1 March 2014

SEBI | CORPORATE GOVERNANCE REFORMS

SEBI has recently announced its proposal to amend the listing agreement to align it with the provisions of the newly enacted Companies Act, 2013 (“Act”) and also decided to make in certain policies and regulations to strengthen the corporate governance framework for listed companies. Following are the key amendments to the Listing Agreement intimated by the SEBI which are proposed to be applicable to all listed companies with effect from 1 October 2014: Directors a) Nominee director to be excluded from the definition of independent director; b) Independent Director shall not be eligible for stock options of the company; c) Separate meeting of Independent Directors; d) Performance evaluation of all directors (including Independent Directors); e) Maximum number of boards of listed companies on which an independent director can serve to be restricted to 7 (seven), and 3 (three) in case the person is serving as a whole time director in a listed company; f) Total tenure of an Independent Director to be restricted to 2 (two) terms of 5 (five) years. However, if a person who has already served as an independent director for 5 (five) years or more in a listed company, as on the date on which the amendment to Listing Agreement becomes effective, the said Independent Director shall be eligible for appointment for only 1 (one) more term; g) To appoint a minimum of 1 (one) woman director on the board; h) To mandatorily constitute Nomination and Remuneration Committee in listed companies and the Chairman of the said committees shall be independent director; i) To put in place the mechanism for disclosure of appointment of Independent Directors and the letter of resignation of all directors; j) To put in place a system to train Independent Directors. Related Party Transactions (“RPT”) a) The scope of the definition of RPT has been widened to include elements of Act and Accounting Standards; b) Prior approval of Audit Committee for all material RPT; and c) Prior approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting; d) To put in place the policy on dealing with RPTs.       Other Amendments a) To put in place the principles of corporate governance; b) To structure the procedure for divestment of material subsidiaries; c) To compulsorily have whistle blower mechanism; d) To expand the role of Audit Committee; e) To constitute Stakeholders Relationship Committee; f) To enhance disclosure of remuneration policies; g) To put in place the principles for risk management; h) To enunciate the principles of e-voting by shareholders (by top 500 companies); i) Mechanism to orderly succession appointments to the board and senior management. MHCO COMMENTS SEBI’s press release only contains a list of actions to be adopted. The impact will only be analyzed once the listing agreement is amended. Further, once the amendment to the listing agreement are actually brought about one would need to examine if the  SEBI amendments sync with the effectiveness of the remaining sections of the new Act. (The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or contact@mhcolaw.com for any assistance)