SEBI approves amendments in provisions relating to Independent Directors
Securities and Exchange Board of India (SEBI) has approved the amendments in Regulatory provisions related to Independent Directors (IDs). SEBI in its Board Meeting held on 29th June, 2021 approved amendments to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 in respect of provisions related to IDs.
Key highlights of such amendments are the following:
Appointment/Re-appointment and Removal of IDs
Appointment/Re-appointment and Removal of IDs shall be through a special resolution of shareholders for all listed entities.
The process to be followed by Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate fits into that skillset.
The composition of NRC has been modified to include 2/3rd IDs instead of existing requirement of majority of IDs.
Shareholder approval for appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier.
Eligibility requirement
A cooling off period of three years has been introduced for Key Managerial Personnel (and their relatives) or employees of the promoter group companies, for appointment as an ID.
Relatives of employees of the company, its holding, subsidiary or associate company have been permitted to become IDs, without the requirement of a cooling off period, in line with Companies Act, 2013.
Resignation of IDs
The entire resignation letter of an ID shall be disclosed along with a list of her/his present directorships and membership in board committees.
A cooling-off period of one year has been introduced for an ID transitioning to a whole-time director in the same company/ holding/ subsidiary/ associate company or any company belonging to the promoter group.
Audit Committee – At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only Independent Directors on the Audit Committee.
Directors and Officers insurance – The requirement of undertaking Directors and Officers insurance has been extended to the top 1000 companies (by market capitalization).
These amendments shall be made applicable with effect from Jan 01, 2022. SEBI also agreed to make a reference to the Ministry of Corporate Affairs (MCA), for giving greater flexibility to companies while deciding the remuneration for all directors (including IDs), which may include profit linked commissions, sitting fees, ESOPs, etc., within the overall prescribed limit specified under Companies Act, 2013.