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September 1, 2021
Amendment to SEBI LODR regulations - MMJC
Securities and Exchange Board of India (SEBI) has vide its notification dated August 3, 2021 amended various provisions of SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations. All the below quoted amendments are coming into effect from January 1, 2022. Majority of these amendments are brought in pursuant to Discussion Paper on Independent Directors released by SEBI dt: March 1, 2021 (‘Discussion Paper’).
| Sr. No | Amendment relating to | Amended regulation | Existing Regulation |
| 1 | Criteria of Independence | Regulation 16(1)(b)(iv) pertaining to material pecuniary relationship: An individual who wants to get appointed as Independent Director shall not have material pecuniary relationship with listed entity, its holding, subsidiary or associate company, or their promoters, or directors in last three financial years. | Regulation 16(1)(b)(iv) pertaining to material pecuniary relationship: Currently an individual shall not have material pecuniary relationship for a period of two years prior to the being appointed as Independent Director. Thought behind it (Part of Discussion Paper): Brought in line with Regulation 16(1)(b)(iv)(A), i.e., three financial years in case of holding the position of KMP or employee. Impact/ Analysis: (I) Reg. 25(8) – Change in circumstances – Submit a declaration that he meets the criteria of independence as provided in Reg. 16 (1) (b) |
| Regulation 16(1)(b)(v): the term pecuniary relationship has been elaborated in detail and brought in line with companies act | Regulation 16(1)(b)(v): the term pecuniary relationship was not elaborated in detail. There was a difference in provisions of Companies Act and LODR. Thought behind it (Not part of Discussion Paper): Provision is brought in line with CA 2013. Impact/ Analysis: (A) Cap of Rs. 50 Lacs has been retained. | ||
| Regulation 16(1)(b)(vi): himself/herself or his relative is working as/or was working as employee or KMP If an individual or his relative is holding/has held position as an employee or Key managerial personnel in any of the company belonging to promoter group in last three financial years immediately preceding the financial years in which he is proposed to be appointed then an individual is ineligible for being appointed as Independent Director. It is further clarified by way of proviso that in case a relative is an employee (other than KMP) then the restrictions above shall not apply. | Regulation 16(1)(b)(vi): himself/herself or his relative is working as/or was working as employee or KMP Till now an individual himself/herself or his relative is working as/or was working as employee or KMP in listed entity or its holding, subsidiary or associate company was not allowed to act as Independent Director. Thought behind it (Part of Discussion Paper): Brought in line with CA + Insertion of Promoter Group Impact/ Analysis: (I) Relative of ID can be employee but he cannot be KMP. (II) CA 2013 does not include a criteria of promoter group company. | ||
| 2 | Regulation 17: Appointment of Directors | Regulation 17(1C): Listed entity will have to ensure that approval of shareholders for appointment of director is taken within three months from date of appointment or at next general meeting whichever is earlier. | No such regulation in LODR earlier. As per Section 161(1) of Companies Act 2013 a person appointed as Additional Director can hold office until the next annual general meeting. Due to this provision now appointment will have to approved by members either within three months or general meeting whichever is earlier. Thought behind it (Part of Discussion Paper): In the past where the shareholders have rejected the appointment of IDs while these IDs had served on the Board for few months. Reduction/ elimination of this gap may give more say to shareholders in the appointment process Impact/ Analysis: (I) Additional Director concept will be short lived for 3 months (II) This provision is applicable for all Directors although the Discussion Paper mentioned only about IDs. |
| 3 | Regulation 18(1)(b): Audit Committee | Audit Committee shall have minimum two third of members as Independent Directors | Till now, it was mentioned as two third shall be Independent Directors. But with this amendment it is now changed as minimum two third shall be Independent Director, i.e., it is a change from prescribed composition to minimum composition requirement. Thought behind it (Part of Discussion Paper): To increase the participation of Independent Directors Impact/ Analysis: (I) Audit Committee shall now have minimum of 2/3rd as Independent Directors. |
| 4 | Regulation 19(1)(c): Nomination and Remuneration Committee | NRC shall now have atleast two third of its members as Independent Directors | Till now minimum 50% of members shall be considered as Independent Directors Thought behind it (Not Part of Discussion Paper): To increase the participation of Independent Directors Impact/ Analysis: (I) NRC shall now have minimum of 2/3rd as Independent Directors. |
| 5 | Regulation 23(2): Related Party Transactions | Related party transactions shall be approved by Independent Directors only. | Till now Related Party Transactions were to be approved by Audit Committee in totality. Thought behind it (Not Part of Discussion Paper): To give complete independence at the time of decision making on RPT Impact/ Analysis: (I) Only IDs can vote on this subject matter (A) No restriction on participation by Non Independent Director |
| 6 | Regulation 25(2A): Appointment of Independent Director | Appointment, re-appointment and removal of Independent Director has to be done by way of Special Resolution only. | No such provision currently under LODR. Thought behind it (Part of Discussion Paper): Promoter participation of non-Promoter shareholders Impact/ Analysis: (I) Going forward, Appointment and removal of IDs would require approval of shareholders by way of SR (Care to be taken of Proxy advisors) (II) Concept of dual approval which was proposed in discussion paper has been dropped. |
| 7 | Regulation 25(6): Casual Vacancy in office of Independent Director | Casual vacancy in the officer of Independent Director has to be filled up within a period of three months. | Till now casual vacancy was to be filled up at immediate next board meeting or three months whichever is later. Now it has to be filled up within a period of three months. Companies need to have a float of Independent Directors so that it does not have to spend time in finding right candidate and consequently breach Regulation 25(6). Thought behind it (Part of Discussion Paper): Aligning with CA 2013 (to a certain extent) Impact/ Analysis: (A) Have a float of IDs |
| 8 | Regulation 25(10): Directors and Officers Liability Insurance | Top 1000 companies as per market capitalization as on March 31, 2021 shall have to take up Directors and Officers Liability Insurance by January 1, 2022. This will have to be taken by companies as a part of next board meeting agenda. | Till now Directors and Officers Liability Insurance had to be taken by top 500 companies. This amendment was not a part of Discussion Paper. It has been brought in pursuant to take forward recommendations of Kotak Committee on Corporate Governance released in 2018. |
| 9 | Regulation 25(11): Condition for re-appointment of Independent Director | If an Independent Directors has resigned from a listed entity he shall not be appointed as Executive / whole time director on the board of the listed entity its holding, subsidiary or associate company or on the board of company belonging to promoter group for a period of one year. | No such provisions till now Thought behind it (Part of Discussion Paper): Discourage practices like ID leaving citing improper reason and joining other boards or taking up executive position in the group. Impact/ Analysis: (I) ID cannot be appointed in the same group as ED/ WTD for a period of 1 year from resignation (II) IDs can join other Boards |
| 10 | Regulation 36(3)(d): Details of companies from where ID has resigned in last three years | In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with details of listed companies from which the persons has resigned in the past three years | Till now no such provision Thought behind it (Not part of Discussion Paper): Increase in disclosures/ transparency Impact/ Analysis: (I) List of listed cos. from which the new Director/proposed appointee has resigned in last three years needs to be provided in the notice of general meeting where the new director/proposed appointee is being considered for appointment as a director (including appointment by way of retirement by rotation) |
| 11 | Regulation 36(3)(f): Disclosure regarding Skills and capabilities of ID | At the time of appointment of Independent Director the skills and capabilities required for the role for which appointment is proposed and the manner in which the proposed appointee meets such requirements shall be disclosed to members of company | Till now no such provision. Thought behind it (Part of Discussion Paper): Increase in disclosures/ transparency will help members take decisions on appointment of Independent Directors. Impact/ Analysis: (I) In addition to ‘what’ and ‘who’; now disclosure required is ‘HOW’ |
| 12 | Schedule II, Part D: Role of Committees other than Audit Committee. Part A: Role of Nomination and Remuneration Committee: Enhanced role of NRC and disclosure in this regard | Nomination and Remuneration Committee shall evaluate balance of skills, knowledge and experience currently the Board of Directors of company has On the basis of such evaluation prepare a description of role and responsibilities required of an Independent Director Person recommended to Board shall have the capability identified in such description. | There was a requirement to do evaluation of Independent Director being appointed and how he would fit in the new role. But now the detailed process as to how it was done needs to be disclosed. NRC needs to evaluate skills, knowledge and experience available on board. On the basis of such evaluation prepare a description of role and capabilities required of an ID. Thought behind it (Part of Discussion Paper): Strengthening the process of appointment of ID Impact/ Analysis: (I) Appointment process to be strengthened |
| 13 | Schedule III, Part A: Disclosures of Events or Information: Specified Securities Para A, Clause 7B: Resignation of Independent Director | Resignation letter of Independent Director shall be submitted to stock exchange. Also the names of listed entities where the resigning director holds directorships indicating the category of directorships and membership of board committees, if any shall also be disclosed | There was no such requirement for disclosure of resignation letter till now but many companies were doing it voluntarily. Thought behind it (Part of Discussion Paper): Increase in disclosures/ transparency revolving IDs resignation and appointment Impact/ Analysis: (I) Resignation letter and the listed entities where ID is Director also would now be part of disclosure (II) Since, appointment of IDs would warrant approval of shareholders approval by special resolution, disclosures like resignation letter, list of cos. Where ID was Director in last 3 years would give enough tools to Proxy advisors/ Institutional investors for decision making |