Clause 36 of the Equity Listing Agreement requires that a listed company shall promptly inform the Stock Exchange of the developments with respect to any dispute in conciliation proceedings, litigation, assessment, adjudication or arbitration to which it is a party or the outcome of which can reasonably be expected to have a material impact on its present or future operations or its profitability or financials. 

Additionally, by way of a guidance note issued in 2014, SEBI had clarified that the listed entity may consider the impact of such disclosure on legal/court proceedings while making the disclosures and make the disclosure accordingly. If, the listed entity is of the opinion that making any such disclosure is not in the interest of the listed entity, disclosure may be limited to the extent of stating the occurrence of the event.

In view of the above requirement, SEBI passed an order against New Delhi Television Ltd. (“Issuer”) for nondisclosure of material information to the stock exchanges and also imposed a monetary penalty. The issuer had failed to disclose a tax demand of ` 4500 million raised by the income-tax department to the exchanges. The issuer contended that the disclosure requirements are limited to only those litigation or disputes which materially affect the operations, profitability or financials of the company and the said demand by the taxman was not disclosed because the demand lacked merit in law. The issuer relied on professional advice and on the basis of bona-fide and reasonable belief, it did not make disclosure.

SEBI however took the view that since the amount demanded by the taxman was greater than the revenue of the company and significantly larger than its net profit and also greater than its net worth, the issuer should have treated the information as material and accordingly, disclosed the same to the stock exchanges.


VA View

Clause 36 gives flexibility to the listed company to determine events/information, which in its opinion is material. However, in the present case since amount of the income tax demand was more than the revenue of the company and substantially more than its net profit SEBI held that information was material in nature and should have been disclosed.