By Shriram Subramanian, Founder and MD, InGovern Research Services
A bunch of recent writ petitions in Bombay High Court by five Kirloskar Group companies has become the first big legal test of the Securities and Exchange Board of India’s (Sebi) Regulation 30A of the Listing Obligations and Disclosure Requirements. While transparency remains the cornerstone of efficient capital markets, 30A raises fundamental questions about the boundaries of regulatory power. In its current form, under the garb of enhancing transparency 30A may contradict established legal principles of contract and corporate law.
30A mandates that private agreements among shareholders, promoters, employees, or key managerial personnel that “impact the company’s management or control”, create a restriction or liability, or have the potential to do so, must be publicly disclosed, even when the company itself is not party to or has approved/adopted the arrangements. The problem lies not in the principle itself, but in the manner in which the regulatory framework automatically attempts to bind the disclosing entity following the disclosure.
The regulation’s title, “Disclosure requirements for certain types of agreements binding listed entities”, reveals its fundamental flaw. By design, 30A treats any disclosed agreement as binding on the listed company, regardless of whether it consented to or ratified the agreement. This creates an unprecedented legal situation where the language of regulation forces listed firms to disclose private arrangements between third parties merely on being intimated by such parties of such an arrangement. Such a disclosure automatically becomes a corporate obligation.
Under established contract law principles, agreements bind only parties who have consented to their terms. The doctrine of privity of contract specifically prevents third parties from being bound by arrangements they neither signed nor ratified. Regulation 30A overturns this principle by compelling listed entities to treat private agreements as binding corporate commitments, effectively letting any shareholder, employee, or director to impose obligations on the company via private arrangements.
This mechanism transforms disclosure from an information-sharing exercise into a method of creating corporate liability. The regulation emerged from concerns about undisclosed agreements that might affect corporate control, but its solution creates a more serious problem—it validates and enforces the very arrangements it purports to regulate.
Corporate governance rests on the principle that boards of directors, acting through procedures, determine a company’s binding obligations. 30A circumvents this structure by allowing private agreements to override board authority through mandatory disclosure.
Consider the practical implications: any agreement between stakeholders that mentions restricting the company’s activities automatically becomes a corporate obligation, once disclosed. This could include family settlement agreements, employment contracts, or even casual arrangements that could potentially create any impact, restriction, or liability even if not enforceable against the corporate entity. The process outlined in the regulation requires the company to disclose such an agreement within two days of being notified of the agreement by any third party. The company has no opportunity to evaluate the agreement’s validity, enforceability, or desirability before making the disclosure. Mere disclosure makes the firm admit that the agreement is or has the potential of impacting on its management, creating restrictions or liability on the company, and consequently making the company being deemed bound by its terms.
However, 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. The acknowledgement is a recognition that the current framework extends beyond appropriate regulatory boundaries and conflicts with basic corporate law principles.
Regulation 30A compounds its difficulties by applying retrospectively. The regulation requires disclosure of existing agreements, including ones that may be decades old and were executed without any intention of affecting corporate operations, so long as they have an impact, restriction, or liability. This retroactive binding effect can force companies to honour restrictions they never agreed to and may conflict with their business strategies.
Private agreements serve many legitimate purposes—succession planning, family arrangements, employment terms—without any intention to constrain corporate entities. Requiring disclosure and automatic enforcement of these arrangements creates legal uncertainty and undermines the predictability that businesses require for effective planning.
Effective regulation balances market transparency with established legal principles. While investors deserve information about material arrangements affecting their investments, this need not come at the cost of fundamental contract or company law principles.
The regulation’s broad scope means virtually any agreement referencing a company could trigger disclosure and potential liability. This opens the door to mischief as individuals with no authority could enter into private arrangements, compel disclosure, and thus create reputational or legal consequences for the firm.
A more balanced approach would distinguish between agreements, such as voting or control arrangements, which 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.
The ongoing legal challenge is an opportunity for regulatory recalibration. Transparency and corporate autonomy are not mutually exclusive. The solution lies in separating disclosure from enforcement.
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. This would preserve transparency without undermining the principles of contract law or corporate governance. Sebi could also 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.
India’s capital markets require regulations that enhance transparency without undermining the legal foundations of corporate governance. Regulation 30A, if left unrevised, risks achieving the opposite.