SEBI Circular on Pandemic

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The current COVID 19 pandemic has induced the economic crisis all over the world especially in the debt-burdened developing countries and India is one of them. Recently, both the World Bank and International Monetary Fund have announced an alert on the financial stability of the developing nations with massive debt servicing requirements, but dwindling capacities to do so give catastrophic reductions in export incomes. 

The impact of COVID 19 has impacted companies not only in India but the whole world. This has created volatility and uncertainty in the capital market, which has caused difficulty to the investors and the shareholders. It is the responsibility of the company management to make the investors be it current or the future about the company and its working. 

This step has been taken by my many listed companies and primarily stated the shutting down of the operation owing to the pandemic and the resultant lockdown. But such information is not relevant to the investors and shareholders as they want to know the current status of the company to see all the assets or liabilities. 

Knowing the information gaps in the market, the SEBI issued an advisory to all the listed companies to disclose the current situation regarding the status of the company and the impact of the pandemic on their business, performance and financials. 

The Circular in brief

The SEBI has drawn reference to the regulatory actions taken by the various governments around the world requiring timely and cogent disclosure by companies, and SEBI in the same disposition, issued the advisory encouraging the listed entities for the disclosure of the impact on COVID 19 on their business etc. The list in the Circular includes, impact on “the business and operations, ability to maintain operations (including the offices/units functioning and closed down), schedule for restarting the operations, steps taken towards ensuring smooth functioning and estimation of the future impact of Covid-19 on operations”. The primary focus is for exposures has been the financial effect (which incorporates, inter alia, the effect of the pandemic on capital and monetary assets, benefit, liquidity position, resources, the capacity to support obligation, inside budgetary detailing and control, supply chain, interest for its items/administrations), as SEBI had noticed the number of entities revealing the financial effect on being very little. Truth be told, presently the recorded elements, while presenting the quarterly/half-yearly/yearly (all things considered) budget reports, may remember the subtleties for the effect of the Covid-19 pandemic in such fiscal summaries, to the degree conceivable.

Further, as the pandemic continues it would be required for more frequent updates/modification in the response strategies. SEBI has also mentioned that material updates shall be given regularly by the listed entities whenever there is a material development. 

Existing disclosure norms under Force Majeure 

The SEBI issued the advisory to all the listed companies for the disclosure of the current working situation of the company under Regulation 4 of the SEBI, 2015 the Listing Obligation and Disclosure Requirement. The regulation 30 of the Listing Obligation and Disclosure Requirement which mandates that all the listed entities should ensure accurate and timely disclosure of all the material facts like financial situation, performance, ownership and governance of the listed entity. 

Certain events have been deemed to be material and should be necessarily disclosed, other measures require the disclosure of all the guidelines that materially laid down by the board of directors to assess the requirement of the disclosure or not. One such instance that requires application of the company’s policy on disclosure materiality is the disruption of the operation due to natural calamity, force majeure or other events such as strikes, lockdowns etc. There have been various disclosures by the company of shutting down or disruptions in operation/ shutting down of factories. 

  • Certain disclosures that are prescribed under the Listing Regulations. They are Deemed material events and Material Events based on the application of materiality criteria. In the first category, the events specified in Paragraph A of Part A of Schedule 3 are covered under the mandatory disclosure events while in the second category, the disclosure is based on the application of guidelines for materiality given under sub-regulation (4) of Regulation 30. Regulation 51 does not provide any test of materiality as regulation 30 does. Part B of Schedule 3 requires disclosure of all information that has an impact on performance/ operation of the listed entity; is sensitive to price; shall affect the payment of interest/ dividend on NCDs/ NCRPSs, or shall affect the redemption of NCDs/ NCRPSs. 
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Whether it is required by Listing Regulation to disclose the information due to the impact of COVID 19

Yes, the disclosures are much required as stated in the regulation 30, the COVID 19 has impacted and disrupted of operations of one or more units/ divisions due to natural calamities like earthquake, flood, fire etc, (all force majeure events) and others like lockouts etc fall under the category. In sub-regulation (5) of the Regulation (30), the board of director is authorized and shall direct KMP(s) to determine the effect of COVID 19 (if any) on the operation of the company is material based on the criteria prescribed under sub-regulation (4) of the regulation (30). Once the materiality has been discussed, the same shall be notified to the Stock exchange and the same shall be disclosed on the website of the company. 

The regulation (30) provides that the disclosure of the same shall be made as soon as possible not shall not take more than 24 hours from the occurrence of the event. The guidance for the occurrence of the same has been provided SEBI circular 2. As per the SEBI Circular dated 09.05.2015, the company shall disclose the following:

  • Expected loss/ damage caused at the time of occurrence of the event
  • Whether the loss is covered under the insurance and not including any other amount. 
  • Impact of the event on the production and on the factory/unit where the lockout takes place with the specific reasons. 

This shall be done till the time the company has become normal and insurance amount is claimed and realized; actual damage caused is noted; and the details of the steps taken to restore the normalcy and impact of production.

Steps involved in the making the disclosure

The steps involved in evaluating the pandemic are:

  1. Before any disclosure is made to the stock exchange, a proper valuation of the impact of the COVID on its business, performance and financials, both qualitative and quantitative impact.

Dissemination of Impact of pandemic to stock exchange

  1. “Impact of the pandemic on the business;
  2. Ability to maintain operations including factories/ units/ office spaces functioning and closed down;
  3. Schedule, if any for restarting the operations;
  4. Steps taken to ensure smooth functioning of the operations;
  5. Estimation of future impact on the operations;
  6. Details of impact on the listed entities
    • capital and financial resources;
    • profitability;
    • liquidity position;
    • ability to service debt and other financing arrangements;
    • assets;
    • internal financial reporting and control;
    • supply chain
    • demand for its products/services;
  7. Existing contracts/agreements where non-fulfilment of the obligations byany party will have significant impact on the listed entity’s business;
  8. Any other information as the entity may determine to be relevant and material;”

The entities should also adopt the principle of disclosure as advised under regulation 4(2)(e) of the listing regulation issued by SEBI. 

Intention of SEBI to issue such advisory

It is mentioned clearly in the SEBI advisory that due to the outbreak of the COVID 19, Pandemic and the consequent nationwide lockdown has led to distortions in the market and has created voids regarding the information about the listed entity and therefore, it was important for a listed entity to ensure that all available information about the impact of COVID is available to all the investors and stakeholder and is communicated in a timely and cogent manner. The disclosure will provide the investors the idea to make an accurate valuation of the company and will ensure transparency. Due to the global pandemic, all businesses are impacted. Unlike the Listing Regulations, SEBI Advisory does not differentiate the disclosure requirements for the companies listed with specified securities and companies listed with NCDs/NCRPS, and the Advisory is applicable to all the listed entities. Also, for making the purpose of the disclosure fair of any material impact on the company, the disclosure mentioned in the Advisory shall be treated as mandatory in nature. 

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Is the disclosure one-time requirement; there any timeline prescribed for making disclosures to the stock exchange; and whether are there any legal consequences that could be faced due to non-compliance with the SEBI advisory

Currently, the operations of entities are shut or have started working at a slow pace, and since the companies will restart working as normal then in that case whether it will be suitable for a listed entity to work with the same disclosure. Thus, the listed entity should provide regular updates whenever possible of all the material developments. Further, in case there is a change in disclosure, the same shall be notified as soon as possible in another disclosure. 

There has been no specific time or timeline provided in the Advisory for making the disclosures, but in the present situation it shall be made as soon as possible when an assessment is done on the probable impact by the management. 

There are no penal provisions or legal consequences prescribed under the advisory and the non-compliance with the same will not lead to any penal consequences. 

Is it required to reveal the impact on the subsidiary which is unlisted.

This is advisable to reveal the impact on the unlisted subsidiary as it may have an impact on the parent company as well. Thus, if the impact of COVID 19 on the subsidiary is material, then it that case, the company shall disclose the impact on the subsidiary. 

What kind of information shall be disclosed?

  1. The information regarding the current status shall be disclosed. Current status includes:
    • “Status of closure and reopening of branches/units/ stores in different parts
    • Areas in which the company is operating
    • Current liquidity position
    • Impact on productions, sales, profits, stock prices, credit rating, assets, etc.
    • Internal financial reporting and control
    • Impact in capital and financial resources
    • Current trading and outlook
    • Impact on working staff
    • Layoffs during the period
    • Areas of business most impacted
    • Status of business in other countries
    • Delay of important projects
    • Suspension of dividends
    • Impact of Government imposed measure/restrictions (e.g. for logistic companies, border closures may impact ability to operate)”
  1. Steps taken to address and combat the effect of COVID 19
    • “reduce business/operating cost or cost cutting measures adopted
    • conserve cash and ensure liquidity
    • secure safety of employees ensures business continuity
    • address the immediate impact and ensure future positioning”
  1. Status regarding the future and financial status
    • “Estimation of future impact on the operations
    • Estimated trends in demand for its products/services
    • Expected financial resource needs Future expectations of financial and operating conditions
    • Any material impairment (e.g. impairment of goodwill)
    • Forecasts for the year
    • Material changes expected during the year
    • Business continuity plans
    • Future operating/ financial long-terms or short-term strategies to address future risk/challenges
    • Other forward-looking disclosures”
  1. Any other provision which may be specific to a company or related to the board of management:

Focusing on the sectors in which the company deals in, the impact of crises varies from company to company and shall be assessed accordingly.

    • Closure of unit/factory/company
    • Breach of contract significantly impacting the company’s business


The step by the SEBI as an advisory can said as a precautionary measure as the possible investors or stakeholders can suffer loss, and disclosure of the impact on the company will enable them to assess the risk associated with the company while investing.