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Authored by Aishwarya Lakshmi VM

Applicant: Redington (India) Ltd. Date of the guidance: 22.10.2020

Factual Background:

i. The Applicant has 57 overseas subsidiaries, of which 2 are wholly owned subsidiaries (WOS) and the remaining 55 are step-down subsidiaries. Few step-down subsidiaries are not required to get annual financial statements audited and some subsidiaries / step-down subsidiaries did not have the requirement to constitute a board, and few did not have the requirement to conduct board meetings and prepare minutes for them.

ii. The Applicant had submitted in the context of regulation 46 of the SEBI (LODR) Regulations, 2015, two of its foreign WOS which are required by their national laws to prepare Consolidated Financial Statements (CFS) in accordance with International Financial Reporting Standards and get them audited.

Guidance sought:

a) Citing the relaxation under S. 136(1) of the Companies Act, 2013, wherein the MCA has specified that it would suffice if the unaudited financial statements are placed on the website in case of absence of regulatory requirement of having the financial statements audited, the Applicant sought to know, if it would be sufficient compliance under Reg. 46(2)(s) of SEBI LODR, if it places the CFS of the two foreign WOS on its website.

b) Likewise, the Applicant had sought to know, in the context of regulation 24(3) of SEBI LODR, if the two of its foreign WOS prepare minutes of their board meetings, considering and including therein the significant or material issues and events, which would have a bearing on the interest of investments made in these subsidiaries, and provide the same to the Applicant, for it to be placed before its board.

Provisions Involved

Regulations 24[i] and 46[ii] of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015.

Informal Guidance by SEBI:

i. With respect to the adequacy of compliance under Reg. 46 of SEBI LODR, the guidance referred to an earlier informal guidance dated 30th May 2019 sought by HCL Technologies Limited, and required the Applicant to follow the same, as its query was substantially similar.

ii. To the queries of HCL Technologies, SEBI had with respect to Reg. 46, in respect of the financial statements of a foreign subsidiary, specified:

a) 46(2)(s) would be complied, where the CFS of the foreign subsidiary that is required to consolidate its financial statements, is placed on its website.

b) If the law of incorporation of the foreign subsidiary does not require its financial statements to be audited, then it would suffice if unaudited financial statements are placed on its website.

c) Where the financial statement is in a language other than English, then a translated copy of the same shall also be placed on the Website.

iii. With regard to the query of the Applicant in respect of Reg. 24(3), specified that if a listed entity has a foreign subsidiary:

a) if the laws of incorporation of the foreign subsidiary require board meetings to be conducted, it is sufficient if the minutes of such board meetings are placed before the board of the listed entity;

b) if the laws of incorporation of the foreign subsidiary does not require board meetings to be conducted, it is sufficient if there is periodic reporting of all significant transactions and arrangements entered into by the subsidiary.

The letter of SEBI can be read at:

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[i]Regulation 24, LODR:

(2) The audit committee of  the  listed  entity  shall  also  review  the  financial  statements,  in particular, the investments made by the unlisted subsidiary.

(3) The minutes  of  the  meetings  of  the  board  of  directors  of  the  unlisted  subsidiary  shall  be placed at the meeting of the board of directors of the listed entity.

(4)The  management  of  the unlisted subsidiary  shall  periodically  bring  to  the  notice  of  the board of  directors  of  the  listed  entity,  a  statement  of  all  significant  transactions  and arrangements entered into by the unlisted subsidiary.

Explanation.-For  the  purpose  of  this  regulation,  the  term  “significant  transaction  or arrangement” shall mean any individual  transaction  or  arrangement  that  exceeds  or  is likely to exceed ten percent of the total revenues or total expenses or total assets or total liabilities,  as  the  case  may  be,  of  the  unlisted subsidiary  for  the  immediately preceding accounting year.

[ii]Regulation 46, LODR: (2)The listed entity shall disseminate the following information under a separate section on its website:

(a) to (r) …..

(s)  separate audited financial statements of each subsidiary of the listed  entity in respect of  a relevant financial year, uploaded at least 21 days prior to the date of the annual  general meeting which has been called to inter alia consider accounts of that financial year.

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