On 27th March 2025, SEBI introduced Chapter VA (along with other amendments) in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”).
This chapter lays down corporate governance requirements for High-Value Debt Listed Entities (HVDLEs) that do not have any other specified securities listed on the stock exchange. These requirements cover the composition of the Board of Directors, formation of various committees, related party transactions, secretarial audits, and more.
The Issue:
What happens if a Private Limited Company has listed its debt securities and qualifies as an HVDLE?
Until March 31, 2025, HVDLEs were required to follow the corporate governance requirements in Chapter IV of the LODR Regulations on a “comply or explain” basis. However, on March 27, 2025, SEBI amended Regulation 15, mandating HVDLEs to comply with Regulations 16 to 27. This has caused some confusion in the industry about which regulations apply to private limited companies that qualify as HVDLEs but have only listed debt securities.
While many corporate governance requirements in Regulations 16–27 and Chapter VA are similar, there are differing views among professionals:
– Some believe such companies must comply with both Regulations 16–27 and Chapter VA, as regulation 15 also states applicability of corporate governance requirements for HVDLE.
– Others argue that only Regulations 16–27 apply.
– I believe that a private limited company, which has listed only its NCDs and qualifies as an HVDLE, should follow the corporate governance requirements outlined in Chapter VA.
Why Chapter VA?
Explanation 5 to Regulation 15(1A) of the LODR Regulations clarifies: “In case a ‘high value debt listed entity’ has its specified securities listed, it shall comply with the provisions of regulation 15 to regulation 27 of these regulations.” This implies that if a company has only listed NCDs and qualifies as an HVDLE, it should follow Chapter VA. Applying Regulations 16–27 in this case may not be necessary, as Chapter VA provides tailored guidelines for HVDLEs. (In my view)
Implications for Private Limited Companies
If a private limited company has listed its NCDs and qualifies as an HVDLE, it must:
Restructure its Board of Directors to meet Chapter VA requirements.
Form committees as prescribed, such as audit committees.
Ensure Compliance with requirement for related party transactions, secretarial audits and so forth.
Conclusion
The applicability of Chapter VA is straightforward. It applies to companies that have listed only NCDs and qualify as HVDLEs. For such private limited companies, adhering to Chapter VA’s corporate governance requirements is logical and aligns with SEBI’s intent to provide specific guidelines for HVDLEs.
