The recent wave of amendments issued by the Securities and Exchange Board of India (‘SEBI’) to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘LODR Regulations’) has left many companies and corporate governance professionals grappling for clarity not just on what has changed, but on why and how quickly. A major overhaul was announced on December 12, 2024 for equity-listed entities, followed closely by the insertion of Chapter VA on March 27, 2025, specifically targeting High Value Debt Listed Entities (‘HVDLEs’).The regulatory landscape seems to be shifting faster than companies can reasonably respond to. While the intent may be to streamline and elevate corporate governance standards across listing categories, the pace, sequencing, and substance of these changes suggest a framework that is evolving too rapidly and, in some cases, without the depth of coordination and precision that such critical reforms require.

The March 2025 Chapter VA amendment made corporate governance provisions under Regulations 15 to 27 applicable to HVDLEs with immediate effect from April 1, 2025, leaving almost no implementation buffer. This lack of transition time is especially harsh on private or SME debt-listed entities that were operating under a relatively light-touch ‘comply or explain’ regime. With these sudden changes, these companies are expected to leap to full compliance, despite many grey areas, omissions, and operational impracticalities in the amendment itself.

Key Provisions Missing from Chapter VA

While replicating the corporate governance framework under Chapter IV of the LODR Regulations (applicable to equity-listed entities), SEBI has overlooked several critical relaxations aimed at improving ease of doing business. One of the most striking issues is the failure to incorporate these relaxations introduced specifically to address compliance efficiency and flexibility into the new HVDLE framework. These omissions are particularly significant because they would have offered meaningful compliance flexibility to HVDLEs as well. The following provisions, introduced or updated under the SEBI LODR (Third Amendment), 2024, have not been incorporated under Chapter VA:

Regulation 17(1C)(a) – Exclusion of time for regulatory approvals in Board appointments:

LODR Regulations applicable to equity listed entities (‘Equity listing norms’) permits exclusion of time taken to obtain regulatory or statutory approvals when calculating the 3-month timeline for shareholder approval in case of appointment or reappointment of person on the Board. No corresponding provision under Chapter VA, which may pose practical challenges for HVDLEs.

Regulation 17(1C)(a) – Exemption for regulator or court appointed directors:

Shareholders’ approval is not required for a person appointed by financial sector regulator, court or tribunal to the board of equity listed entities. Chapter VA omits this exemption, making approvals mandatory even in such cases.

Regulation 17(1E) – Timeline to fill Board or committee vacancies:

Equity listed entities must fill Board and committee vacancies within 3 months or by the next Board meeting. Chapter VA (Regulation 62D(5)) applies this only to Board vacancies – no mention of committees.

Regulation 23(2)(e) – Exemption for non-material KMP or SMP remuneration:

Audit Committee approval or disclosure not required under equity listing norms for non-promoter KMPs or SMPs where payment is non-material. This exemption is missing under Chapter VA, requiring unnecessary approvals or disclosures.

Regulation 23(2)(f) – Ratification of Related Party Transactions (‘RPTs’):

RPTs can be ratified by the Audit Committee within 3 months or at the next meeting under equity listed provisions. No such ratification window provided in Chapter VA, implying stricter compliance.

Regulation 23(5)(a) – Exemption for PSU–Government transactions:

Equity listing norms exempts transactions between two PSUs or with the government.
Chapter VA partially adopts this, but uses outdated wording of old provision, leading to inconsistencies.

Regulation 23(5)(d) – Exemption for statutory dues or payments:

Payments like taxes or statutory fees to the government are exempt under equity listing norms.
No such exemption under Chapter VA, creating avoidable compliance burden.

Regulation 23(5)(e) – Wider exemption for PSU–Government transactions:

A broader exemption exists under equity listing norms for transactions entered between a public sector company on one hand and the Central Government or any State Government or any combination thereof on the other hand. Omitted in Chapter VA, increasing procedural requirements for low-risk deals.

Regulation 24(1) – Definition of material subsidiary:

Equity listing norms use ‘income’ as the basis for determining material subsidiaries.
Chapter VA (Regulation 62L) retains ‘turnover’, reflecting adoption of the outdated provision.

Regulation 24A – Peer-reviewed secretarial auditor & rotation:

LODR applicable to equity listed entities mandates peer-reviewed auditors, auditor rotation, and shareholder approval. Chapter VA (Regulation 62M) follows the old version, omitting these enhanced standards.

These omissions are not minor; they materially affect compliance planning and undermine the parity SEBI aims to establish. Rather than updating the framework uniformly, Chapter VA seems to have borrowed selectively, copy-pasting from outdated equity listing norms without reflecting recent amendments.

Committee Mandates: Optionality that weakens Corporate Governance

Chapter VA of the LODR Regulations makes the constitution of three key corporate governance committees—Nomination and Remuneration Committee (‘NRC’), Stakeholders Relationship Committee (‘SRC’), and Risk Management Committee (‘RMC’), optional for HVDLEs. For NRC and SRC, the Board of Directors may directly discharge their functions. While this offers structural flexibility, it undermines independent oversight. These committees exist to ensure focused governance on board composition, remuneration, and stakeholder grievances functions respectively that require dedicated attention and independence, which a collective Board may not effectively deliver, especially in promoter-driven or private debt-listed entities.

The delegation of RMC functions either to the Board or to the Audit Committee (‘AC’) poses an even greater concern. The AC is already responsible for critical financial reporting, internal controls, and audit oversight. Assigning risk management responsibilities to the same committee overburdens its mandate and might compromise effectiveness, as risk governance demands a different lens and expertise. This overlap not only weakens focus but also risks diluting accountability, as distinct mandates of each committee become blurred.

At its core, the optionality contradicts SEBI’s own emphasis on strong committee-driven governance structures. Instead of reinforcing the checks and balances that are essential for debt-listed entities, especially those with limited public scrutiny, SEBI’s move allows for concentration of control within the Board or AC, raising genuine concerns around transparency, independence, and regulatory intent.

Inappropriate RPT exemptions: Equity logic misapplied to debt structures

SEBI’s approach to revamping the RPT framework for HVDLEs under Regulation 62K demonstrates a commendable understanding of structural differences between equity and debt-listed entities. The shift from requiring approval from unrelated shareholders (often absent in HVDLEs) to obtaining a No Objection Certificate (‘NOC’) from debenture trustees is a pragmatic change, aligned with Section 186(5) of the Companies Act, 2013, and rightly focused on lender protection.

However, this progressive step is undermined by the parallel insertion of certain exemptions from the equity RPT regime that are not appropriate in a debt context. For example, exemptions for transactions between a holding company and its wholly-owned subsidiary (‘WOS’), or between two WOS entities as contained in Regulation 23(5) have been replicated in Chapter VA. While such exemptions may be justifiable in equity-listed entities, where group-level ownership alignment ensures that economic benefits accrue to shareholders as a whole, this rationale does not hold true in debt-listed structures.

In a debt context, each legal entity is an independent obligor with distinct financial responsibilities. A debenture holder may have exposure only to the WOS, not the parent company. If the WOS transfers funds to the parent under an exempt RPT and is left under-capitalised, the debenture holder’s repayment prospects are directly impacted, with no legal recourse against the parent. By extending these equity-oriented exemptions to HVDLEs, SEBI has inadvertently diluted the protection intended for debt investors under Regulation 62K, thereby creating a structural inconsistency within the same regulatory framework.

Drafting lapses that undermine enforceability

Even beyond structural inconsistencies, the drafting quality of Chapter VA is concerning. There are multiple instances where the term ‘listed entity’ has been used instead of ‘HVDLE,’ causing confusion about the regulation’s scope.

Other parts of Chapter VA repeatedly use the word ‘year’ rather than “financial year,” despite this having been corrected in earlier amendments to the equity regime. These lapses suggest that the Chapter was hurriedly compiled using outdated templates, with little attention to alignment or accuracy.

Such drafting errors are not just superficial, they create compliance risk, interpretational disputes, and enforcement challenges. In a regulatory framework that demands strict compliance, vagueness and copy-paste mistakes are unacceptable.

A recent amendment to Regulation 6 of the LODR Regulations mandates that the Compliance Officer must be in whole-time employment, designated as a Key Managerial Personnel, and positioned not more than one level below the Board. SEBI further clarified this requirement through a circular dated April 1, 2025, stating that ‘one level below the Board’ refers to a position immediately below the Managing Director or Whole-Time Director(s), or where such roles do not exist, below the CEO or person managing daily affairs. This clarification aligns with the definitions under Regulation 2(1)(o) of the LODR and Section 2(51) of the Companies Act, 2013.

While the intent to elevate the compliance function is commendable, the practical implementation of this provision may pose challenges especially for large or matrixed organisations where reporting structures are complex. A Compliance Officer may already functionally report to the Board while being placed several levels down on paper. Forcing structural changes to meet a formal designation could conflict with existing HR hierarchies or compensation frameworks, without materially improving compliance effectiveness. This again illustrates SEBI’s growing tendency to regulate form over substance, adding compliance burden without guaranteed corporate governance enhancement.

Governance reforms need rhythm, not rush

SEBI’s effort to enhance corporate governance and align equity listing frameworks is well intended, but the implementation of Chapter VA reflects structural gaps, inconsistent provisions, and unclear drafting. Rather than simplifying compliance for HVDLEs, it introduces complexity and uncertainty. For reforms to be truly effective, they must be clear, practical, and phased appropriately. SEBI should engage more actively with stakeholders and consider revising the framework to ensure it serves its intended purpose without creating avoidable regulatory friction.

 

Muskan Saxena