SEBI vide its notification dated 3rd August 2021 has amended the SEBI (LODR) Regulations, 2015 which is applicable with effect from 1st January 2022.
This article covers the following key aspects:-
- Amendments in the provisions of IDs in relation with Appointment, Resignation, Removal, D&O Insurance, Cooling-off period and Declaration by IDs
- Timeline for obtaining Shareholders' Approval for appointment of Every Director including IDs
- Additional Information requirement in terms of Regulation 36(3) during Appointment and Resignation
- Composition of Nomination and Remuneration Committee
- Approval of RPTs only by IDs of Audit Committee
Amendments in the provisions of IDs
i. Enhanced criteria of independence for Independent Director
The new amendments in Regulation 16(1)(b) has enhanced the criteria of independence for Independent Director (ID).
As per Regulation 25(8), whenever there is change in the circumstances which may affect the status of an Independent Director, he is required to give a declaration that he meets the criteria of independence as provided in Regulation 16(1)(b).
As new amendments require to ascertain the criteria of independence for existing IDs. Thus, the listed entity will be required to seek revised declaration from the existing IDs confirming their independence before 1st January, 2022 which is noted in the following Board Meeting.
Further, Corporate Governance Report under Regulation 27 mandates affirmation on composition of the Board in accordance with SEBI (LODR) Regulation, 2015. The Compliance with the revised criteria of independence will reflect in the Corporate Governance Report filed for the quarter ended March 31, 2022.
ii. Approval of Shareholders by way of Special Resolution under various circumstances
The Appointment, Re-Appointment and Removal of ID shall require approval of Shareholders via Special Resolution. Earlier, Ordinary Resolution was required for appointment of ID for the first term of their appointment.
iii. Resignation and Removal
An ID who resigns or is removed from the Board has to be replaced by a new ID at the earliest but not later than 3 months from the date of such vacancy. Earlier, the ID was to be replaced either in the next Board Meeting or 3 months from the date of such vacancy, whichever was later.
If the composition of the Board is proper as per SEBI (LODR) Regulations, 2015 even after ID vacancy, the ID vacancy is not required to be filled up.
iv. Requirement of D&O Insurance for IDs
With effect from 1st January, 2022, the top 1000 listed entities by market capitalization calculated as on 31st March of the preceding financial year, shall undertake Directors and Officers insurance ('D and O insurance') for their each independent director of such quantum and for such risks as may be determined by its Board of Directors.
v. Appointment of ID as WTD/ED after resignation as ID
No ID, who resigns from a listed entity, shall be appointed as Whole Time Director/Executive Director on the board of the listed entity,its holding, subsidiary or associate company or on the board of a company belonging to its promoter group, unless a period of one year has been elapsed from the date of resignation as an ID.
Timeline for obtaining Shareholders' Approval for appointment of Every Director including IDs
A new clause (1C) has been inserted in regulation 17 which are as follows:
"The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of such appointment on the Board, whichever is earlier."
Earlier, after appointment of Director by the Board, the approval of Shareholders could be taken in the next AGM which in many cases was held after 11 months or so.
The above mentioned timeline for obtaining Shareholders' approval will also apply in case of re-appointment and filling of casual vacancy.
Thus, this can be concluded that the Approval of Shareholders' has to be taken at the next general meeting or within three months from the date of such appointment on the Board, whichever is earlier, for appointments/re-appointment/casual vacancy of every Director (including regularisation of Additional Director) made on or after 1st January, 2022.
Additional Information requirement in terms of Regulation 36(3) during Appointment and Resignation
The new amendment in Regulation 36(3) requires following additional information to be given to Shareholders' at the time of appointment of a new Director or re-appointment of a Director:
- Names of the Listed entities from which the person has resigned in past 3 years.
- In case of ID, the skills and capabilities required for the role and the manner in which the proposed person meets such requirements.
Further, pursuant to amendment in clause (7B) of para A of part A of Schedule III, the following additional disclosures shall be made to the stock exchanges at the time of resignation of an ID:
- The letter of resignation along with detailed reasons for the resignation given by ID;
- Names of listed entities in which the resigning director holds directorships, indicating the category of directorship and membership of board committees, if any.
Composition of Nomination and Remuneration Committee
The new amendments require that at least 2/3rd members of Committee shall be IDs.Earlier, it was at least 50% members.
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.
Approval of Related Party Transactions (RPTs) only by IDs of Audit Committee
A new proviso has been inserted in regulation 23(2) which are as follows:
"Provided that only those members of the audit committee, who are independent directors, shall approve related party transactions"
Therefore, members who are not IDs may provide their dissent to the said transactions; however, they cannot approve the transactions.
The requirement of approval by the IDs is applicable prospectively.So, any new RPTs or modifications to existing RPT for which approval is sought after the effective date of the amendment i.e. w.e.f. 1st January, 2022, then, it will be required to be approved by the IDs only.
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