Directorship Caps: Equity and High Value Debt Listed Entities - MMJC

Background

The Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) regulations, 2015 (‘SEBI LODR’) were amended with effect from 27^th March 2025, vide SEBI LODR amendment regulations 2025 [‘LODR amendment’]. LODR amendment revamped provisions relating to High Value Debt Listed Entities (‘HVDLE’). HVDLE is an entity which has principal value of listed non-convertible debt securities exceeding 1000 crore.

LODR amendment made changes to clause (a) to sub-regulation (1) of regulation 26 of SEBI LODR. Clause (a) to sub-regulation (1) of regulation 26 provides for number of committees positions a director may occupy as a chairman or member. It also provides types of companies that must be taken into consideration where a director can occupy committee positions.

LODR amendment has notified change to the types of companies where a director may occupy position as chairman or committee member.

Prior to LODR amendment (i.e. till March 26, 2025) director occupying committee positions in HVDLE either as a chairman or committee member was excluded while ascertaining number of committees and chairmanships a director may occupy. Vide LODR amendment now the HVDLE have been excluded from this list of companies whose committee chairmanship and membership are to be excluded while calculating maximum limits[1].

Impact of amendment.

Since the name of HVDLE is removed from exclusion list, now the chairmanship and membership of committees in HVDLE shall also be included while counting the number of committee chairmanships and memberships held by a director in listed entities.

Although this is a simple change on face of it, there is one critical question in this regard that needs to be answered, and that is, clause (a), sub-regulation (1) of regulation 26 of SEBI LODR excludes committee chairmanship and memberships of private company but does not exclude committee memberships of HVDLEs.

Therefore, there arises a question that, if a private company is a HVDLE, then should we count the committee memberships held in such private company for calculating chairmanship held by directors?

Solution.

The answer to this question can be found in the consultation paper released by Department of Debt and Hybrid Securities, SEBI on October 31, 2024. In this consultation paper, the rationale for bringing this change is mentioned in following words:

“12.3.2. Directors play a crucial role in providing oversight and guidance on various committees (incl. ACs and SRCs) of these listed entities. Placing a cap on the total number of committees a director can serve on, irrespective of whether the entity is equity or debt listed (as both involves public money), helps prevent over commitment. This will ensure that directors can fulfil their responsibilities effectively without spreading themselves too thin by not providing adequate time across numerous committees. 

12.3.3. Accordingly, to ensure that directors devote adequate time to listed entities including HVDLEs and in the interest of investor protection, it is proposed that HVDLEs (along with equity listed companies) should be considered for the purpose of computing the maximum limit of committees, a director can act as a member or chairperson.[2]”

This purpose stated in the consultation paper clarifies that, the purpose of bringing this amendment does not relate to type of company, but it relates to involvement of public money in the company and therefore requirement of director’s involvement in the company.

Going by this purpose, it becomes irrelevant whether the HVDLE is a public company or a private company. The only point of consideration is that, whether public money is involved in the company or not? Even if a HVDLE is private company, but since public money is involved in the form of listed debt securities and attention from directors is expected in such private companies, such private HVDLEs should also be counted while counting committee memberships and chairmanships held by a director.

Conclusion.

Considering the purpose of bringing the amendment, it is most appropriate to include the committee chairmanships and memberships of private HVDLEs while counting the committee memberships held by directors in listed entities. As a result of this amendments the HVDLEs will be subject to some additional compliances

[1] (1) A director shall not be a member in more than ten committees or act as chairperson of more than five committees across all listed entities in which he 240[/she] is a director which shall be determined as follows:

(a) the limit of the committees on which a director may serve in all public limited companies, whether listed or not, shall be included and all other companies including private limited companies, foreign companies, high value debt listed entities and companies under Section 8 of the Companies Act, 2013 shall be excluded.

[2] https://www.sebi.gov.in/reports-and-statistics/reports/oct-2024/consultation-paper-on-review-of-provisions-of-lodr-regulations-pertaining-to-corporate-governance-norms-for-high-value-debt-listed-entities-hvdles-updated-_88171.html