Disclosure Norms and Penalties — the ground floor

Why this chapter exists

A donor who gives money through a Social Stock Exchange (SSE) cannot walk into the village and see the work. So the rules make the organisation tell them. This chapter is the list of what must be told, when, and to whom.

Keep one picture in mind. There are two kinds of Social Enterprise (SE):

• Not for Profit Organisations (NPOs) — trusts, societies, Section 8 companies.
• For Profit Enterprises (FPEs) — businesses with a social purpose.

Both must disclose social impact reports. These cover things like strategic intent, planning, approach and an impact scorecard. On top of that, NPOs that are registered or listed on an SSE must disclose on general, governance and financial aspects.

The rules come from two SEBI regulations:

Part 1 — Before raising money: the ICDR minimum disclosures

An NPO raising funds through ZCZP instruments falls under Regulation 292K of the ICDR Regulations. The procedure and conditions for the public issue are as specified by SEBI. The SSE must make sure the offer documents carry these minimum disclosures:

That is eleven heads. You do not need to recite them in order, but you must be able to place a detail under the right head. "Address for visits" is Operations, not Governance. "FCRA certificate" is Credibility, not Compliance.

Part 2 — After listing: the LODR disclosures

For Profit Enterprises — Regulation 91(B)

An FPE whose designated securities are listed on a stock exchange follows the same disclosure rules as any other listed issuer in its segment — the Main Board, the SME Exchange or the Innovators Growth Platform. There is no separate, lighter rulebook for being "social".

Not for Profit Organisations — Regulation 91(C)

An NPO registered on an SSE — including one whose designated securities are listed — must make annual disclosures on two tracks:

The SSE may also specify matters to be disclosed annually, within 60 days from the end of the financial year:

General aspects (60-day set)

• Name of the organisation (legal and popular name)
• Location of headquarters and of operations
• Vision / Mission / Purpose
• Organisational goals, activities, products and services
• Scale of operations (including employee and volunteer strength)

Governance aspects (60-day set)

• Ownership and legal form
• Governance structure (board and management committees, mandates, charters, policies, internal controls)
• Details of the governing body, including member names
• Executives with key responsibilities
• Number of meetings of the governing body and committees, attendance, and the performance review process
• Organisation-level potential risks and mitigation plan
• Mechanisms for advice and concerns about ethics, conflict of interest and other critical concerns
• Remuneration policies
• Stakeholder grievances — the process, and the number received and resolved
• Registration certificate and other licences (12A, 80G, FCRA, GST, etc.)

Then a second set, due by October 31st or the income tax return due date, whichever is later:

A guidance note on these is in Annexure I of SEBI's Framework on Social Stock Exchange, and the SSE may specify additional parameters.

The four reporting forms

The SSEs use these formats:

Easy way to hold it: 1 = the organisation, 2 = the SE's own impact report, 3 = the assessor's report on it.

Part 3 — Material events: Regulation 91(D)

A Social Enterprise whose designated securities are listed must:

1. Frame a policy for determining materiality, approved by its board or management, and disclose it on the exchange.
2. Authorise one or more Key Managerial Personnel (KMP) to decide materiality and make disclosures — and disclose their contact details.
3. Disclose any event that may have a material impact on the planned achievement of outputs or outcomes.
4. Make that disclosure as soon as reasonably possible, but not later than seven days from the event (or any period SEBI specifies). It must include the details, the potential impact and the steps being taken.
5. Give regular updates with explanations till the event remains material.
6. Give specific and adequate replies to exchange queries. The exchange then disseminates the information as soon as reasonably practicable.
7. It may suo moto confirm or deny any reported event or information.
8. Put all such disclosures on its website.

Part 4 — The Annual Impact Report: Regulation 91E

This is the heart of the chapter for an assessor.

A Social Enterprise that is registered with, or has raised funds through, an SSE must submit an annual impact report in the format SEBI specifies. Who checks it depends on the project:

The report must cover at least 67% of the programme expenditure in the previous financial year.

How long can an NPO stay registered without raising funds?

Here the workbook says two things, and you should know both:

• The regulation text: an NPO registered on an SSE may not raise funds through it for a maximum period of two years from registration, or such duration as SEBI specifies. After that, it must have at least one listed project, failing which it ceases to be registered.
• The footnote: SEBI has clarified that this two-year period may be extended by one additional year, subject to approval by the Social Stock Exchange.

So the base period is two years, and the workbook also records a possible one-year extension with SSE approval.

The AIR in detail

For every SE that has registered or raised funds using an SSE:

1. SEs that raised funds must give a duly assessed Annual Impact Report (AIR) by October 31st or the income tax return due date, whichever is later.
2. The AIR captures qualitative and quantitative aspects of the impact — of the entity, and where applicable of the project funded through the SSE.
3. An NPO registered without listing any security files a self-reported AIR covering its significant activities. It must explain the methodology for deciding what is significant. Anything covered under a listed security automatically counts as significant. Coverage: 67% of programme expenditure of the previous financial year.
4. A Social Impact Fund whose investees or grantees use the SSE must disclose an overall AIR for the fund, covering all organisations where it is deployed.
5. At a minimum, the AIR covers three sections (below).
6. The SSE may add parameters.
7. The AIR is assessed by Social Impact Assessors, and the SE must disclose the assessor's report along with the AIR.

The three sections of the AIR

Watch one wording carefully. "How is the organisation attending to the challenge?" sounds like Approach. The workbook places it under Strategic Intent and Planning. Its own sample question tests exactly this.

Part 5 — Where the money went: Regulation 91F

A listed NPO must submit a quarterly statement of utilisation to the SSE showing:

• category-wise amount raised
• category-wise amount utilised
• balance remaining unutilised

The unutilised amount must sit in a separate bank account, not co-mingled with other funds. The statements continue until the proceeds are fully utilised or the purpose is achieved.

Part 6 — Penalties under the SEBI Act, 1992

The SEBI Act empowers SEBI to impose penalties and start adjudication proceedings against intermediaries who default — for example by failing to furnish information or returns, or by any person failing to enter into an agreement with clients. The workbook says the penalties are specified by SEBI from time to time. It gives no penalty amounts in this chapter, so do not learn any from here.