Mumbai: The Securities and Exchange Board of India (Sebi) on Wednesday strengthened norms to enable stock exchanges to punish companies with heavier penalties if they are found non-compliant with listing and governance norms.

According to experts this is to stem the criticism that while Sebi had rules, its track record in passing orders in case of non-compliance with listing norms was poor. Sebi’s new framework is more stringent, compared with rules laid out in Companies Act. For instance, in case of non-constitution of panels that deal with issues such as audits, nomination and remuneration, the Companies Act calls for a minimum fine of Rs1 lakh, which can go up to Rs5 lakh. Now, exchanges have been given powers to freeze promoter holding.

This is also a departure from the earlier Sebi penalty structures which were more relaxed, compared with the norms laid out in Companies Act 2013.

With the revised framework, exchanges will now have powers to not only freeze entire promoter holding but also suspend trading in the stock in case of repeated non-compliance, said Sebi in the statement. “The revised framework is expected to promote a better compliance culture, apart from putting in place an appropriate system for effective enforcement of continuous compliance of requirements by listed companies and their promoter/ promoter group," said Sebi in the press statement.

“The stock exchanges monitor compliance with the listing norms. So it is only appropriate that they be given the power to penalise companies for non-compliance," said Amit Tandon, chief executive at proxy advisory firm Institutional Investors Advisory Services (IiAS).

The new framework will enable the exchanges to levy penalties freezing promoter holding in case the companies are not complying with the conditions of board composition such as having one women director. If a company’s risk management and audit committees do not have independent members then too the exchanges have been enabled to act.

Non-compliance on matters such as timely dissemination of corporate governance compliance report, financial results and voting results could result in suspension.

“Sebi always had prescribed enough rules but there was not enough deterrent in terms of punishment. For the first time the exchanges have been given powers to freeze promoter holding which will hurt the promoter and not the company and its investors," said JN Gupta, co-founder and managing director of Stakeholder Empowerment Services, a proxy advisory firm.

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