The previous article titled 'Shareholders Agreement In Listed Companies: Legal Fiction Or Enforceable?'1 explored the enforceability of shareholders' agreement in listed entities.
To summarize the above article, Regulation 4(2)(d)(i) of the SEBI LODR, 2015 and the proviso to Section 58(2) of the Companies Act, 2013 recognise the rights of stakeholders in public listed companies, which include shareholders which are established through mutual agreements which, in our opinion includes shareholder agreements. As such, the rights enshrined in the AoA and SHA of a Company do not cease to operate through the sheer issuance of a public offering of the equity shares of the Company.
Amendments brought by SEBI on 14th June, 2023:
On 14th June, 2023, SEBI brought an amendment2 to the earlier regime. The amendment introduces Regulation 31B which reads as under:
"Special Rights to shareholders
31B.(1) Any special right granted to the shareholders of a listed entity shall be subject to the approval by the shareholders in a general meeting by way of a special resolution once in every five years starting from the date of grant of such special right:
Provided that the special rights available to the shareholders of a listed entity as on the date of coming into force of this regulation shall be subject to the approval by shareholders by way of a special resolution within a period of five years from the date of coming into force of this regulation:
Provided further that the requirement specified in this regulation shall not be applicable to the special rights made available by a listed entity to a financial institution registered with or regulated by the Reserve Bank of India under a lending arrangement in the normal course of business or to a debenture trustee registered with the Board under a subscription agreement for the debentures issued by the listed entity, if such financial institution or the debenture trustee becomes a shareholder of the listed entity as a consequence of such lending arrangement or subscription agreement for the debentures."
SEBI LODR now ensures that any subsiding special rights granted to a shareholder of a listed entity shall be subject to shareholder approval once in every 5 years from the date of introduction of the said amendment; and, all special rights shall be granted only by special resolution of the shareholders and shall be subject to shareholder approval from the date of grant.
The amendments brought on 14.06.2023 are in continuing trend of SEBI, to further protect the rights of the minority. In addition of making the rights subject to a vote of shareholders, SEBI has further strengthened the disclosure requirements under LODR.
Now, all shareholders, promoters, promoter group entities, related parties, directors, key managerial personnel and employees of a listed entity or of its holding, subsidiary and associate company, who are parties to the agreements as detailed in clause 5A of para A of part A of schedule III to these regulations, shall inform the listed entity of such agreements within two working days of entering into such agreements.
Further, the listed entity shall make the necessary disclosure to the Stock Exchange in accordance with Reg. 30(1) within twenty-four hours as stipulated under Reg. 30(6)(iii).
Such disclosures enable the public and minority shareholders to be aware about the decisions being taken which may impact the listed entity.
Addition Of Regulation 37A And Application Of 'Majority-Of-Minority' Rule
Additionally, SEBI further introduced Reg. 37A which imposes new voting requirements on listed entities and introduced the 'majority-of-minority rule' in the event a listed entity proposes to sale, lease or otherwise dispose of whole or substantially the whole of any of its undertakings.
Now, in such an event, the Company must disclose the commercial rationale for such a transaction and obtain a special resolution of the shareholders wherein the public shareholders who have voted for the resolution is more than the public shareholders who have voted against the resolution.
The said amendments mark yet another welcome step in SEBI's approach in strengthening regulatory norms in order to protect public interest in listed entities.
Footnotes
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