Should a company give updates on a material event, even if the matter is sub-judice? Sebi clarifies

The Securities and Exchange Board of India (Sebi) fined Asian Hotels North Limited Rs 6 lakh for various violations of the Listing Obligations and Disclosure Requirements (LODR) Regulations.

Once a company has disclosed that a restructuring plan for its loans are underway, should the company give updates on a related dispute when the matter is sub judice?

Yes, according to a market regulator's order dated April 15. In the order, the Securities and Exchange Board of India (Sebi) fined Asian Hotels North Limited Rs 6 lakh for various violations of the Listing Obligations and Disclosure Requirements (LODR) Regulations, including this one.

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The regulator's order paid particular attention to Regulation 30 (7) of the LODR Regulations, which deals with updating the markets about developments on material events.

The company had disclosed the restructuring plan to the exchanges but not the fact that the lenders had sent a loan-recall notice and had declared the loan as an NPA, and that the company had filed a suit challenging this before the Delhi High Court.

The regulator's order stated that these are "intricately linked" with the implementation of the restructuring plan which had been disclosed earlier by the Company (on November 13, 2020) and were material developments in this regard.

The order added, "Therefore, as per the requirement of Regulation 30(7), Noticee (the company) was required to make the disclosures regarding the same and make the such disclosure regarding developments on a regular basis until the event is resolved."

The regulator disagreed with the company in saying that the developments were at interim stage and sub judice and no material event had occurred which needed to be disclosed under LODR Regulations.

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The order added, "The Noticee (company) ought to have disclosed all the details to its shareholders. The company could have also clarified its views/perspective about the action/stand taken by lenders and about the disputes being under consideration of the Hon’ble High Court of Delhi."

The regulator stated that, while the court would decide on the matter, the shareholders have a right to know about the stand taken by the company and the lenders. As per Regulation 30(7), even the said litigation, though sub judice, is required to be disclosed until decided by the court or final resolution is there.