In Mumbai, the Securities and Exchange Board of India (Sebi) is currently reassessing the stipulation mandating listed companies to divulge all penalties imposed by authorities, regardless of their insignificance, leading to an escalated compliance burden.
In July 2023, Sebi mandated the disclosure of all penalties to stock exchanges, eliminating the companies’ discretion in revealing fines. This move has prompted scrutiny, with Katalyst Advisors’ Executive Director, Binoy Parikh, expressing concerns about regulatory overreach and a detachment from practical business realities.
For instance, Reliance Industries, valued at nearly Rs 20 lakh crore, disclosed a fine of Rs 62,016 under the GST Act. The penalty constituted a mere 0.000000314% of its market capitalization. Similarly, Yes Bank, with a market capitalization of Rs 70,034 crore, reported a fine of Rs 150 by the RBI for discrepancies in processing soiled notes. Sapphire Foods, the operator of KFC in India, acknowledged a Rs 10,000 fine from Dehradun’s municipal council for the non-availability of a dustbin outside one of its stores.
These penalties, considered trifling for major corporations, had no material impact on the financials or operations of Yes Bank, Sapphire Foods, and Reliance Industries, as confirmed by all three entities.
Sources indicate that a Sebi committee, led by former Sebi member S. K. Mohanty, is actively exploring the elimination of unnecessary disclosure requirements regarding monetary penalties. The aim is to enhance the ease of doing business for companies, and the committee is anticipated to submit its recommendations to the regulator soon. An email inquiry to Sebi remained unanswered.
Binoy Parikh argued that compelling high market capitalization companies to report even the minutest penalties not only seems absurd but also needlessly increases the compliance burden. He emphasized the risk of information overload, potentially overshadowing genuinely significant disclosures and undermining the essence of transparent corporate governance. Parikh stressed the importance of aligning regulations with the principle of materiality to ensure the focus remains on information impactful to investors.
Robin Shah, founder of Bodhi Legal, supported the move towards a disclosure-based regime but cautioned against ‘over-information.’ He advocated for a holistic approach that ensures the intelligibility of disclosures to market participants, enabling rational responses to specific events without burdening companies excessively.