JSW: When Should Investors Get Their First Information Report on Key Events?
Updated at 7pm on 18 December 2023 to include clarification submitted by JSW Steel to exchanges

JSW Steel Ltd is the 34th most valuable company listed on our bourses. The chairman and managing director (CMD) of the company is the subject of a first information report (FIR) lodged at the Bandra Kurla Complex (BKC) police station in Mumbai, a matter widely reported in the media.
 
It appears that the complainant concerned had unsuccessfully tried to file an FIR for many months and had approached the high court (HC) of Bombay, under whose directions the FIR was registered on 13 December 2023.
 
Was the company obliged to disclose the matter at any time before the actual lodging of the FIR, or at least when the matter went to the Bombay HC?
 
Though five days have lapsed since the lodging of the FIR, no official filing by the company is seen.
 
Regulation 30 of the Securities and Exchange Board of India (SEBI) listing obligations and disclosure requirements (LODR) directives cover the disclosure of events or information- 
 
30.   (1) Every listed entity shall make disclosures of any events or information which, in the opinion of the board of directors of the listed company, is material.
 
The regulation requires companies to have a policy on the disclosure of such events. JSW Steel has a policy termed as version 1.02 of ‘Policy for determination of materiality or events’. This is said to be effective from 21 July 2023.
 
The relevant part of the policy is extracted below for ease of reference-
 
 
One of the criteria for assessing if an event is material and is linked to the effect on the market price of the shares by more than 10%. It is not an easy aspect for any board to judge with any level of precision if a particular event may impact the market price of the share by more than 10%. 
 
Going by the latest available market data, JSW Steel commands a market-cap in excess of Rs2trn (trillion).
 
While the market-cap of the company places it at 34th in the list of BSE200, the 10% figure alone will fit it around serial no 196!
 
The import of this is that even if only 10% of the market-cap of JSW Steel gets wiped out, that will be more than the 100% market cap of all but 195 listed entities in the country!
 
How about the most valuable company which has a market-cap of Rs17tn, fixing even a 5% threshold? That 5% figure alone would fix that number at around 75th on the list!
 
A fit topic for the regulators to ponder if such thresholds are sensible and protect the common investors who buy and sell largely based on general market sentiment and mostly sell in a panic.
 
Effective 15 July 2023, SEBI issued detailed guidance on the aspect of disclosure of material events which has triggered disclosures of many important issues that were hitherto kept out of the ken of the common investors.
 
Para 8 of the said guidance deals with litigation-related aspects that may be more relevant in the context of the FIR. It is extracted below-
 
‘Pendency of any litigation(s) or dispute(s) or the outcome thereof which may have an impact on the listed entity: The listed entity shall notify the stock exchange(s) upon it or its director or its key management personnel or its senior management or its promoter or its subsidiary becoming party to any litigation, assessment, adjudication, arbitration or dispute in conciliation proceedings or upon institution of any litigation, assessment, adjudication, arbitration or dispute including any ad-interim or interim orders passed against or in favour of the listed entity, the outcome of which can reasonably be expected to have an impact. In case the amount involved in ongoing litigations or disputes with an opposing party become material on a cumulative basis, then the same shall also be required to be disclosed to the stock exchange(s).
 
8.1. At the time of becoming the party: a) brief details of litigation viz. name(s) of the opposing party, court/ tribunal/agency where litigation is filed, brief details of dispute/litigation; b) expected financial implications, if any, due to compensation, penalty etc.; c) quantum of claims, if any;
 
8.2. Regularly till the litigation is concluded or dispute is resolved: a) the details of any change in the status and / or any development in relation to such proceedings; Page 16 of 25 b) in the case of litigation against key management personnel or its promoter or ultimate person in control, regularly provide details of any change in the status and / or any development in relation to such proceedings; c) in the event of settlement of the proceedings, details of such settlement including - terms of the settlement, compensation/penalty paid (if any) and impact of such settlement on the financial position of the listed entity
 
The reading of the above leaves one in little doubt that the guidance is quite wide and covers litigation against directors/ key management personnel, etc.
 
The question that may be technically raised is whether every allegation against a covered person would fall within this clause. Lawyers, depending on who pays the fees, may have contrasting views!
 
Even assuming a hyper-technical view that a litigation springs only when a court takes cognizance of a matter, from a good governance perspective, can a board work with dubious or contentious legal opinions?
 
The reluctance of boards to act on and disclose touchy subjects did surface in the recent case of Raymonds. The proxy advisors wrote to the board on this.
 
It was also relevant in the case of Hero MotoCorp where the chairman has been charged by the regulators of personally profiting in related party transactions. There was no noise from the proxy firms in this case. They also have their choices in such matters!
 
The high-profile board of JSW Steel is in some sort of a pickle. If they have sat on an undisclosed matter for so long, it is one kind of an irritant.
 
Much worse is if the chairman failed to disclose such a serious matter, before it came on the TV. Any self-respecting director would feel mortified and betrayed by such behaviour and, despite bounteous board fees, would find it irksome to continue.
 
Parallelly, the statutory auditors, SRBC &Co LLP, may find themselves in a dilemma of balancing the client continuance norms and the size of the audit fees.
 
A connected issue to touch upon is that often critical disclosures are made in a language that says little and the material documents are not attached. In this case, the FIR being critical should ideally be attached as and when the disclosure is made.
 
The exchanges also seem to cooperate in high-profile cases to unstitch inconvenient documents. The below image is a dreaded one to see while studiously searching for information! 
 
 
Footnote: The stock of JSW Steel has hardly budged today. The bulls on the rampage see little hurdles in FIRs!
 
UPDATE:
On 18 December 2023 at 6:25pm, JSW Steel issued a clarification on a news item that appeared in the media.

It says, "We confirm that the said article has no material impact on the Company or its operations. The Company has been complying with the provisions of the SEBI LODR and making requisite disclosures whenever required and will continue to do so."

JSW Steel says it understands Mr Jindal released the following statement in his personal capacity to the media denying the allegations: “Mr Sajjan Jindal denies these false and baseless allegations. He is committed to providing full cooperation throughout the investigation. As the investigation is ongoing, we will refrain from commenting further at this stage. We kindly request you to respect the privacy of the family”. 
 
(Ranganathan V is a CA and CS. He has over 43 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
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