Regulation 6(1) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI LODR Regulations”), requires every listed entity to appoint a company secretary as a compliance officer. The responsibilities of such an officer includes, among other things, ensuring compliance with regulations, coordinating with relevant authorities, verifying accuracy of submissions, and overseeing grievance redressal mechanisms. On April 1, 2025, the Securities and Exchange Board of India (“SEBI”) released a clarification[1] on the position of the compliance officer in terms of Regulation 6 of the SEBI LODR.[2]
Following an amendment notified on December 12, 2024 (“2024 Third Amendment”), the inserted regulation stipulates that the compliance officer:
- be in whole-time employment of the listed entity;
- be not more than one level below the board of directors (“Board”); and
- be designated as a Key Managerial Personnel (“KMP”).[3]
While the requirements of full-time employment and KMP designation were largely established under Section 203 of the Companies Act, 2013 (the “Act”), the reference to “one level below the board of directors” introduced ambiguity due to variations in internal hierarchies and reporting frameworks across companies.
To address this confusion, SEBI issued a circular on April 1, 2025, clarifying that the term “level” refers to a person’s structural position in the organisation, and not merely their reporting relationship. The phrase “one level below the Board” means one level below the Managing Director (“MD”) or Whole-Time Director(s) (“WTD”) who are members of the Board. In the absence of such designations, it refers to one level below the Chief Executive Officer (“CEO”), Manager, or any individual overseeing the day-to-day affairs of the company.[4] SEBI reiterated the interpretation in two informal guidances issued on April 3, 2025, to DCB Bank Limited and Pakka Limited, emphasising that compliance with the amended regulation requires a structural positioning.
DCB Bank had sought clarification on (i) the position of the compliance officer and (ii) whether adjustments to the organisations grade hierarchy/reporting structure are necessary, given that their compliance officer was placed at level five below the Board even though the person reported to the MD. SEBI clarified that this did not satisfy the requirement under the newly amended Regulation 6(1) of the SEBI LODR Regulations since functional reporting alone was insufficient.[5]
Similarly, Pakka Limited, sought clarity on whether functional reporting to the Board/MD and administratively to the CFO would be sufficient compliance under the amended Regulation 6(1). The company also wanted to clarify that if such reporting was insufficient compliance, whether it would suffice to only change the compliance officer’s reporting to the MD and let the person’s designation remain the same. SEBI clarified that if the compliance officer’s designation was within Band B (below Band C, the senior-most band), it would be a violation of the regulation..[6]
This clarification draws a clear distinction between “organisational level” and “reporting level”. Even where a compliance officer reports functionally to the Board or MD, it is not sufficient unless the person also occupies the appropriate grade or band within the internal hierarchy. This regulatory approach aligns with the usage of similar terminology elsewhere in the Act. For instance, Section 2(51) of the Act, defines a KMP as a person not more than one level below the whole-time director. Likewise, Regulation 16(1)(d) of the SEBI LODR Regulations refers to officers “one level below” the CEO or MD as part of senior management.
In contrast, terms like “level” or “reporting” are used in provisions governing the duties of compliance officers and others, including under Regulation 6(2)(b) of the SEBI LODR Regulations and the SEBI (Prohibition of Insider Trading) Regulations, 2015. The terms are distinctly employed under varying contexts. When a statute utilises two separate terms, it must be presumed, prima facie, that they are intended to convey distinct meanings. “Level” determines the position within the formal hierarchy, whereas “reporting” addresses accountability.[7] The two are not interchangeable.
The rationale behind this regulatory change stems from recommendations made by SEBI’s Expert Committee, which was constituted on August 24, 2023, to advise SEBI on reviewing the SEBI LODR Regulations and the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR”), to facilitate ease of doing business and harmonise the SEBI LODR Regulations and SEBI ICDR. This provision aims to guarantee that the compliance officer’s sufficient authority and access to key decision-makers at the Board level. The Expert Committee observed that although compliance officers carry significant statutory obligations, such as ensuring conformity with regulatory laws and advising the Board on governance, many were positioned two or more levels below the Board and reported to other KMPs, such as the CFO or legal head, entailing a dual reporting structure of sorts.[8] This could essentially lead to role dilution and potential conflicts of interest.
Furthermore, on the basis of suggestions from stakeholders, the Expert Committee acknowledged that merely including a company secretary in the definition of “senior management” may not necessarily empower them to advise the management on legal compliance. This structural misalignment was seen to limit the officer’s ability to discharge responsibilities independently. To mitigate the potential risk of the company secretary being influenced by other senior management personnel or promoters, the Expert Committee proposed positioning the company secretary directly below the CEO, MD, WTD, or manager (as applicable within the organisation’s hierarchy). This adjustment would grant the company secretary sufficient authority to independently counsel the management on legal matters and ensure adherence to the law.[9] Based on these observations, the Expert Committee recommended clear requirements, which SEBI adopted through the 2024 Third Amendment.
The amended Regulation 6(1), along with SEBI’s subsequent guidance, establishes that the hierarchical positioning of the compliance officer is a critical element of corporate governance. The distinction between “level” and “reporting” is not merely technical—it directly impacts the officer’s capacity to function with authority and independence. The dual reporting structure can dilute the independence of compliance officers, making them more susceptible to internal pressures from senior management. This undermines their ability to escalate issues directly to the Board or exercise objective oversight. By mandating that the compliance officers be placed one level below the Board, SEBI aims to ensure that the individual responsible for regulatory oversight is structurally empowered to fulfil statutory duties. For listed entities, compliance with this requirement involves not only reviewing designations and reporting lines but also ensuring that internal hierarchies align with the statutory responsibilities assigned to this role. The long-term impact could be stronger corporate governance and reduced regulatory risk for listed entities.
Listed companies must evaluate whether their compliance officers’ grades/designations need to be realigned—both administratively and in terms of reporting structure—to conform with the requirements of the 2024 Third Amendment read with the clarification issued on April 1, 2025.
For further information, please contact:
Bharath Reddy, Partner, Cyril Amarchand Mangaldas
bharath.reddy@cyrilshroff.com
[1] SEBI Circular No. SEBI/HO/CFD/PoD2/CIR/P/2025/47 dated April 1, 2025.
[2] The said provision was inserted vide Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Third Amendment Regulations), 2024 dated December 12, 2024.
[3] SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024, notified on December 12, 2024.
[4] SEBI Circular No. SEBI/HO/CFD/PoD2/CIR/P/2025/47 dated April 1, 2025.
[5] SEBI Informal Guidance Letter to DCB Bank Limited, dated April 3, 2025.
[6] SEBI Informal Guidance Letter to Pakka Limited, dated April 3, 2025.
[7] SEBI Informal Guidance Letters to DCB Bank Limited and Pakka Limited, dated April 3, 2025.
[8] SEBI Expert Committee Report on Recommendations For Facilitating Ease Of Doing Business And Harmonization Of The Provisions Of ICDR And LODR Regulations, para 30.4.
[9] SEBI Expert Committee Report on Recommendations For Facilitating Ease Of Doing Business And Harmonization Of The Provisions Of ICDR And LODR Regulations, para 30.2.
