It is ironical that when a company first raises money through an IPO, or even subsequently, Sebi wants it to make all manner of disclosures, but once this is done, the level of information made public becomes much lower. More importantly, there is no checking of the disclosure when it is made to stock exchanges on a routine basis. According to a recent number put out by Sebi, as many as 1,100 corporates were found to be non-compliant when it came to disclosure. Which is why Sebi has done the right thing by telling stock exchanges that the onus of ensuring disclosure, and checking this, lies with them. So, if a company has told a television channel, for instance, that it is on the verge of getting a big order or is making provisions for some part of the orders turning bad, the stock exchange needs to see if the disclosure has first been made on it. Of course, what is tricky here is to determine what is ‘material’ and so needs to be disclosed to exchanges first. Given its qualitative nature, more clarity on this will only emerge over a period of time when there is enough case law on it—rulings by Sebi on erring companies and their disposal by the courts including the appellate tribunal.
In the longer run, Sebi needs to move to what it has been talking of for a while—continuous disclosure. That, in keeping with the disclosure made at the time of an IPO, companies have to keep filing information with stock exchanges, whether this relates to clause 49 or clause 35 or other forms of disclosure like, for instance, tax investigations or notices or any form of litigation. Not paying interest dues or salaries on time, similarly, or getting wilful defaulter notices from banks, among others, are all signs of trouble in a company, and shareholders have a right to know about these from sources other than stray newspaper/TV reports. Once continuous disclosure becomes a matter of routine, the current practice of a listed company issuing a detailed prospectus each time it wants to raise money also becomes irrelevant since all disclosures are already out there in the public domain.