Corporate Governance Provisions of LODR apply regardless of net worth changes due to accounting practice
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- Last Updated on 16 December, 2022
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The SEBI, through informal guidance by way of an interpretative letter, has clarified that in order to be exempt from the compliance of the corporate governance provisions, a listed entity would need to have a paid-up capital of less than Rs. 10 crore and a net worth not exceeding Rs. 25 crore.
Brief Facts
In the instant case, Mr. Maikal Raorani, Whole Time Director and CFO of the Sky Industries Limited sought an Informal guidance by way of an interpretive letter under the provisions of the SEBI (Informal Guidance) Scheme, 2003.
The company was incorporated under the Companies Act, 1956 and listed on BSE Limited. The corporate governance provisions of the LODR regulations shall apply to those entities whose paid-up capital exceeds ? 10 crore and net-worth exceeds ?25 crore. As on March 31, 2022, paid-up equity share capital of the Company is ? 6.85 crore and net worth of the Company is ?32.87 crore.
Pursuant to regulation 15(2) of the LODR Regulations, the compliance with the corporate governance provisions shall not apply, upon fulfilment of two conditions namely – (a) a listed entity having paid up equity share capital not exceeding rupees ten crore; and (b) net worth not exceeding rupees twenty-five crore, as on the last day of the previous financial year, which are used in the provision conjunctively and not disjunctively.
Therefore, in order to be exempt from the compliance of the corporate governance provisions, a listed entity would need to have a paid-up capital of less than ? 10 crore and a net worth not exceeding ? 25 crore.
Question raised before the SEBI
Since, only Net worth exceeded the threshold limit, company sought guidance on the applicability of corporate governance provisions of the LODR Regulations under the aforesaid circumstances and question was raised that whether the Company is eligible to claim exemptions from the provisions?
SEBI’s reply
The SEBI clarified that since the paid-up equity share capital of the Company is 6.85 crore and the net worth of the company is 32.87 crore as on March 31, 2022. As the net-worth of the Company is above 25 crore as on March 31, 2022, the provisions relating to Corporate Governance of LODR Regulations shall be applicable to the Company.
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