Governance Meets Ground Reality: The HVDLE Threshold Revision by SEBI

CCL NLUO
Jun 19
8 min read

Authors: Snigdha Ghose & Tanay Hindocha

Fourth year law student at Gujarat National Law University, Gandhinagar

I. Introduction

Recently as of 27 March, 2025, the Securities and Exchange Board of India (“SEBI”) introduced a pivotal amendment to the Listing Obligations and Disclosure Requirements (“LODR”) Regulations, 2015, targeting High Value Debt Listed Entities (“HVDLEs”) in context of Regulation 15(1A). This was based upon recommendations and internal deliberations of a working group constituted in May 2023. This amendment aims to recalibrate the compliance expectations from debt-listed entities in response to India’s evolving corporate debt landscape.

The amendment in line with Regulations 15 to 27 of SEBI LODR and is a direct attempt to strike a balance by easing regulatory compliance for mid-sized issuers while simultaneously fortifying the governance norms for larger, more systemically relevant players in India’s capital markets. This is even more relevant in today’s time since the debt market, valued at $2.59 trillion in 2024, is a cornerstone of the country's financial system and a key player in Asia. The cut-off date for the value of principal of outstanding listed debt securities is March 31, 2025. By refining its approach, SEBI acknowledges both the need to support business ease and the increasing risks posed by the growing participation of debt investors, especially retail ones.

This blog decodes the revised framework and explores how SEBI’s move may reshape the governance structures of HVDLEs and strengthen transparency in the corporate bond ecosystem.

II. Decoding the Revised HVDLE Framework

A. Threshold Adjustment & Scope

The most headline-grabbing reform is the doubling of the HVDLE threshold from ₹500 crore to ₹1,000 crore. This shift is designed to reduce the regulatory burden on mid-sized companies that are less likely to pose systemic risks. By excluding them from Chapter V-A compliance, SEBI is enabling a more proportionate governance structure that does not overburden entities with limited investor exposure. According to the data presented in SEBI's Consultation Paper from October 31, 2024, there were approximately 166 pure debt listed entities with outstanding non-convertible debentures exceeding Rs. 500 crore. However, when considering the new, higher threshold of Rs. 1,000 crore, the number of pure debt listed entities drops to around 112. This direct comparison highlights the immediate regulatory impact — a reduction of about 54 entities. The intention behind this particular move is to relieve mid-sized companies of a heavy governance compliance burden as these companies are considered less risky.

However, this does not translate into a free pass. A crucial safeguard is the “once an HVDLE, always an HVDLE” clause: once an entity is classified as an HVDLE, it will continue to be governed by Chapter V-A requirements unless its outstanding listed debt remains below the ₹1,000 crore threshold for three consecutive financial years. The idea is to effectively ensure that companies cannot manipulate their debt issuance to frequently enter or exit the HVDLE status as per their own convenience to avoid stricter compliances.

B. Applicability Matrix

Another thing that SEBI incorporated is that it clarified which entities with listed equity and listed debt will continue to be governed under the main provisions. The new governance norms under Chapter V-A will primarily impact those entities with only listed debt. Importantly, it explicitly excludes certain types of issuers who are already subjected to specific industry norms, like:

Real Estate Investment Trusts ("REITs") and
Infrastructure Investment Trusts ("InvITs")

This bifurcated approach ensures that there is no possibility of any overlapping obligations while making sure that even the debt-heavy companies are subjected to robust oversight.

C. Transition Timeline

This feature is indeed an appreciated one whereby all the relevant entities which go beyond the ₹1,000 crore threshold are not expected to immediately comply with the provisions of Chapter V-A. In fact, they are granted a six-month window to align with such rules and norms.

In addition to that, SEBI also mandates that such entities start complying with quarterly reporting requirements from the third quarter post-classification. This phased transition allows companies to proactively monitor their debt levels and plan out the governance complications in advance accordingly by creating a disciplining effect.

III. Governance Overhaul Under Chapter V-A

A. Board Composition Dynamics

One of the standout sections of the amendment is the renewed emphasis on board composition. All HVDLEs must now ensure that at least 50% of their board comprises non-executive directors. The requirement of such directors in SEBI aims to ensure independence and objectivity in boardroom decisions. Previously, the mandate for separate NRC, SRC and RMC placed an onerous compliance burden on many HVDLEs, particularly those that are closely held and primarily debt-listed, lacking the extensive governance infrastructure common in equity-listed companies. By allowing the Board itself, or in the case of RMC, the Audit Committee, to discharge these functions, SEBI aims to alleviate this burden, enabling HVDLEs to optimize their governance structures without incurring disproportionate costs or administrative complexities. This move critically acknowledges that while robust oversight is essential, the means to achieve it can be flexible, ensuring that key governance functions are still performed, albeit through a more streamlined approach, rather than mandating a 'one-size-fits-all' committee structure that may not suit all HVDLEs. The idea is to curb management dominance and over-concentration of power in the hands of executives.

In addition to the above provision, SEBI is also mandating the inclusion of at least one woman director on the board. This is a critical step in aligning with global Environment, Social and Governance ("ESG") expectations.

B. Independence Requirements

In respect to the previous requirement, Chapter V-A is introducing a tiered approach for appointment of independent directors basis the role of the board chairperson.

Further, a soft age cap of 75 years is introduced for non-executive directors. Directors beyond this age may continue, but only with a special resolution which ensures that the shareholders have an active say in such appointments. This age ceiling not only promotes potentially young and diversified crowd with more tech-savvy individuals but also offers the power of overriding to the shareholders preserving their sanctity.

C. Committee Mandates

Now, another addition is the revamped framework which aims to institutionalize three key board committees:

Audit Committee,
Nomination and Remuneration Committee ("NRC"), and
Stakeholders Relationship Committee ("SRC")

Their inclusion in Chapter V-A brings functional depth to corporate governance in HVDLEs. The Audit committee can improve the risk management and financial oversight, the NRC can ensure transparency and the SRC can create accountability to bond-holders who often lack voting rights enjoyed by shareholders.

Furthermore, this framework has accounted for insolvency scenarios under the Insolvency and Bankruptcy Code (“IBC”), 2016. If a company enters corporate insolvency resolution, then in such cases, the Regulation 62D on Board of Directors is not applicable and the Interim Resolution Professional ("IRP") assumes the functions of the board, and the committee requirements temporarily cease to exist. This act allows SEBI to avoid regulatory duplication and ensure companies in distress aren’t caught in a web of compliances that need to be fulfilled. Overall, it is meant for furthering the robust and transparent corporate bond market of India.

D. Related Party Transactions (“RPTs”)

The recent amendment, particularly via new rules like Regulation 62K building on the intent of Regulation 62A, significantly tightens the rules for RPTs in HVDLEs. Essentially, if an HVDLE wants to do a big deal with a related party, they now need a special “no-objection” from their bondholders, through their debenture trustee. This means bondholders, who are often just passive investors, get a direct say in major decisions that could affect the company's financial health and, by extension, their investment. This extra layer of approval aims to better protect bondholders, especially since many HVDLEs are privately controlled, ensuring that deals benefit the company and its debt holders, not just controlling shareholders.

IV. Market Impact

The increase in the HVDLE threshold from ₹500 crore to ₹1,000 crore is expected to provide significant relief in the form of compliance for mid-sized issuers, especially those in infrastructure, energy, and manufacturing. Such issuers, who would otherwise have debt outstanding in very close proximity to the previous threshold, would now be able to raise capital through markets without complying with heightened corporate governance requirements immediately.

For the large issuers alone, the “once an HVDLE, always an HVDLE” rule will incentivize more forward-looking capital structure planning. Companies will try to stay below the threshold in the hopes of avoiding long-term compliance requirements, particularly in cyclically sensitive businesses. The six-month compliance period for newly qualifying HVDLEs is generally viewed as a fair provision, giving issuers adequate time to restructure their governance structures without disrupting current operations or financing activities.

The amended Chapter V-A governance standards—i.e., 50% non-executive directors, obligatory women directors, and tiered independent director requirements—brings the best practices in India in line with the likes of the EU's Sustainable Finance Disclosure Regulation. These reforms reduce information asymmetry and enhance creditor rights, notably for non-convertible debt investors who are anxious about principal protection. The framework complements RBI's project finance regulations with board-level responsibility in sectoral risk assessment to form a two-part control model. Institutional investors like pension funds now receive enhanced visibility of issuer governance to minimize default risks on high-value debt instruments.

The amendments are in line with the Companies Act, 2013, reducing duplicate compliance for existing companies. Exemptions of InvITs/REITs under their specific SEBI regulations reduce overlaps, and companies that are going through insolvency resolution ("CIRP") have carve-outs so that governance norms do not impede restructuring. SEBI's coordination with RBI on debt exposures of large size simplifies supervision for lender consortiums as well, encouraging harmonization between banking and capital markets conduits. Coordination is critical for public-private partnerships ("PPPs") in infrastructure, where hybrid financing structures dominate. Industry groups like the CII predict greater mid-sized issuer participation in bond markets, reducing reliance on bank loans for projects in the ₹500–1,000 crore size range. The reforms also underpin SEBI's 2025 plan to boost corporate debt liquidity, with the objective of reaching 20% higher bond issuance levels by 2026.

V. Critical Analysis

The recalibration of HVDLEs compliance thresholds reflects SEBI’s enthusiasm for calibrating regulator intensity with ground realities in the market. Although this move reduces compliance friction for mid-sized issuers, it arguably creates a regulatory blind spot for those entities who still retain large public debt but fall outside the tightened governance umbrella. This trend is a source of concern from the investor protection and systemic risk perspective, especially in the context of past precedents where mid-tier entities have been the source of market instability. The heightened board composition standards for HVDLEs, particularly in terms of independence and gender diversity, are a welcome move towards enhanced governance. However, the lack of independent directors qualified in India may lead to compliance-driven versus actual oversight appointments. The age limit imposed on non-executive directors runs the risk of dilution of valuable institutional memory, especially in industries where experience is of paramount importance. SEBI's three-year lock-in on compliance for entities below the HVDLE threshold is a judicious safeguard against regulatory arbitrage.

The phased introduction of governance norms to small and medium-sized enterprise (SME)-listed entities reflects a sympathetic understanding of their special issues. However, the materiality thresholds specified for related-party transactions may not be able to effectively distinguish between capital-intensive and services-oriented SMEs and may hence lead to either over-regulation or regulatory lacunae. The provision for either “assessment or assurance” in the case of BRSR Core parameters brings in flexibility; however, this eats into the reliability and comparability of sustainability disclosures. This may hamper investor confidence and India's alignment with global ESG norms.

The brief transition window and retrospective effect may strain issuer resources, particularly for those who are not prepared for immediate compliance. This may result in rushed board replacements and procedural errors, negating the reform purpose. The new thresholds may prompt issuers to structure debt slightly below regulatory levels, which may result in fragmented issuances and reduced transparency in the market. These effects would be as seen in other jurisdictions as well and distort the desired regulatory impacts.

VI. Conclusion

The amendments are a milestone in ensuring regulatory efficacy while balancing market realities. Raising the threshold for HVDLE simplifies compliance for medium-sized issuers and can improve market participation but leaves a regulatory gap for organizations below the threshold, affecting investor protection. The enhanced board composition and independence requirements are forward-looking, but India's thin talent pool of qualified independent directors can cause cosmetic compliance. Three-year lock-in for compliance and phased SME governance requirements are cautious but can disproportionately affect shrinking or capital-intensive organizations. Flexibility in sustainability reporting, although business-oriented, can compromise disclosure reliability.

In the years to come, SEBI will need to monitor the effectiveness of these reforms at periodic intervals, step up director capability by way of specialized training, and better the SME-associated thresholds to be in line with sectoral realities. Improved monitoring and stakeholder involvement will be required in order to avoid regulatory arbitrage and ensure substantial compliance. By being participative and proactive, SEBI can improve governance, safeguard investors, and ensure sustainable development in India's debt markets.

Note: This article has been reviewed by Mr. Vinod Kothari (Managing Partner, Vinod Kothari and Company), at the Tier II Stage.