BRSR Disclosure Dilemma:

Personal unethical conduct of a Board Member, unrelated to the company, may not be disclosed in statutory filings such as BRSR. When I raised this dilemma in WhatsApp groups and emails, only a few responded. I received Dr. Kiran Paradkar's Dr. Kiran Paradkar response via email. Thank you, Kiran."

1) BRSR Disclosure Dilemma:

A director of the listed entity was arrested by the Enforcement Directorate (ED) and subsequently turned approver. The company may interpret this event as external to its operations, with the director's actions having no material impact on the company. Consequently, the company may opt not to disclose this event in its Business Responsibility and Sustainability Reporting (BRSR), as many instances of fraud or corruption mentioned in Section P1 typically emphasise matters "about the company." Additionally, the reasons leading to the ED's action may not directly involve corruption or bribery within the company or involving the company.

As per the BRSR guidelines, specifically P1 item 2, it explicitly requires disclosure of details regarding fines, penalties, punishments, awards, compounding fees, or settlement amounts paid in proceedings, whether by the entity itself or by its directors/key management personnel (KMPs), with regulators, law enforcement agencies, or judicial institutions during the financial year. This requirement is outlined in accordance with Regulation 30 of SEBI (Listing Obligations and Disclosure Obligations) Regulations, 2015, and is subject to materiality considerations as specified in the regulation and as disclosed on the entity's website.

However, there is an escape route : Regulation 30 of SEBI, under serial number 22 and its sub-paragraph to Schedule 19, stipulates actions initiated or orders passed by regulatory, statutory, enforcement authorities, or judicial bodies against the listed entity, its directors, KMPs, senior management, promoter, or subsidiaries. However, these actions must be disclosed ONLY IN RELATION TO THE ENTITY.

Therefore, it is apparent that unethical behaviour and subsequent arrest of a company director won’t fall under the BRSR's requirements ????

2) Response from Dr. Kiran Paradkar

The company may not disclose this in the light of the following considerations:

External Event:?The company might see this as an external event with no material impact on its operations the director's actions are personal and external to the company's operations.

No Material Impact:?If the director's actions haven't demonstrably impacted the company's finances, reputation, or operations, they might downplay the need for disclosure.

SEBI Regulation 30 (22):?This regulation suggests disclosure is only required for actions "concerning the entity," clearly this one escape?route.

The company may go ahead and disclose this in their BRSR Disclosure:

SEBI Regulation 30 (1):?This regulation requires disclosure of fines or penalties paid by directors, potentially including situations like this.

Materiality:?Even if not directly financial, the director's arrest could damage the company's reputation and investor confidence, making it material.

Transparency and Trust:?Disclosing the event, even if the director turned approver, demonstrates transparency and a commitment to good governance.

The company should also consider the following:

Assess Materiality:?Evaluate the potential impact of the arrest on the company's reputation, operations, or investor confidence.

Consider Stakeholders:?Evaluate how stakeholders (investors, employees, customers) might perceive the situation.

Consult Legal Counsel:?Seek advice from a lawyer specializing in corporate governance and BRSR reporting to navigate the disclosure requirements.

Alternatively, the company may Partially disclose without a detailed explanation about the issue, and in case there is no disclosure the company may clearly explain why it is not material to the organizational boundary when enquired about.

Also, we must appreciate:

BRSRs promote transparency and good governance. Disclosing the arrest, even partially, might reflect a more responsible approach.

SEBI regulations are evolving, so staying updated on disclosure requirements will be crucial.

The answer to this question is not simple, however, the organization should Carefully weigh the arguments, assess materiality, and consider seeking legal counsel. While the director's actions might come across as an external incident, outside the material boundary of the organization, the potential impact this issue may create going forward on the company should be a key factor in the disclosure decision.