Based on the report of the Committee on Corporate Governance under the Chairmanship of Mr. Uday Kotak, SEBI notified the amendments to the SEBI LODR Regulations on 9 May 2018. These amendments are expected to improve the governance standards in large listed companies.
Most of the amendments are effective from 1 April 2019 but few amendments are effective earlier from 1 October 2018. The listed companies are expected to be in compliance with them as on the respective dates. This Article summarises the amendments to the SEBI LODR Regulations and the actions that the listed entities should take for implementing them. There are around 16 amendments to existing requirements and 31 new requirements in the revised SEBI LODR Regulations.
|Topic/ Regulations||Existing Requirements||New Requirements||Actions to be taken by listed entities|
|Related Party defn. [Reg 2(1)(zb)]||Related Party as per CA 2013 and applicable accounting standards||New Proviso added:
"Provided that any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more of shareholding in the listed entity shall be deemed to be a related party"
|Review the list of related parties and add person falling in the proviso, if not already included.|
|Related Party Transaction [Reg 23(1)]||The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions.||The listed entity shall formulate a policy on materiality of related party transactions (RPT) and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly||
|Related Party Transaction [Reg 23(1A)]||New provision||A transaction involving payments with respect to brand usage or royalty shall be considered material if such transaction(s) during a financial year, exceed 2% of the annual consolidated turnover of the listed entity as per the last audited financial statements.||Ascertain if payment for brand usage or royalty exceeds 2% threshold. If yes, obtain approval of the shareholders for such transaction.|
|Related Party Transaction [Reg 23(4)]||A related party need to abstain from voting on shareholder's resolution.||A related party shall not vote to approve shareholder's resolution.||Now, a related party can vote to reject the shareholder's resolution.|
|Related Party Transaction [Reg 23(9)]||New provision||The listed entity shall
submit within 30 days from the date of publication of its
standalone and consolidated financial results for the half year,
disclosures of related party transactions on a consolidated basis,
in the format specified in the relevant accounting standards for
annual results to the stock exchanges and publish the same on its
The above is applicable from half year ended 31 March 2019.
|Independent Director [Reg 16(1)(b)(ii)]||A non – executive director who is or was not a promoter of the listed entity or its holding, subsidiary or associate company||A non – executive
director who is or was not a promoter of the listed entity or its
holding, subsidiary or associate company or member of the
promoter group of the listed entity.
[Effective from 1 October 2018]
|Verify if any ID is a member of promoter group. If yes, then such ID cannot continue from 1 October 2018|
|Independent Director [Reg 16(1)(b)(viii)]||No criteria added||Following new criteria
(viii) who is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director. [Effective from 1 October 2018]
|Verify if any ID falls into this criteria. If yes, then such ID cannot continue from 1 October 2018|
|Evaluation of ID [Reg 17(10)]||New criteria of evaluation specified.||The evaluation of
independent directors to include:
||Review the evaluation process of IDs and include the specified criteria, if not covered.|
|Independent Director [Reg 25(1)]||New provision||No person shall be appointed or continue as an alternate director for an independent director of a listed entity with effect from October 1, 2018.||The alternate director to independent director, if any, to resign prior to October 1, 2018.|
|Independent Director [Reg 25(8) & (9)]||New provision||Independent Director to
provide, at first board meeting and thereafter every year, a
declaration confirming his independence. [Similar to Section 149(7)
of CA 2013]
Board to take on record such declaration and confirmation after undertaking assessment of the veracity of the same.
|While the submission of such declaration is already covered under Section 149(7) of the CA 2013, but, the Board is now required to independently assess the truthfulness of the declaration provided by the ID.|
|Material Subsidiary [Reg 16(1)(c)]||"material subsidiary" shall mean a subsidiary, whose income or net worth exceeds 20% of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.||Threshold is reduced to
"material subsidiary" shall mean a subsidiary, whose income or net worth exceeds 10% of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.
|Review the list of subsidiaries and identify subsidiaries whose income or net worth exceeds 10% of the consolidated income or net worth to categorise them as material subsidiaries.|
|Senior Management [Reg 16(1)(c)]||Mean officers/personnel of the listed entity who are members of its core management team excluding board of directors and normally this shall comprise all members of management one level below the executive directors, including all functional heads.||Mean officers/personnel of the listed entity who are members of its core management team excluding board of directors and normally this shall comprise all members of management one level below the chief executive officer/managing director/ whole time director/manager (including chief executive officer/manager, in case they are not part of the board) and shall specifically include company secretary and chief financial officer.||Identify officers/ personnel who will fall under the revised definition of Senior Management and update the list of Senior Management maintained by the listed company.|
|Board Composition [Reg 17(1)(a)]||Need to have one woman director (can be either independent or non-independent).||Top 500 listed entities
should have atleast one independent woman director by April 1,
Top 1000 listed entities should have atleast one independent woman director by April 1, 2020
|Determine if company is amongst the top 500 listed entities. If yes, appoint a women ID before 1 April 2019. Initiate selection and appointment process of woman ID well in advance to achieve the timeline.|
|Board Composition [Reg 17(1)(c)]||New provision||The board of top 1000 listed entities (with effect from April 1, 2019) and the top 2000 listed entities (with effect from April 1, 2020) shall comprise of not less than six directors.||Determine if company is amongst the top 1000 listed entities. If there are less than six directors, then appoint new directors.|
|Board Composition [Reg 17(1A)]||New provision||Special resolution
required for appointing or continuing directorship of a
non-executive director who has attained the age of 75 years.
Explanatory statement shall provide the justification for appointing such a person.
|Verify if any NED has attained age of 75 years. If yes, then arrange to pass a special resolution for continuing directorship of NED either in general meeting or by postal ballot before 1 April 2019.|
|Board Composition [Reg 17(1B)]||New provision||With effect from April
1, 2020, the top 500 listed entities shall ensure that the
||Determine if company is amongst the top 500 listed entities. If yes, the Board of directors to appoint a chairman amongst themselves who satisfies these conditions.|
|Quorum [Reg 17(2A)]||New provision||For top 1000 listed
entities (from 1 April 2019)
For top 2000 listed entities (from 1 April 2020)
Quorum for every Board meeting shall be 1/3 total strength or three directors, whichever is higher, including at least one independent director
|Determine if company is amongst the top 1000 listed entities. If yes, the company to ensure compliance with new quorum requirement in all board meetings held from 1 April 2019.|
|Remuneration of NED [Reg 17(6)(ca)]||New provision||If remuneration of a single NED exceeds 50% of the total annual remuneration payable to all non-executive directors, then approval of shareholders by special resolution required every year.||Arrange to pass a special resolution in the general meeting or by postal ballot if the remuneration of a single NED exceeds 50% of total remuneration of all NEDs.|
|Remuneration of ED [Reg 17(6)(e)]||New provision||The fees or compensation
payable to executive directors (who are promoters or members of the
promoter group) shall require the approval of the shareholders
by special resolution in general meeting, if:
||Arrange to pass a special resolution of the shareholders in general meeting or by postal ballot, if the remuneration of EDs (who are promoters or members of promoter group) exceed these thresholds.|
|Recommendation of Board [Reg 17(11)]||New provision||Explanatory Statement should set forth the recommendation of Board to the shareholders on each special business.||Customarily, the explanatory statement contained the recommendation of the board but now it is statutorily prescribed.|
|Maximum number of Directorships [Reg 17A]||
CA 2013 – 20 companies (max 10 public companies)
|Verify the list of directorships of all directors and ascertain their directorships are within these thresholds. If no, the relevant director would be required to resign from listed companies, in excess of the threshold.|
|Role of Audit Committee [Sch II, Part C]||New provision||Audit committee to review utilisation of loans and/or advances from investment by holding company in subsidiary company exceeding INR 100 crores or 10% of asset size of subsidiary, whichever is low.||Revise the terms of
reference of audit committee to include these matters.
Audit committee to review these matters in their meeting regularly.
|Quorum of NRC meeting [Reg 19(2A)]||New provision||Quorum shall be either 2 members or 1/3rd (whichever is greater) including 1 independent director.||Going forward, ensure the fulfilment of this quorum requirement.|
|NRC meeting [Reg 19(3A)]||New provision||Meeting of NRC to be held atleast once in a year||Usually, all listed companies hold atleast 1 NRC meeting in a year, however now it is statutorily prescribed.|
|Role of NRC [Sch II, Part D(A)]||New provision||NRC to recommend to Board, all remuneration in whatever form, payable to senior management.||The terms of reference of NRC should be revised accordingly.|
|Stakeholders Relationship Committee [Reg 20]||
|Role of SRC [Sch II, Part D(B)]||
role of SRC:
|Risk Management Committee [Reg 21(3A)]||Applicable to top 100 listed companies||
|Unlisted Material Subsidiary [Reg 24(1)]||At least one independent director of the listed entity to be a director of an unlisted material subsidiary, incorporated in India.||This requirement shall
also apply to an unlisted material subsidiary incorporated outside
For this provision, 'material subsidiary' shall mean a subsidiary, whose income or net worth exceeds 20% of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year
|Unlisted Material Subsidiary [Reg 24(4)]||Exp: the term "significant transaction or arrangement" shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the unlisted material subsidiary for the immediately preceding accounting year||The word 'material' is deleted.||This seems to bring in line with term 'unlisted subsidiary' used in Regulation 24(4). While ascertaining 'significant transaction', the listed entity should consider RPTs with all unlisted subsidiaries and not just material subsidiaries.|
|Secretarial Audit [Reg 24(A)]||New provision||A material unlisted subsidiaries incorporated in India shall undertake secretarial audit and shall annex with its annual report, a secretarial audit report, given by a company secretary in practice with effect from the year ended March 31, 2019||
|D&O Insurance [Reg 25(10)]||New provision||Top 500 listed companies to have a D&O Insurance for all independent directors w.e.f. 1 October 2018.||Determine if company is amongst the top 500 listed entities. If yes, then procure a D&O Insurance for all IDs (if not already procured).|
|Prior Intimation for Bonus [Reg 29(f)]||If Bonus is not part of agenda of board meeting, then prior intimation not required.||This provision is deleted. Prior intimation mandatory for declaration of Bonus.||Give prior intimation of
2 working days of the board meeting for declaration of bonus.
The exemption is not available for 'declaration of bonus' which is not included in the agenda of the board meeting.
|Use of funds [Reg 32(7A)]||New provision||The listed entity shall
disclose the utilisation of funds raised through preferential
allotment or QIP in its Annual Report every year until such funds
are fully utilised.
This is not applicable for public issue or rights issue.
|Include the disclosure on utilisation of funds raised through preferential allotment or QIP in the Annual Report every year.|
|Financial Results [Reg 33(3)(b)]||Submission of consolidated quarterly financial results was optional||Submission of consolidated quarterly financial results is now mandatory.||Plan in advance for preparing and submission of consolidated quarterly financial results within 45 days of end of the quarter.|
|Financial Results [Reg 33(3)(e)]||Listed entity is required to submit audited financial results in respect of last quarter along with results of entire financial year.||Listed entity will now be required to submit audited or limited reviewed financial results of last quarter along with results of entire financial year.||Decide about the financial results (audited or limited reviewed) of last quarter to ne submitted to stock exchange so that the listed entity it can accordingly inform the auditors well in advance.|
|Financial Results [Reg 33(3)(g), (h) & (f)]||New provision||
|Financial Results [Reg 33(8)]||New provision||The auditor of listed entity to undertake limited review of the audit of all entities/companies whose accounts are consolidated with the listed entity.||Discuss with auditors and mandate them to conduct limited review of the audit of subsidiaries and other companies.|
|Annual Report [Reg 34(1)]||Annual report to be submitted to stock exchange within 21 days from the AGM||Annual report to be
submitted to stock exchange and published on its website earlier or
on the day of commencement of dispatch to the shareholder.
In case of change in annual report, the revised annual report (along with details of and explanation for changes) shall be sent within 48 hours after the AGM.
Applicable to Annual Report for March 31, 2019 and thereafter.
|Make suitable arrangements to ensure that the annual report is published on website and submitted to stock exchanges prior to or on the day of dispatch of annual report to the shareholder.|
|Annual Report [Sch V, Part A]||New provision||Related Party Disclosure to cover disclosures on transaction with promoter/promoter group person holding 10% or more shareholding.||Henceforth, the Related Party Disclosure in the annual report should include details of transactions with promoter/promoter group holding 10% or more shareholding in listed entity.|
|Management Discussion and Analysis [Sch V, Part B]||New provision||MDA to cover details of significant changes (25% or more) in key financial ratios along with details explanations.||Cover details of significant changes in the MDA of the next annual report.|
|Corporate Governance Report [Sch V, Part C]||New provision||Disclosures to cover:
||Include these additional disclosures in the Corporate Governance Report of the next annual report.|
|Documents & Information to Shareholders [Reg 36(4)]||New provision||
|Meeting of Shareholders and voting [Reg 44(5) & (6)||New provision||Top 100 listed
|Website [Reg 46(2)]||New provision||Listed company to
disseminate following additional information on its website:
||Make suitable arrangements for disclosing this information on its website.|
|Disclosures [Sch III, Part A (A)]||New provision||Additional
||Make these additional disclosures going forward.|
It will be observed that the management of the listed companies will have to plan and schedule all the activities well in advance so that they come out compliant as on the effective dates of the different provisions of the new SEBI LODR Regulations.
It is expected that in the long term, these amendments will improve transparency and cultivate the spirit of governance amongst the management of the listed companies. The governance standards are enhanced by increasing disclosures, shareholder approval requirements and involvement of Independent Directors. However, it remains to be seen to what extent these objectives are achieved in future.
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