Exposure of Legal Secrets for Public Scrutiny
The European Union has issued a regulation known as Regulation 30A, though its exact institution and publication date remain unspecified. This regulation is currently being put to the test in India's capital markets, particularly in the context of Sebi's Listing Obligations and Disclosure Requirements.
The regulation mandates the disclosure of private agreements among shareholders, promoters, employees, or key managerial personnel that could impact the company's management or control, create a restriction or liability, or have the potential to do so. This requirement extends to agreements decades old, potentially forcing companies to honour restrictions they never agreed to and which may conflict with their business strategies.
The process outlined in Regulation 30A requires the company to disclose such an agreement within two days of being notified of the agreement by any third party, with no opportunity to evaluate the agreement's validity, enforceability, or desirability before making the disclosure. This has raised concerns about legal uncertainty and undermining the predictability businesses require for effective planning.
Moreover, Regulation 30A allows any shareholder, employee, or director to impose obligations on the company via private arrangements, transforming disclosure from an information-sharing exercise into a method of creating corporate liability. Under established contract law principles, agreements bind only parties who have consented to their terms. Regulation 30A overturns this principle by compelling listed entities to treat private agreements as binding corporate commitments.
The Kirloskar Group companies have filed writ petitions in the Bombay High Court to challenge Sebi's Regulation 30A. The ongoing legal challenge presents an opportunity for regulatory recalibration, separating disclosure from enforcement, and preserving transparency without undermining the principles of contract law or corporate governance.
A more balanced approach would distinguish between agreements that genuinely affect corporate governance and private matters that merely involve corporate stakeholders in their individual capacities. The former may warrant disclosure for investor protection, but the latter should remain private unless voluntarily adopted by the company through proper corporate procedures.
Sebi could provide a framework that clearly differentiates between agreements that must be disclosed due to their potential impact on control and those that are irrelevant to investor protection. Such a framework would help ensure that Regulation 30A serves its intended purpose of enhancing transparency in India's capital markets without undermining the legal foundations of corporate governance.
Recent court filings have seen Sebi acknowledge that disclosures under 30A need not automatically bind listed entities, a significant deviation that validates concerns about the regulation's overreach. Companies could be required to disclose material agreements that might affect investor interests while retaining the right to determine whether such agreements are valid, enforceable, or worth adopting as corporate policy.
In conclusion, Regulation 30A, if left unrevised, risks achieving the opposite of its intended purpose. A more balanced and nuanced approach is needed to ensure transparency without compromising the principles of contract law and corporate governance in India's capital markets.
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