SEBI releases II amendment

SEBI releases II amendment

SEBI's Second Amendment Regulations of 2022 — spanning LODR, ICDR and PIT — compressed a decade of incremental disclosure reform into one co-ordinated regulatory push. The four load-bearing pillars: a materially expanded related-party transaction (RPT) net under Regulation 23, a hard 30-minute clock on board-meeting outcome filings under Regulation 30, mandatory BRSR and BRSR Core assurance for the top 1,000 listed companies, and significantly shorter lock-in windows under ICDR. In 2026, these are not changes to plan for — they are live obligations carrying audit committee accountability, stock exchange fines, and SEBI enforcement exposure.

Why SEBI Consolidated These Changes in One Amendment

India's capital markets crossed Rs. 200 lakh crore in total market capitalisation around 2021-22. At that scale, patchy disclosures and opaque related-party flows represented systemic risk rather than isolated governance lapses. SEBI's immediate pressure points were:

• A widening gap against global standards: IOSCO principles and SEC Regulation FD equivalents had moved well ahead of what Indian Regulation 30 required in terms of speed and granularity of disclosure.
• RPT abuses in prominent cases: Promoter-controlled entities were transacting with subsidiaries at off-market prices without minority shareholder awareness, exploiting definitional gaps in the older framework.
• FPI-led ESG pressure: Foreign portfolio investors controlling over 20% of free float in Nifty 50 companies were demanding standardised, audited sustainability data — not narrative CSR reports.
• Lock-in friction under ICDR: Three-year promoter lock-ins were distorting post-IPO trading dynamics and deterring legitimate pre-IPO investor participation.

The Second Amendment addressed all four simultaneously. Each pillar has direct compliance consequences that boards and CFOs must now manage as routine governance — not periodic projects.

Regulation 23 Overhauled: The New RPT Regime

Who Counts as a Related Party Now?

The most consequential practical change in the Second Amendment was the expansion of Regulation 2(1)(zb) — the definition of "related party" under LODR. Before April 1, 2022, the LODR substantially tracked the Companies Act 2013 definition under Section 2(76), which captured promoters, directors, key managerial personnel and their immediate relatives.

Post-amendment, any entity or person holding 10% or more of the equity shares in the listed entity, or in any of its subsidiaries, is now a related party for LODR purposes — regardless of board representation or managerial involvement.

This single change widened the compliance net dramatically. A private equity fund holding 11% in your listed subsidiary is now a related party even if it sits passively on the cap table with no nominees on the board. A sovereign wealth fund at 10.5% triggers the definition. Before the amendment, both would have been outside the RPT approval chain unless they were also on the Companies Act list.

Your first action: Pull the current investor register for the listed entity and each subsidiary. Flag every entity above 10%. Send that list to your company secretary and legal counsel before the next audit committee meeting.

What Counts as a Material RPT?

Under the revised Regulation 23(1), a transaction — individually or cumulatively during a financial year — is material once it exceeds 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements.

Once a transaction crosses that threshold, it must be placed before shareholders for approval by ordinary resolution, with the related party and its associates barred from voting. Below that threshold but requiring more than omnibus approval, the audit committee must give specific, transaction-level consent before execution.

The Subsidiary Transaction Trap: Regulation 23(2A)

Many compliance teams missed this provision entirely. Regulation 23(2A) requires the audit committee of the listed parent to approve transactions between the parent's subsidiary and any related party of the listed entity — not just transactions at the listed entity level — if the transaction value individually exceeds the lower of Rs. 50 crore or 10% of the subsidiary's annual consolidated turnover.

If your subsidiary has a turnover of Rs. 300 crore, the approval trigger is Rs. 30 crore (10%), not Rs. 50 crore. This is an audit committee obligation that most terms of reference written before 2022 did not capture. If your listed subsidiary buys services from a promoter-linked vendor above this threshold without the parent's audit committee approval, the transaction is voidable and the listed entity is exposed to SEBI enforcement.

Quarterly RPT Filing: The 21-Day Rule

Listed companies must disclose RPT details in the prescribed SEBI format within 21 days from the end of each quarter by filing with the stock exchanges. This is separate from — and additional to — the annual related-party note in the financial statements under Schedule V of the Companies Act. Missing this quarterly deadline triggers exchange-level fines and forms part of the Standard Observation Letters that exchanges send to listed entities flagging non-compliances.

Worked Example: RPT Threshold Breach at a Mid-Cap Manufacturer

Prism Pipes Limited (illustrative entity) is a listed manufacturer with a consolidated annual turnover of Rs. 800 crore. The promoter family owns a private logistics company. Following the 2022 amendment, that logistics company is now a related party because the promoter family holds 14% in Prism's wholly owned subsidiary.

Transaction under review: Prism's subsidiary enters a three-year logistics and warehousing contract with the promoter's logistics firm at Rs. 90 crore per annum.

Step 1 — Determine materiality Material threshold = 10% of Rs. 800 crore = Rs. 80 crore. Contract value (Rs. 90 crore) > Rs. 80 crore. → Material RPT. Shareholder approval required.

Step 2 — Check Regulation 23(2A) at subsidiary level Subsidiary's own turnover: Rs. 250 crore. Threshold for parent audit committee approval: lower of Rs. 50 crore or 10% of Rs. 250 crore = Rs. 25 crore. The Rs. 90 crore contract exceeds this limit. → Parent audit committee must first approve, then place before shareholders.

Step 3 — Shareholder approval mechanics The resolution must be an ordinary resolution. The promoter family and all entities in the promoter group must abstain from voting. A merchant banker or independent valuer must certify the arm's-length price. The audit committee must record its recommendation in the minutes.

Step 4 — Disclosure within 21 days of quarter-end The transaction must appear in the quarterly RPT filing on the exchange portal, including the relationship, contract value, arm's-length justification, and audit committee approval reference.

Step 5 — What happens if the company skips the shareholder vote? Under Regulation 23(4), the transaction is voidable at the board's option. SEBI can also initiate proceedings under Section 15HB of the SEBI Act, which prescribes penalties up to Rs. 25 crore or three times the profits arising from the contravention — whichever is higher. The managing director, CFO and company secretary all carry personal exposure where the failure is attributable to their conduct.

Regulation 30: The 30-Minute Disclosure Clock

Two-Schedule Architecture

Regulation 30 was redesigned around a binary schedule of events:

• Schedule III Part A: Events automatically treated as material — board meeting outcomes, dividend declarations, mergers, change of statutory auditor, KMP appointments and resignations, credit rating changes, insolvency proceedings, litigation outcomes above prescribed financial thresholds.
• Schedule III Part B: Events the board must assess against criteria of price sensitivity, financial impact, and public interest to determine materiality — including regulatory investigations, significant orders, plant shutdowns, and significant commercial agreements.

Hard Timelines by Event Type

The 30-minute clock on board outcomes is the most operationally demanding. It means your company secretary must prepare draft exchange filings before the board meeting begins — covering every standing agenda item that could trigger a Part A event: dividend approval, financial results, capital raising, and director changes.

How to Build a Compliant Disclosure System

1. Pre-draft filings for every likely board agenda item and have them ready before the meeting opens. Edit in the room; file the moment the resolution passes.
2. Create a Part B materiality register — a running log of events your legal team considers potentially material, with date, event description, and the materiality determination. If SEBI queries a non-disclosure, you need to show the decision trail, not just the outcome.
3. Appoint a dedicated disclosure officer — typically the company secretary — with direct exchange portal access and a backup person trained on the same system.
4. Log all analyst meetings and investor calls with date, attendees, topics discussed, and a certification that no UPSI was shared. File advance notice and post-meeting transcripts on time.

BRSR and BRSR Core: ESG Reporting Now Has Assurance Teeth

Who Must File BRSR?

The Business Responsibility and Sustainability Report replaced the older Business Responsibility Report under Regulation 34(2)(f) of LODR and is mandatory for the top 1,000 listed entities by market capitalisation, effective from FY 2022-23. BRSR covers nine principles under the National Guidelines on Responsible Business Conduct (NGRBC) with quantitative disclosures across environment, social and governance dimensions.

This is not a narrative CSR section. It is a structured data form with defined KPIs — GHG emissions in metric tonnes of CO₂ equivalent, water withdrawal in kilolitres, waste generated in metric tonnes by hazard category, pay equity ratios between male and female employees at executive and non-executive levels, POSH complaint data, and supply chain sustainability metrics.

BRSR Core: Assured Metrics, Not Just Disclosed

SEBI introduced BRSR Core as a sub-set of 49 high-priority KPIs that must be independently assured — not merely self-reported — by an accredited external party. The phased assurance mandate:

If your company is in the top 1,000 by market cap this financial year, you are now in scope for BRSR Core assurance in FY 2026-27. The 49 KPIs under BRSR Core include intensity ratios for energy and emissions, water use efficiency, biodiversity impact, gender pay parity, human rights due diligence processes, and board-level ESG oversight mechanisms.

What Your Finance and Operations Teams Must Do Now

1. Map each of the 49 BRSR Core KPIs to a data owner — Finance (pay ratios, revenue from sustainable products), HR (gender diversity, wages, POSH), Operations/EHS (energy, GHG, water, waste), Procurement (value chain disclosures).
2. Build primary data trails, not just Excel compilations — assurance providers require source-system evidence: metered electricity bills, fuel purchase records, waste disposal manifests, payroll system extracts. A compiled spreadsheet with no source documents will not pass assurance review.
3. Run an internal gap assessment at least six months before FY-end — BRSR Core assurance cannot be treated like a financial audit that starts post-year-end. Data collection for GHG Scope 2 across multiple facilities, for example, requires monthly meter reads across the year.
4. Read SEBI's value chain disclosure circular — from FY 2024-25, top listed companies must also disclose BRSR KPIs for their major upstream and downstream value chain partners above prescribed revenue or procurement thresholds.

ICDR Second Amendment: Capital Raises Under Revised Rules

Lock-In Periods Sharply Reduced

The SEBI (ICDR) (Second Amendment) Regulations, 2022 changed IPO lock-in mechanics significantly:

This benefits both promoter-founders and PE investors exiting at IPO. However, it also means markets can now absorb earlier promoter selling — making the DRHP and post-IPO disclosure on promoter sell-down intent more consequential than before.

Preferential Issue Pricing: The New Reference Period

For preferential allotments to promoters or strategic investors, the floor price formula under Regulation 164 of ICDR was revised. The floor price is now the higher of the 60-trading-day VWAP and the 10-trading-day VWAP prior to the relevant date (typically the date of the board meeting approving the allotment). The earlier 26-week high-low average reference has been replaced. Using the old formula produces a voidable allotment — your merchant banker must use the current computation and document it in the pricing certificate submitted to the stock exchange.

PIT Regulations: Revised Trading Plans for Insiders

The SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2022 made trading plans — available since 2015 but rarely used — operationally viable for the first time.

Key changes:

• Cooling-off period: Reduced from 180 days to 120 calendar days between plan formulation and the first trade under the plan.
• Minimum plan duration: 12 months, unchanged.
• Minimum trade value: Rs. 10 lakh per quarter, unchanged.
• Execution mandate: At least 50% of planned trades by value must be executed within the plan period.

CFOs, CEOs and other "permanent insiders" who are routinely in possession of UPSI can now plan share sales more than four months ahead and execute in open windows within the plan — without depending on ad hoc trading window openings. The tradeoff is that the plan is disclosed publicly to the exchange on formulation: it becomes a monitored commitment. An insider who plans to sell Rs. 5 crore and executes only Rs. 1 crore must have a documented, bona fide reason for the shortfall, or faces SEBI scrutiny on whether the plan was formed in good faith.

Common Mistakes Boards and CFOs Make Post-2022 Amendment

1. Running only a Companies Act Section 188 check, not a Regulation 23 check. The two frameworks diverge on thresholds, definitions, and approval bodies. A transaction cleared under Section 188 by the audit committee may still require LODR shareholder approval. Run both checklists on every RPT before execution.

2. Leaving subsidiaries out of the RPT policy. Most listed companies updated the parent's RPT policy after the 2022 amendment but left subsidiaries operating on old thresholds. Regulation 23(2A) requires the parent audit committee's sign-off on subsidiary-level RPTs above prescribed limits. The subsidiary's own board approval is not sufficient.

3. Filing board-meeting outcomes 2-3 hours after the meeting. The 30-minute clock under Regulation 30 starts when the meeting concludes — not when the company secretary gets back to the desk. This is the single most frequently issued exchange observation letter for mid-cap and small-cap companies.

4. Treating BRSR as a narrative supplement to the CSR section. BRSR Core requires quantitative, assured data. Copying narrative CSR content into BRSR fields will not satisfy an assurance provider's evidential requirements. They will qualify or disclaim the assurance — a reputational and regulatory risk.

5. Applying the old 26-week VWAP formula for preferential allotments. Your merchant banker should be using the 60-day VWAP reference. If a recently completed preferential issue used the old formula, review whether the allotment price meets the revised floor. An allotment below the current statutory floor is voidable.

6. Setting up a trading plan without planning to execute it. A plan filed with the exchange is public. SEBI tracks execution rates. Repeated plans with execution below 50% draw regulatory attention — and may be treated as camouflage for preventing others from selling rather than a genuine disclosure mechanism.

Step-by-Step: Building an RPT Compliance Programme for 2026

1. Audit the related party registry against the 10% shareholding test for both the listed entity and each subsidiary. Update the list whenever a shareholding crosses or falls below 10%.
2. Set internal approval tiers below regulatory thresholds — for example: (a) CFO approval below Rs. 5 crore, (b) audit committee omnibus approval up to Rs. 20 crore for repeat routine transactions, (c) audit committee specific approval up to the 10% turnover threshold, (d) shareholder approval above that.
3. Update the audit committee's terms of reference to expressly include Regulation 23(2A) subsidiary transactions.
4. Standardise the arm's-length memo — every RPT placed before the audit committee must include: the relationship, the transaction value, a comparable market benchmark, the pricing rationale, and confirmation that the terms are not more favourable to the related party than to third parties.
5. Build a quarterly RPT disclosure calendar — assign a data collector in finance to compile the exchange disclosure format within the first 15 days following each quarter end, allowing 6 days for review and filing within the 21-day window.
6. Conduct an annual audit committee training session on the current LODR framework — not just for the company secretary but for each independent director, who carries personal accountability for approvals granted under Regulation 23.

Key Takeaways

• The RPT related party definition now captures any entity holding 10% or more in the listed entity or its subsidiaries — update your investor registry before every audit committee meeting.
• Material RPT threshold is 10% of annual consolidated turnover — once crossed, shareholder approval by ordinary resolution (with related-party abstention) is mandatory; missing this makes the transaction voidable with potential penalties up to Rs. 25 crore.
• Subsidiary RPTs above Rs. 50 crore or 10% of subsidiary turnover require the listed parent's audit committee approval — a provision that most pre-2022 terms of reference did not cover.
• Regulation 30 board meeting outcomes must reach the exchange within 30 minutes — pre-drafting disclosures before every board meeting is now a non-negotiable operational requirement.
• BRSR Core independent assurance applies to the top 1,000 listed companies from FY 2026-27 — 49 KPIs across environment, social and governance dimensions require evidenced, source-system data, not compiled spreadsheets.
• ICDR promoter lock-in is now 18 months (down from 3 years) for minimum contribution and 6 months for excess holdings — price preferential allotments using the 60-trading-day VWAP, not the old 26-week formula.
• PIT trading plan cooling-off is 120 days — viable for permanent insiders if executed seriously, but public commitment means at least 50% of planned trade value must execute or SEBI scrutiny follows.