Instances of market regulator censuring India Inc have been on the rise of late. While letting off companies with warnings, Securities and Exchange Board of India (SEBI) said it will take severe action if such violations are repeated. Most of the warnings pertain to violation in disclosure standards by companies.

Aurobindo & USFDA

The latest issue was with respect to Aurobindo Pharma Ltd (APL) and its disclosures on observations made by the US drug regulator. The Hyderabad-based company has received a warning letter from SEBI for non-disclosure of details related to an ongoing audit at one of its manufacturing units in Hyderabad and observations made by the US Food and Drug Administration (USFDA).

According to SEBI letter, the company had ‘‘disclosed very limited and restricted information’‘ and it did not disclose the detailed reasons and also did not consider the observations of USFDA as serious, it added. SEBI also pulled up the pharma company for claiming that information about the USFDA action was disclosed in the investor earnings call, the transcript for which was made available to stock exchanges, even when it ‘‘did not provide any additional information beyond what was already disclosed’‘.

Vedanta & HZL Case

Last October, SEBI had warned Vedanta for not making proper disclosure of related party transactions, flagged by its statutory auditors in the FY21 annual report. “With regard to the qualified opinion in respect of the company executing related party transactions worth ₹1,407 crore without prior approval of the audit committee, the company has submitted that the said transaction was ratified later (after a period of about 47 days),” SEBI had said. Without disclosing the nature of the transaction, the company stated that the transaction was done at an arm’s length and in ordinary course of business.

Similarly, SEBI had warned Hindustan Zinc, too, on dividend issue. The company had scheduled a meeting of its board on August 17, 2021, to consider interim dividend for 2021-22 but deferred the meeting without assigning any reason or indicating a tentative date for the next board meeting.

What is price-sensitive?

According to SEBI, price-sensitive information means any information which relates, directly or indirectly, to a company and which if published is likely to materially affect the price of securities of the company.

Violations of disclosures in cases such as Vedanta and Hindustan Zinc are easily traceable as they are corporate developments that eventually come into the public domain. However, the Aurobindo Pharma issue is industry-specific and relates to communication that can only be accessed by the company. For such cases, the regulator must be more vigilant and should come out with a new codified document that clearly captures posisble instances of price sensitive information.

Perhaps, SEBI can consult industry bodies and associations to come up with a document that captures likely price sensitive information that is sector-specific. Besides, it can seek help of global regulators and exchanges in improving price-sensitive disclosures. The document can be reviewed every quarter with fresh updates which companies must follow in letter and spirit.

This would protect investors and help them avoid losses due to inadequate or delayed information flow. 

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