SEBI Mandates Stricter Corporate Governance for High Value Debt Listed Entities (HVDLEs)

Introduction

The Securities and Exchange Board of India (‘SEBI’)  introduced landmark amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, through its notification on 27.03.2025[i]. Effective from 01.04.2025 with core compliance required within six months of applicability, these reforms establish a strong governance framework under ch VA for High Value Debt Listed Entities (‘HVDLEs’), defined as entities with listed non-convertible debt securities (‘NCDs’) of Rs. 1000 crore or more and no listed equity. The amendments aim to align governance standards for debt-listed entities with equity-listed companies, enhance debenture holder protection, and strengthen market confidence through transparency and accountability.

Key highlights of the Amendment

1. Applicability and Scope

   The new framework applies to entities that have only listed NCDs and an outstanding debt of Rs. 1,000 crore or more as of 31.03.2025.  The HVDLE status continues to apply until the outstanding debt remains below the threshold for three consecutive financial years.

2. Corporate Governance Framework (Regs. 62B-62Q)

   1. Board Composition (Reg. 62D): The board must have at least 50% non-executive directors, including one woman director. The requirements for independent directors vary based on the chairperson’s status: one-third if the chairperson is non-executive, half if the chairperson is a promoter or related party, or where the chairperson is not a regular non-executive director. Directors above 75 years of age require shareholder approval through a special resolution, along with an explanatory statement justifying the appointment. Directors and Officers Insurance (‘D&O Insurance’) is mandatory for independent directors.

   2. Directorship Limits (Reg. 62E): An individual may hold up to seven directorships (including HVDLEs and equity listed entities), with whole-time directors limited to three independent directorships. Compliance is required to be achieved within six months of the notification date or by the next Annual General Meeting (‘AGM’), whichever is later.

   3. Mandatory Committees: Every HVDLE must constitute an Audit Committee, a Nomination and Remuneration Committee, and a Stakeholders Relationship Committee, with prescribed compositions. The chairperson of the Audit Committee is required to attend the AGM.

   4. Risk Management & Vigil Mechanism (Regs. 62I and 62J): Entities must adopt formal risk assessment frameworks and establish a whistleblower policy with protections against victimization and provisions for direct access to the Audit Committee chairperson.

   5. Related Party Transactions (Reg. 62K): Material related party transactions (‘RPTs’) exceeding Rs. 1,000 crore or 10% of the annual consolidated turnover (whichever is lower) require prior approval from debenture trustees and shareholders through a majority-of-minority e-voting process. Exemptions are provided for government companies and wholly owned subsidiaries.

   6. Unlisted Material Subsidiaries (Reg. 62L): Subsidiaries that contribute more than 20% of the consolidated income or net worth of the HVDLE are considered material and must have at least one independent director from the HVDLE’s board.

   7. Secretarial Audit (Reg. 62M): Mandatory for all HVDLEs and their material unlisted subsidiaries incorporated in India.

3. Compliance Timelines

   Entities must comply with core governance norms within six months of crossing the Rs. 1,000 crore threshold. Provisions relating to directorship limits and committee formations must be implemented within six months of the notification date or by the next AGM, whichever is later.

4. Other Noteworthy Changes

   Small and Medium Enterprises (‘SMEs’) listed on SME exchanges must comply with RPT norms (applicable when the transaction value exceeds Rs. 50 crore or 10% of annual turnover) within six months of crossing capital/net worth thresholds. The business responsibility and sustainability report (‘BRSR’) core assurance requirement now includes ‘assessment or assurance’ of specified sustainability parameters. During corporate insolvency resolution processes (‘CIRP’), governance responsibilities are transferred to the resolution professional (‘RP’) in accordance with the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

Implications for Market Participants

HVDLEs must immediately assess their status as of 31.03.2025 and initiate compliance measures, including revising board structures, committee charters, and policies (RPTs, whistleblower, risk management). Training for directors and managers on new obligations is essential. Ongoing requirements include submitting secretarial audits for material subsidiaries and quarterly disclosures of cyber breaches and material RPTs. Non-compliance risks SEBI penalties, such as fines or trading suspensions.

Conclusion

SEBI’s 2025 amendments mark a progressive step in strengthening India’s corporate debt market governance. The new norms enhance transparency, protect debenture holders, and align governance practices of debt-listed companies with those of equity-listed peers. Enhanced board independence, stricter oversight on related party transactions, and mandatory disclosure requirements are likely to improve market discipline and investor confidence.

At the same time, the widened compliance requirements may present operational challenges, especially for entities less familiar with equity-style governance structures. The need for board restructuring, policy revisions, and tighter subsidiary oversight may place additional compliance burdens.

However, SEBI has provided reasonable transitional timelines and materiality-based thresholds to ease the adjustment. Overall, while the transition may demand effort, these reforms are a step toward building a stronger, more transparent debt market in India and offer an encouraging foundation for sustainable and responsible corporate growth.

End Note

[i] Notification F. No. SEBI/LAD-NRO/GN/2025/239

Authored by Priyavansh Kaushik, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.