SEBI came out with Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 by way of notification dated 09th May, 2018 thereby amending the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. These amendments are applicable from 01st April, 2019 onwards unless as specifically provided in the regulations. The brief of the changes is as follows:
a) Definitions (Regulation 2(zb)
1) Related Party shall include any person or entity belonging to promoter or promoter group of listed entity and holding 20% or more of the shareholding of the entity.
2) Material Subsidiary (Regulation 16(1)(c)
Material Subsidiary shall mean a subsidiary, whose income or net worth exceeds 20% of consolidated income or net worth of the listed entity and its subsidiaries in immediately preceding financial year.
b) Corporate Governance requirements with respect to subsidiary of listed entity (Regulation 24(1)
Atleast one independent director of the listed entity shall be a director of an unlisted material subsidiary.Material Subsidiary shall mean a subsidiary, whose income or net worth exceeds 20% of consolidated income or net worth of the listed entity and its subsidiaries in immediately preceding financial year.
c) Board of Directors
(I)The approval of shareholders by way of special resolution shall be obtained every year in case annual remuneration payable to a single non-executive director exceeds 50% of total annual remuneration payable to all non-executive directors.(Regulation 17(1)(ca))
(II) The fees or compensation payable to executive directors who are promoters or members of the promoter group, shall be subject to the approval of the shareholders by special resolution in general meeting, if-
(i) the annual remuneration payable to such executive director exceeds rupees 5 crore or 2.5 per cent of the net profits of the listed entity, whichever is higher; or
(ii) where there is more than one such director, the aggregate annual remuneration to such directors exceeds 5 per cent of the net profits of the listed entity: Provided that the approval of the shareholders under this provision shall be valid only till the expiry of the term of such director.(Regulation 17(2)(e))
(III) The evaluation of independent directors shall be done by the entire board of directors which shall include -
(a) performance of the directors; and
(b) fulfillment of the independence criteria as specified in these regulations and their independence from the management: (Regulation 17(10)
(IV) Explanatory statement to be annexed to notice for each item of special business to be transacted at general meeting shall also set forth clearly the recommendation of the board to the shareholders on each of the specific items. (Regulation 17(11).
(V) Board of Directors of top 1000 listed entities shall have atleast one independent women director by April 01, 2020. (Regulation 17 (1))
(VI) The Board of Directors of top 1000 entities shall comprise of not less than 6 directors. (Regulation 17(1)(c))
(VII) No listed entity shall appoint a person or continue the directorship of any person as a non-executive director who has attained the age of seventy five years unless a special resolution is passed to that effect, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person. (Regulation 17(1A)
(VIII) The quorum for every meeting of the board of directors of the top 2000 listed entities with effect from April 1, 2020 shall be one-third of its total strength or three directors, whichever is higher, including at least one independent director. (Regulation 17(2A)
d) Maximum number of directorships. (Regulation 17A)
A person shall act as director in not more than 8 listed companies w.e.f 01st April, 2019 and 7 listed companies with effect from 7 listed companies w.e.f 01st April, 2020 and shall not act as independent director in more than 7 listed companies. Further, if he is serving as whole time director or managing director in any listed company he shall serve as independent director in more than 3 listed entities.
e) Nomination and Remuneration Committee- Quorum for meeting of nomination and remuneration committee shall be either 2 members or one third of members of the committee, whichever is higher, including atleast one independent director. Further, the committee shall meet atleast once in a year.(Regulation 19(2A and 3A))
f) Stakeholder Relationship Committee- At least 3 directors with atleast one independent director shall be member of stakeholder relationship committee. The chairperson of the commitee shall be present at the AGM to answer queries of stakeholders. Further, the committee shall meet atleast once in a year.
g) Related Party Transactions-
(I) The policy on related party transaction shall include clear threshold limits duly approved by the Board and such policy shall be reviewed by the Board at least once every 3 years. A transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction along with previous transactions exceed two percent of annual consolidated turnover of the listed entity.(Regulation 23(1) and (1A)
(II) Listed entity shall submit within 30 days from the date of publication of standalone and consolidated financials for the half year, disclosures of related party transactions on consolidated basis and publish the same on website. (Regulation 23(9)
(III) For the purpose of this regulation, all entities falling under the definition of related parties shall 44[not vote to approve the relevant transaction] irrespective of whether the entity is a party to the particular transaction or not. (Regulation 23(7)
h) Secretarial Audit (Regulation 24A)- Every listed entity and its material unlisted subsidiaries incorporated in india shall undertake secretarial audit and shall annex with its annual report.
i) Independent Director- Every independent director in first board meeting in which he participates as director and thereafter at the first Board Meeting in every financial year submit a declaration that he meets the criteria of independence and he is not aware of any situation which could impact his ability to discharge his duty with an objective independent judgement.
The board of directors shall take on record the confirmation received from Independent director as above after undertaking due assessment of veracity of the same.
Independent Director shall not be a member of the promoter group of the Company (Regulation 16(1) (b)(ii)).
Independent director shall not be non-independent director of another company on the Board of which any non-independent director of the Company is an independent director. (Regulation 16(1)(b) (viii))
j) Financial Results- a) In case of listed company having subsidiaries, the listed company shall also submit quarterly/year to date consolidated figures. (Regulation 33(3)(b))
b) Listed Company shall also submit as a part of standalone and consolidated financial results for the half year, statement of cash flows for the half-year. . (Regulation 33(3)(g))
c) Listed Company shall ensure that for the purpose of quarterly consolidated financial results, at least 85 percent of each of consolidated revenue, assets and profits have been subject to audit or in case of unaudited results, subjected to limited review. (Regulation 33(3)(h))
d) Listed company shall disclose in the results for the last quarter, aggregate effect of material adjustments made in the results of that quarter. (Regulation 33(3)(i))
e) Statutory auditor of listed entity shall undertake a limited review of the audit of all companies whose accounts are to be consolidated with the listed entity. (Regulation 33(8))
Annual Report- The listed company shall submit to stock exchange and publish on its website, a copy of annual report sent to shareholders along with the notice of AGM not later than the day of commencement of dispatch to its shareholders. In case of any changes in annual report, the revised copy along with explanations shall be sent not later than 48 hours after the AGM. (Regulation 34 (1) (a) and (b))
Documents & Information to shareholders - (a) The listed entity shall send soft copies of full annual report to all those shareholders who have registered their email address either with the listed entity or with any depository. (Regulation 36(1))
(b) The disclosures to be made by listed entity with immediate effect- (i)to the stock exchange shall be in XBRL format in accordance with stock exchange guidelines (ii) to the stock exchanges and on its website, shall be in format that allows users to find relevant information using searching tool subject to an exception. (Regulation 36(4)
(c) Notice being sent to shareholders for AGM where statutory auditor is proposed to be appointed shall contain the following disclosures as a part of explanatory statement: (i) Proposed fee payable along with terms of appointment (ii) Basis of recommendation for appointment. (Regulation 36(5)
Corporate Governance (Schedule II) -
a) Audit Committee -The audit committee shall also review utilization of loans/advances/investments by holding company in subsidiary company exceeding 100 crore or 10% of the asset size of the subsidiary, whichever is lower including existing loans/advances/investments. (Part C)
b) Nomination and Remuneration Committee- The Nomination and Remuneration Committee shall recommend to the Board, all remuneration, in whatever form, payable to senior management. (Part D (A)
c) Stakeholder Relationship Committee- The role of the committee has been elaborated and defined including resolving grievances of security holders, review of measures for effective exercise of voting rights, review of service standards adopted in relation to services rendered by RTA and measures taken by company to reduce unclaimed dividends.(Part D (B))
Schedule III: Disclosures of events or information : Specified Securities: In case of resignation of auditor, detailed reasons for resignation of auditor shall be disclosed as soon as possible but not later than 24 hours of receipt of such reasons from the auditor. In case of resignation of independent director, within 7 days of resignation, the detailed reasons for resignation shall be disclosed to stock exchange along with detailed reasons provided by independent director which shall include a confirmation that there is no other material reasons other than those specified.
Schedule IV: Disclosures in Financial Results
Management of the Company is permitted to not provide estimate on matters like going concern or sub-judice matters, in which case management shall provide reasons and auditor shall review and report accordingly.
Schedule V: Annual Report-
a) Disclosures of transactions of the listed entity with any person or entity belonging to promoter/promoter group which holds 10% or more shareholding in the listed entity to be made in related party disclosure.
b) Details of significant changes in key financial ratios( Debtors Turnover, Inventory Turnover, Interest Coverage, Current, Debt Equity, Operating Profit Margin, Net Profit Margin) to be made in Management Discussion and Analysis Report.
c) Details of any change in Return on Net Worth as compared to the immediately previous financial year along with detailed explanation thereof.
d) In Corporate Governance Report the following additional disclosures shall be made-
a) disclosure of names of the listed entities in which the Director is a Director separately and the category of directorship.
b) A chart or matrix setting out the skills/expertise/competence identified by the Board as required in the context of its business and those actually available with the Board.
c) Confirmation that in opinion of Board, the independent directors fulfil the conditions specified in these regulations and are independent of the management.
d) Detailed reasons for resignation of independent director who resigns before expiry of his term along with confirmation by such director that there are no other material reasons other than those provided.
e) List of all credit ratings obtained by the entity along with any revisions during the relevant financial year.
f) Details of utilization of funds raised through preferential allotment or qualified institutional placement until funds are utilized.(Regulation 32(7)
g) Certificate from a practicing CS that none of the directors are disqualified from being appointed as directors.
h) where the Board has not accepted any recommendation of any committee, the disclosure of the same shall be made.
i) Total fees paid by listed entity and its subsidiaries on a consolidated basis to the statutory auditor.
j) Disclosures relating to number of complaints filed, disposed and pending as on end of financial year under Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
Website (Regulation 46)-
The listed entity shall disseminate the information as mandatorily required to be placed on its website under a separate section on its website including all credit ratings obtained for all outstanding instruments, updated immediately as and when there is any revision in the ratings and shall place separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year, uploaded at least 21 days prior to the date of the annual general meeting which has been called to inter alia consider accounts of that financial year.
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