Securities Exchange Board of India (SEBI), vide its notification dated 3rd August 2021, amended various provisions of the SEBI (LODR) Regulations, 2015.
Amendments are applicable with effect from 1st January 2022, and the majority of them are a result of the discussion paper on independent Directors released by SEBI dated 01st March 2021.
The Amendments aims at strengthening the corporate governance framework in listed companies based in India. Following Important amendments have been made to the SEBI(LODR) Regulations by the Notification:
1) Eligibility criteria of Independent Director [Reg 16(1)(b)]:
a) Regulation 16(1)(b)(iv) has been amended to increase the eligibility requirement of Independent Director to 3 (three) years from 2 (two) years period for checking any pecuniary relationship with the listed entity, its holding, subsidiary or associate company or their promoters or directors.
b) The amended Regulation 16(1)(b)(v) has clarified the nature of pecuniary relationship to include the following, concerning the listed entity, its holding, subsidiary, or associate company:
(i)Holding securities of interest during the 3 (three) immediately preceding financial years or during the current financial year of face value over Rs. 50,000 (Fifty lakh rupees) or 2% (two percent) of the paid-up capital or such higher sum as may be specified.
(ii)Indebtedness, more than such amount as may be specified during the 3 (three)immediately preceding financial years or during the current financial year;
(iii)Provision of a guarantee or security in connection with the indebtedness of any third person, for such amount as may be specified during the 3 (three)immediately preceding financial years or during the current financial year; or
(iv) Any other pecuniary transaction or relationship, amounting to 2% (two percent) or more of its gross turnover or total income
(v)The amended Regulation16(1)(b)(vi) has relaxed the restrictions placed on the appointment of an employee’s relative other than a relative of a Key Managerial Personnel in respect of the cooling period applicable to his proposed employment as an Independent Director.
2) Regularisation of appointment of Directors [Reg 17(1)(C)]:
Insertion of this new sub-clause (1)(C) under Regulation 17 will now require listed entities appointing Directors during the year to regularise the appointment of such Director within 3 (three) months from the date of appointment of such Director, vide an EGM, if the AGM of such company is beyond such period.
3) Composition of Audit Committee [ Reg. 18(1)(b)]:
The amended Regulation 18(1)(b) has clarified that at least 2/3rd of the Audit Committee members shall be Independent Directors.
4) Composition of Nomination and Remuneration Committee (“NRC”) [ Reg. 19(1)(c)]:
The amended Regulation 19(1)(c) has modified the composition of NRC to include 2/3rd of its members as Independent Directors, for all listed entities.
Therefore, in case the NRC of the company does not meet the prescribed requirement, the committee will be required to be reconstituted on or before 1st January 2022
5) Related Party Transaction approval by Audit Committee ID’s [ Reg. 23(2)]:
A new proviso has been inserted in Regulation 23(2), which will ensure that all related party transactions are only approved by the Independent Directors forming a part of the Audit Committee.
Therefore, members who are not IDs may dissent to the said transaction; however, they cannot approve it.
6) Appointment, Removal, and Re-appointment of Independent Directors [ Reg. 25(2A)]:
Insertion of this new subclause (2A) under Regulation 25 will now require listed entities to pass a special resolution before appointing, re-appointing, or removing any Independent Directors.
Earlier, an Ordinary Resolution was required for the appointment of ID for the first term of their appointment.
7) Appointment of a new Independent Director [ Reg. 25(6)]:
Pursuant to Resignation of an existing Independent Director, Regulation 25 (6) has been amended to state that in case of resignation by or removal of an Independent Director, he/she shall be replaced by a new Independent Director within 3(three) months from the date of such vacancy.
Pursuant to the insertion of sub-clause (11A) under Regulation 25, any Independent Director who has resigned cannot be appointed as a whole-time director or an executive director unless a period of 1 (one) year has expired.
8) Requirement of D&O Insurance for IDs [ Reg. 25(10)]:
With effect from 1st January 2022, the top 1000 listed entities as per the market capitalization calculated as on 31st March of the preceding financial year, shall by 01st January 2022 to undertake Directors and Officers insurance (‘D and O insurance’) for each independent Director of such quantum and for such risks as may be determined by its Board of Directors.
This will have to be taken by the companies in the Agenda as part of the next Board Meeting.
9) Stock Exchange Intimation on the resignation of ID [(Reg 30, Schedule III)]:
Letter of resignation shall also be disclosed to Stock Exchange. Earlier only detailed reasons for the resignation along with a confirmation that there no other material reason for resignation other than those already provided.
Name of listed entities in which such ID holds directorship indicating category of directorship, membership in committees to be disclosed by the company.
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