Promoters Will Now Have to Disclose Family Pacts To Exchange Houses, Orders SEBI

The Securities Exchange Board of India (SEBI) announced on Thursday, July 13, that promoters must disclose their family arrangements or agreements which can directly influence the management control of listed entities for deals to remain legal.

As per the notified rules, the agreements that persists will have to be disclosed as of the date of notification released to the stock exchanges. Earlier, only prospective agreements were required to be disclosed.

With this new rule, SEBI intends to bring transparency by declaring all secret pacts between key shareholders through gazette notification. The market regulator further said that new amendments will come into effect on the 30th day of from the date of their publication in the official gazette, which is July 15.

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As per the new amendment, all shareholders, promoters, promoters entities, key managerial personnel of the listed entity who are involved in the agreement impacting directly or indirectly the management control of the listed entity should be disclosed to the stock exchanges.

"As per the new notified norms, all the agreements between promoters or shareholders, including family settlements, which impact the management or control of the listed company or impose any restriction or create any liability on the listed company, should be disclosed to the stock exchanges," said Vinay Chauhan, a leading corporate and securities lawyer.

He further added, “ These amendments will further increase transparency, as now it will cover those agreements between promoters or shareholders, wherein the listed company is not a party to the agreements."

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The Sebi approved the amendments to Listing Obligations and Disclosure Requirements Regulations, 2023, in a board meeting which was held in March this year. According to the amendment, the listed entity will also have to disclose the number of agreements that subsists on the date of notification, including company’s webpage where all details are available.

"Amendments are applied to existing arrangements is effectively making the laws retrospective in their application, since the parties to such arrangement would not have contemplated such arrangements being made public when they entered into the same, or that the same would require the approval of shareholders for them to be enforceable," Parina Muchhala, a lawyer at Nishith Desai Associates, was quoted as saying by The Economic Times.

Several businesses in India are owned and run by families and some of it are also run in dispute within family members. Kirloskar brothers of Pune, Baba Kalyani and his sister Sugandha Hiremath over chemical company Hikal, Prakash and Deepak Chhabria over Finolex Cables or Kailas Chandra Nuwal, and Satyanarayan Nuwal over Solar Industries are some of the examples.