One of the amendments introduced by Securities and Exchange Board of India (“SEBI”) to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR”) in December 2024, adds more authority to the position of a Compliance Officer of a Listed Entity under the SEBI LODR, requiring the Board of Directors (“Board”) of Listed Entities to have a fresh look at its management and compliance matrix. Effective from December 12, 2024, the Compliance Officer of a Listed Entity should be an officer with all the following professional capabilities held cumulatively:

  1. Prior to the SEBI LODR amendment, the Company Secretary was required to be a qualified Company Secretary i.e. a professional being a member of the Institute of Company Secretaries of India. With the SEBI LODR amendment, the Compliance Officer is now also required to be a Key Managerial Personnel (“KMP”) in the whole-time employment of the Listed Entity, holding a position that is not more than one level below the Board of the Listed Entity. This implies that the Compliance Officer can be either a person holding a Board position (i.e. a whole time/ executive director) or a managerial position one level below the Board.
  2.  A logical corollary to the SEBI LODR amendment would be that the existing Company Secretary of a Listed Entity appointed under the Companies Act, 2013 (“Companies Act”) to also be designated as the Compliance Officer under the SEBI LODR, as the Companies Act also mandates for the Company Secretary appointed thereunder, to be a KMP. This way, there is semblance in compliance with both the laws and there is no over-crowding at the top management of a Listed Entity with compliance officers.
  3. Digging deeper on the requirement of the Compliance Officer being a KMP, SEBI has ensured that there is no conflict in interpretating this requirement under SEBI LODR and Companies Act, since KMP has been defined under the SEBI LODR to have the same definition of KMP under the Companies Act. However, with the requirement of Compliance Officer necessarily being a KMP, Listed Entities will now definitively be required to relook at their management composition to ensure that the Compliance Officer fits well in the Board composition or the management matrix immediately below the Board level. It is evident that SEBI has tried to emphasise on giving the Compliance Officers higher management level positions considering the importance of their role and responsibilities. The management matrix gets further complicated, if the Board decides to appoint two Company Secretaries (one under Companies Act and another under SEBI LODR) probably to share the compliance responsibilities between both these Company Secretaries, ultimately resulting in the Listed Entity having two KMPs focusing on compliances alone. While it would still make sense for large conglomerates with multiple businesses to have two KMPs focusing on different compliances, it may look impractical for a Listed Entity with lesser compliance parameters.
  4. It is also important to look at division of responsibilities between Company Secretary under Companies Act and Compliance Officer under SEBI LODR. The responsibility of Compliance Officer under SEBI LODR seems slightly more rigorous than the responsibility of a Company Secretary under Section 205 of the Companies Act, which inter-alia requires the Company Secretary ‘to report’ to the Board regarding compliance with all the laws and regulations applicable to the Listed Entity. Comparatively, SEBI LODR requires Compliance Officer to ensure that the Listed Entity ‘complies’ with all the laws and regulations applicable to the Listed Entity and thus be a senior and experienced person to head the compliance and legal functions of the Listed Entity. For this, the Compliance Officer is either expected to undertake compliance actions under all laws applicable to the Listed Entity, which seems to be a humongous ask, or be responsible for the acts of all his compliance deputies. These responsibilities seem more cemented by the fact that, the Compliance Officer, now in the capacity of a KMP, is directly answerable to the Board for defaults or breaches of statutory obligations by a Listed Entity.

An optimistic view of the SEBI LODR amendment, is that SEBI’s intention was not to overlap the role of Compliance Officer with that of Company Secretary, but rather to extend flexibility to Listed Entity to bifurcate between the two, depending upon various factors such as size of the company, sector the company operates in, etc. By allowing this flexibility, Listed Entities will be able to evolve the role of their Compliance Officers from merely being a compliance and governance watchdog, to participating in more managerial decisions. This is a fresh move and beneficial initiative, especially for large organisations where it is almost impossible to expect one individual to have the breadth of skills to undertake all compliances and risk management obligations.


Authors:

Nusrat Hassan, Managing Partner, India

Rajesh Pal, Partner

Aayushi Barot, Associate


Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.