INTRODUCTION
Presently, in India, companies make comprehensive disclosure at the time of filing offer document for a public issue. Thereafter, upon listing, issuers are bound by the continuous disclosure obligations cast on them in terms of various provisions of the listing agreement. These provisions include periodical disclosures such as financial position/ performance of the company, shareholding pattern, corporate governance, as well as event-based disclosures including material developments in the business, changes in shareholding pattern, etc.
Such disclosures are made by way of announcements on the stock exchange(s) on an as and when basis and depend on the company’s judgment with respect to materiality. Under the annual report, listed companies additional disclosures are required to be included pursuant to clause 49 (a detailed compliance report on Corporate Governance to form a part of annual report) and clause 55 (specified listed companies to include in the specified format, a Business Responsibility Report as part of the Annual Report describing the initiatives taken from an environmental, social and governance perspective) of the Listing Agreement.
All such information is available in fragments and there is no single document which contains all subsequent updates of the company at one place. Further, Listed companies in India are required to make submissions with various authorities, viz. Stock Exchange, Registrar of Companies, Regulators, etc. The frequency of such submissions is stipulated by the relevant legislation and can be annual, half yearly, quarterly, event based, etc. While listed companies in India make such submissions, there is no availability of a comprehensive information memorandum about the company which would enable investors to obtain all relevant information at one place. Further, the material events after listing disclosed to the public are available across a large time span and investors may find it difficult to access all relevant information for the purpose of making an informed investment decision.
An investor in primary market has all the information relevant to investment decision making at one place in the form of offer document. On the other hand, the investors in secondary market have to sift through various individual disclosures made over time to aggregate the information for investment decision making.
AIM
As per regulation 51A of the SEBI (ICDR) Regulations, 2009, the disclosures made by company in the red herring prospectus while making an initial public offer is required to be updated on an annual basis by the issuer and are to be made publicly accessible in the manner specified by the Board.
Pursuant to a discussion paper issued in February 2014, SEBI has asked all listed companies to prepare an AIM every year and file the same with the stock exchanges.
An AIM basically is a document to be filed by the listed companies on an annual basis which comprehensively contains all the relevant information about the financial and operating performance of the company at one place prepared with an objective to provide shareholders and prospective shareholders with accurate and relevant information about the company thereby assisting in making of informed investment decisions.
Implementation timelines
i. For top 200 (two hundred) listed companies based on market capitalisation at BSE or NSE as on Mach 31, 2014 – From financial year beginning on or after April 1, 2014. ii. All other listed companies – From financial year beginning on or after April 1, 2015. iii. For companies which are planning IPOs (Initial Public Offers), the requirement of AIM would commence with the IPO.
Frequency of Preparation of an AIM
To be prepared yearly.
Mode & Due date for Dissemination
AIM shall be approved by Board of Directors at their meeting prior to dissemination electronically by uploading the same on the company’s website and simultaneous filing with stock exchanges within 135 days from the end of financial year.
Annual Updation
AIM will be required to be updated every year. While, updating the AIM, the companies may update the quantitative as well as qualitative information by replacing the details pertaining to most distant year with details pertaining to most recent year where such information is required to be furnished for multiple years. Further, all the information (qualitative as well as quantitative) shall be reviewed for accuracy, sufficiency and relevance.
Auditor’s Examination Report
The companies desirous of using AIM as draft offer document for future capital raisings shall be required to submit an auditor’s examination report along with AIM.
BRIEF COMMENTS AND ANALYSIS
Filing of AIM as a comprehensive information document providing relevant information about the company under a single memorandum in a holistic manner is of course a positive step taken by SEBI which is interests of investors. It will definitely assist investors in the secondary market to make decisions relating to purchase-sell of securities of that company upon evaluation of information provided in the AIM and the same is in line with practices followed in major international markets like USA, UK, Singapore etc.
The discussion paper mentions that inclusion of reports such as corporate governance report (which is provided under clause 49 of the listing agreement), business responsibility report (provided under clause 55) and related party disclosures (provided under clause 32) in the AIM “could” pave way for removing such disclosures from annual report limiting its scope only to details required under Companies Act, 1956 / 2013. However, considering that the regulatory authority of Indian Company law provisions is the Ministry of Corporate Affairs, it remains to be seen whether the Ministry will expressly allow such relaxation in disclosure requirements under an annual report by way of a notification / circular etc or by making relaxation provisions under relevant rules etc and also the extent to which such relaxation will be provided.
The discussion paper requires that the companies which are desirous of using an AIM as a draft offer document for future capital raisings have to submit an auditor’s examination report along with an AIM. However, there is no other specific guidance under the discussion paper with respect to the scope or the format of such examination report or the manner in which the audit for that purpose would be required to be conducted, any discretionary / special powers of auditors etc for the purpose of examination.
Although the format of AIM specifically mentions about relevant cross referencing where information overlap occurs, it prima facie appears to us that to an extent, there is duplication in reporting to the stock exchange because some time based or event based information / submissions / disclosures which the listed companies already give and file with the stock exchanges on periodic basis or on happening of specific events under the relevant clauses of listing agreement or under reports such as corporate governance report / business responsibility report have to be resubmitted under the AIM. In that aspect, it would be less burdening for listed companies if relaxations are granted by SEBI in case of information overlap or generally the disclosure requirements under AIM is slightly diluted.
About Bulwark Solicitors
Bulwark Solicitors is a law firm pioneered by Solicitor Chirag Sancheti and Advocate Deep Shridharani. The firm has expertise in the areas of both Litigation and non-Litigation. Under the non-litigation Law practice, the firm practices in the areas of Corporate Law, Intellectual Property Law, Bankruptcy & Insolvency Law, Competition Law, Real Estate and Conveyancing and DTAA Advisory. Further, under Corporate Law area, we practice Company Law, Securities Law, Mergers and Amalgamations, Private Equity and Venture Capital Investment Transactions, Legal Due Diligence and Foreign Exchange Management Law.