Corporate Governance Norms by SEBI in line with Companies Act, 2013

In a step towards making listed companies more transparent, Capital Markets Regulator, SEBI has approved certain amendments in Cl 49 of Listing Agreement. These amendments propose to align the provisions of the Clause with that of Companies Act, 2013 (hereinafter called as “the Act”) and also provides additional requirements to intensify the corporate governance framework for listed companies in India. This is a step forward to increment harmonisation in SEBI & MCA laws.

Ms. Anjali Aggrawal
Vice President
Given below is the gist of proposals approved by the Board in its meeting held on 13th February 2014:
  • In line with Section 149 (6) of the Act, now the Nominee Directors have been excluded from the definition of Independent Directors.
  • In line with the provisions of vigil mechanism as specified in section 177 (9) of the Act, SEBI has mandated whistle blower mechanism in every listed company. Under the extant Cl 49, its a non mandatory requirement.
  • Role of audit committee has been extended and its roots are made widespread, same reflects in the decisions of SEBI also which is expanding the role of audit committee.
  • Stock options have been prohibited for independent director to protect their independence in real sense, in alignment with section 197 of the Act.
  • Board has also mandated for separate meeting for independent directors. This is also in line with the provisions of the Act. The Act also provides for atleast one separate meeting of independent director without attendance of non-independent director and members of management in a year. The intent is to provide the independent directors an opportunity to formulate the action plan to guide and drive themselves and to establish a better coordination between them because the Act poses enhanced responsibility on the independent directors. 
  • A listed company is a type of corporate entity which deals with public at large in a wider way than the others do, so it is the need of the hour to have a committee to maintain relations with stakeholders, hence the requirement of Stakeholders Relationship Committee has been provided by SEBI. SEBI has also mandated for mandatory Nomination and Remuneration Committee, with the Chairman being Independent, which under the extant Clause is a non mandatory requirement. 
  • Enhanced Disclosure of remuneration policy has been provided in the Act and in collaboration with the same the SEBI has also decided to introduce the same in the listing agreement as well. 
  • The Act has posed the requirement of performance evaluation of Directors on nomination and remuneration committee. In lines with the said provision, SEBI has also mandated for evaluation of performance of independent directors and board of directors in a listed company.
  • As per the amendment, in all listed companies, every material RPT is to be prior approved by the audit committee. In addition, all material RPTs are to be approved by the shareholders, by way of special resolution, with the related parties being abstained from voting. However, it will be needed to be looked into, as to what will constitute a material RPT? 
  • In addition, the four walls of RPTs have also been widened to include the elements of Companies Act and Accounting Standards as well. 
  • All listed companies to have at least one woman director on their Boards. 
  • SEBI by taking stricter view has specified the maximum number of boards an independent director can serve on listed companies, which is restricted to 7 and 3 in case the person is serving as a whole time director in a listed company. 
  • In addition to the above mentioned decisions, the Board has also approved the proposal for following: 
  • To put in place principles of corporate governance to bring the corporate governance norms in lines with the internationally accepted corporate governance principles:
    • Policy on dealing with RPTs
    • Divestment of material subsidiaries
    • Disclosure of letter of appointment of independent directors and the letter of resignation of al directors
    • Policy on Risk management 
    • Providing training to independent directors
    • E-voting facility by top 500 companies by market capitalisation for all shareholder resolutions 
    • Boards of Companies have to satisfy themselves that plans are in place for orderly succession for appointments to the board and senior management.
All the above said requirements as amended by the SEBI shall be made applicable to the listed companies’ with effect from October 01, 2014.

In addition to the above, the Board has also considered certain provisions for Mutual Funds in India and also pertaining to certain amendments in SEBI (KYC Registration Agency) Regulations, 2011.

CP Comments:

The changes mandated by the Board would surely bring in more transparency in the day to today workings of listed entities and the Independent Directors to share more burden on the well functioning of their entities.

However, certain clarifications that might be needed from SEBI are:a). As regards the Stock Options, can the Options already granted to the Independent Directors, be exercised by them?;b). As regards the approval of material RPTs, as to what will constitute a material RPT as against a normal RPT?

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