On May 30, 2019, SEBI issued an informal guidance to HCL Technologies Limited (Applicant), clarifying the position regarding publishing financial statements of foreign subsidiaries on the website of the company.
In 2018, an amendment was made to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) introducing Regulation 46(2)(s), which obligated listed companies to upload separate audited financial statements of their subsidiaries on their websites.
Section 136 of the Companies Act, 2013 contains a similar provision, wherein listed companies are mandated to place separate audited financial statements of its subsidiaries on its website. However, Companies Act, 2013 provides for certain relaxations with respect to publication of financial statements of foreign subsidiaries. If the subsidiary’s home jurisdiction requires preparation of consolidated financial statements, the Indian company can comply with the provision by publishing such consolidated financial statements on its website. For foreign subsidiaries which are not statutorily required to get their financial statements audited as per the laws of the country of its incorporation, the Indian company can place the unaudited financial statements of such foreign subsidiaries on the website. However, the LODR Regulations are silent on such relaxations and provide no guidance.
The Applicant, a listed company, had several foreign subsidiaries which were not obligated to get their financial statements audited. In light of this, the Applicant requested informal guidance on whether it would be in compliance with the LODR Regulations if it merely places the unaudited financial statements of such foreign subsidiaries on its website.
SEBI took a view that in cases where a foreign subsidiary is not obligated to get its financial statements audited, the listed company can comply with Regulation 46(2)(s) by placing such unaudited financial statements on its website. Further, SEBI opined that in cases where the foreign subsidiary is required under any law of the country of its incorporation to prepare consolidated financial statements, the listed company can place such consolidated financial statements on its website. If these financial statements are in a language other than English, then SEBI states that a translated copy of the financial statements in English also has to be uploaded on the website.
It is untypical of SEBI to issue this informal guidance, which is more in the nature of a substantial amendment to the existing regulation, rather than a mere clarification of the existing provision. While this interpretation will substantially ease the compliance burden of listed companies having foreign subsidiaries, an amendment to the LODR Regulations in line with Section 136 of the Companies Act, 2013 will better serve the purpose.
