The regulator in July 2023 mandated disclosure of all penalties to stock exchanges irrespective of the amount. Earlier, companies could user their discretion in disclosing fines.”An amendment by Sebi, mandating the disclosure of penalties without any materiality threshold epitomises regulatory overreach and underscores a disconnect with practical business realities,” said Katalyst Advisors‘ executive director Binoy Parikh.
For instance, Reliance Industries, India’s most valued company at nearly Rs 20 lakh crore, said that it was fined Rs 62,016 under the GST Act. For RIL, the penalty comprised 0.000000314% of its market capitalisation. Yes Bank, which has a market capitalisation of Rs 70,034 crore, said that it was fined Rs 150 by RBI for “discrepancies observed during the processing of soiled notes remitted by it to the central bank”. Sapphire Foods, which operates KFC in India, disclosed that it was fined Rs 10,000 by Dehradun’s municipal council for “non-availability of a dustbin” outside one of its stores in the city.
The penalties amount to a drop in the ocean for big businesses. All three companies, Yes Bank, Sapphire Foods, and RIL, confirmed there was no material impact on their financials or operations due to the said civil penalties.
Sources said a Sebi committee, headed by former Sebi member S K Mohanty, is looking at removing unnecessary disclosure requirements related to monetary penalties to enable ‘ease of doing business’ for companies. The committee is expected to submit a report on this to the regulator soon. An email sent to Sebi didn’t elicit any response.
When high market cap companies are compelled to report even the tiniest penalties, they “not only border on the absurd but also unnecessarily inflates compliance burden”, said Parikh. “This may lead to an overload of trivial information, obscuring truly significant disclosures and undermining the very purpose of transparent corporate governance. Such regulations should align with the principle of materiality to ensure the focus remains on information that is truly impactful to investors,” he added.
“While it is an important step for a ‘disclosure-based regime’ and to strengthen the confidence of market participants, we should be mindful of ‘over-information’ which may not contribute to any real price re-discovery or may not be of relevance to lay market participants, who may not have the wherewithal to comprehensively assess the impact of a venial event/ order,” said Bodhi Legal’s founder Robin Shah.
“A holistic mechanism ought to be devised to ensure that the content of the disclosure is intelligible to market participants, for them, to rationally respond to a particular event while making an informed decision and at the same time should not be burdensome to the companies,” Shah added.