CP).
    • The fines and actions that will be taken if issuers of listed Non-Convertible Securities (NCS) and or Commercial Papers (CP) fail to comply.

Introduction:

Any company which is offering its shares to the public for subscription is required to be listed on the stock exchange and has to comply with the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The listed entity shall provide adequate and timely information to recognised stock exchange(s) and investors. It shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders. In the interest of investors and the securities market, Securities and Exchange Board of India (SEBI) has directed the Stock Exchanges to levy fines and take action in case of non-compliance with continuous disclosure requirements by issuers of listed NCS and/or CP. In an addition, SEBI has also laid out the fines that will be imposed if there is any non-compliance.

Overview of the Circular-

SEBI has issued Circular No. SEBI/HO/DDHS_Div2/P/CIR/2021/699dated December 29, 2021, on non-compliance with provisions related to continuous disclosures. Major highlights of the SEBI circular are as follows:

• This circular is issued for all Recognized Stock Exchanges, all Depositories, all issuers of listed Non-Convertible Securities, all Issuers of listed Commercial Papers etc.
• The provisions will be effective in relation to due dates of compliance on or after February 01, 2022.
• The amount of fine realized, shall be credited to the “Investor Protection Fund” of the concerned recognized stock exchange.
• Fine and action shall be taken in case of non-compliances with continuous disclosure requirements by the issuers of listed NCS and/or CP.
• In case a non-compliant entity is listed on more than one recognized stock exchange, the concerned recognized stock exchange(s) shall take an action in consultation with each other.
• The fines shall continue to accrue till the time of rectification of the non-compliance and to the satisfaction of the concerned recognized stock exchange.
• Every stock exchange will review the compliance status of the entities having listed their NCS and CP and issue notices to the non-compliant entities within 30 days from the due date of the prescribed timeline.
• Non-compliant entities shall pay fines within 15 days after receiving notice.
• If required, stock exchanges may differ from the above, but only after noting the reasons in writing.

Fines Structure introduced by the Circular:

The structure of fines in the event of non-compliance by issuers is outlined below.

• PART A: Fines to be levied in case of non-compliance(s) by issuers of listed Non-Convertible Securities. The fine ranging from Rs.1,000to Rs.50,000 per day could be chargedin case o fnon-compliance with disclosure criterion related to delay in furnishing intimation about meeting of board of directors or shareholders, non-submission of annual report, non-submission of statement indicating utilization of issue proceeds, payment obligations, and failure to obtain prior approval of the Stock exchanges for any structural change in non-convertible securities etc.
• PART B: Fines to be levied in case of non-compliances by issuers of listed Commercial Papers. The fine ranging from Rs.1,000 to Rs.5,000 per day could be charged in case of non-compliance with disclosure criterion related to line items prescribed under Regulation, non-submission of certificate regarding payment obligations, non-submission of financial results.

Consequences of Failure to Comply:

• Every Recognized stock exchange is required to examine the compliance status of entities that have listed their NCS and/or CP and to provide notices to non-compliant entities within 30 days of the deadline.
• Non-compliant entities must comply with the requirement(s) and pay fines in accordance with the circular within 15 days of receiving notice
• If the non-compliant entity fails to comply with the aforementioned requirement or pay the fine levied within the stipulated period as per the notice stated above, the concerned RSE shall issue reminder notices to such non-compliant entities after the period indicated in the notice has expired, requiring compliance with the requirement(s) and payment of fines within 10 days from the date of such notice
• If a company fails to comply with the aforementioned requirement, the Stock Exchange will intimate to other Recognized Stock Exchanges and all entities permitted to function as Electronic Book Providers (EBPs) about the violation.
• The Stock exchange shall also advise the non-compliant entity to make sure that the subject matter of non-compliance that the RSE has identified and indicated as well as any subsequent action taken by RSE in this regard is brought before the entity’s Board of Directors at its next meeting. The board’s comments must be reported to the RSE for distribution.

Conclusion:

In the interests of investors and the securities market, the Stock Exchanges will levy penalties and take action against issuers of listed NCS and/or CP who fails to comply with the specified and required continuous disclosure obligations.

Regards,
Legal Team

Proind Business Solutions Private Limited
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