The Securities and Exchange Board of India (SEBI), in order to promote ease of doing business and protect the interest of investors, revisited the applicability of corporate governance norms on High-value Debt Listed Entities (“HVDLEs”) and issued a Consultation paper dated October 31,2024, on the said subject matter. Post receiving public feedback, the necessary amendments have been introduced in the SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 (“Listing Regulations”) vide notification dated March 27, 2025. Key aspects of the new governance framework have been discussed hereinafter:

1. Revision of Threshold for Identification of HVDLEs

Earlier, entities with an outstanding value of listed non-convertible debt securities of Rs.500 crores or more were categorized as HVDLEs. However, since the Rs. 500 crore borrowing limit is not a big amount for large corporations, many entities fall under this category, leading to a higher compliance burden on smaller debt-listed firms. To address this, SEBI has raised the threshold to Rs. 1,000 crores or more, thereby reducing regulatory compliance requirements for smaller debt listed entities.

2. Introduction of a separate chapter of Corporate Governance

Before the amendments, HVDLEs were required to comply with corporate governance norms outlined in Regulations 17 to 27 on a comply or explain basis. These regulations are designed primarily for equity-listed entities, making compliance challenging for debt-listed entities. To address this issue, SEBI, instead of imposing compliance requirements of equity listed on HVDLEs, has introduced a dedicated chapter, i.e., VA (Regulations 62B to 62Q), focusing exclusively on corporate governance norms for HVDLEs, facilitating better compliance and ease of reference.

The earlier regime related to comply or explain, which was valid till March 31, 2025, will see no more extension. The new requirements have to be mandatorily complied with.

In case an entity becomes a HDVLE during the year, a transition period of 6 months from the date of trigger is specified and disclosure of compliance requirements shall be made on and from the 3rd quarter from trigger date. Further, the provisions of chapter VA will cease to apply if the value of outstanding listed debt securities as on March 31, remains below the specified threshold for three consecutive financial years.

3. New CG Requirements:

The specific compliance requirements introduced for HDVLEs under Chapter VA largely align with those outlined under Regulations 17 to 27 of SEBI (LODR) Regulations. These include:

• Board Composition: Ensuring an appropriate composition of the Board of Directors with balance of executive and Non- Executive Directors.
• Constitution of Committee: Establishing mandatory committees i.e., Audit Committee (“AC”), Nomination and Remuneration Committee (“NRC”), Stakeholders Relationship Committee (“SRC”), and Risk Management Committee (“RMC”). The Board can exercise the powers of NRC and SRC without constituting a separate committee. Similarly, the Board or AC can exercise the powers of RMC without constituting a separate committee.
• Secretarial Audit & Compliance Report: Conducting a Secretarial Audit and submitting a Secretarial Compliance Report.
• Obligations for Independent Directors & Key Personnel: Complying with governance norms related to independent directors, employees, and Key Managerial Personnel (KMPs), including timely filling of vacancies.
• Compliance report on Corporate Governance: Filing periodic compliance reports on corporate governance practices.
• Approval in case of appointment of Directors: Shareholders’ approval in case of appointment of Directors shall be taken within 3 months of appointment.
• Quorum of Board meeting: The quorum for every meeting of the board of directors shall be one-third of its total strength or three directors, whichever is higher, including at least one independent director.
• Compliance Review: The board of directors shall periodically review compliance reports pertaining to all laws applicable to the HVDLE, prepared by the HVDLE as well as steps taken by the HVDLE to rectify instances of non-compliances.
• Appointment of Director in an unlisted material subsidiary: At least one independent director, on the board of directors of the HVDLE, shall be a director on the board of directors of an unlisted material subsidiary, whether incorporated in India or not.

4. Additional Compliances for Related Party Transactions (RPTs)

New regulations on the lines of Regulation 23 on related party transactions have been introduced with the following additional requirements:

• For material-related party transactions and their subsequent material modifications, prior approval in the form of a No-Objection Certificate (NOC) must be obtained from the Debenture Trustee.
• The Debenture Trustee must obtain the approval from debenture holders who are unrelated to the issuer and hold at least more than 50% of the debentures in value, on the basis of voting, including e-voting.

The requirement of obtaining NOC from Debenture Trustee and debenture holders shall be obtained in respect of listed debt securities issued on or after April 01, 2025. In case no new listed debt securities have been issued on or after April 01, 2025, the requirement of obtaining of NOC shall not apply to any material related party transaction. So, for material-related party transactions, apart from shareholders, HDVLEs will also be required to obtain approval from the Debenture Trustee, if applicable, who in turn will obtain approval from the debenture holders.

It  is surprising to mention that the provisions with respect to related party transactions don’t include the recently introduced provisions like the ratification of related party transaction, exemption to transactions related to payment of managerial remuneration in Regulation 23. There appear no reasons for their exclusion except if these regulations were approved by SEBI before approving the amendments to Regulation 23.

Further, there also appears to be an inadvertent anomaly under clause (b) and (c) to the second proviso of sub-regulation (3) of Regulation 62K, as both the sub-clauses talk about the exactly same thing but with different eligibility limits. Clause (c) shall prevail over clause (b) in the context of the matter.

5. Non-Applicability:

Corporate Governance Norms shall not be applicable on HDVLEs which are:

• Real Estate Investment Trust (REIT) registered under Securities and Exchange Board of India (Real Estate Investment Trust) Regulations, 2014.
• Infrastructure Investment Trust (InvIT) registered under Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014.
• Also, the provisions related to the Board of Directors (Regulation 62D), Constitution of Committees(62F-62I) shall not be applicable during the period HVDLEs are undergoing the CIRP under the Insolvency Code.

Conclusion

The Corporate governance norms for HDVLEs were first introduced by SEBI via an amendment dated September 07, 2021, on a ‘comply or explain’ basis until March 31, 2023 but based on industry representations, the same were first extended till March 31, 2024 and then March 31, 2025.  The previous two extensions clearly highlight that there was an unease amongst the industry with respect to the governance norms, and they must be expecting an extension this time too, which didn’t happen.

While the compliance framework has now been made mandatory, the same seems a bit onerous considering that many private companies also list their debentures through private placement. No distinction has been made between a privately or publicly placed debenture.  The problem is that the new corporate governance norms bring HDLVEs at par with companies who have any specified securities listed on the exchanges, which should not have been the case. Even the withdrawal provisions have been provided in line with those applicable to a specified securities listed entity. At the time, when the Government is keen on developing and expanding the bond market, the governance provisions will necessarily bring confidence amongst the investors  but at the same time, it will also increase the compliance burden and its cost on the companies. This might definitely give companies a reason for not listing at least  their privately placed debentures in the near future.