Implementation Of Kotak Committee Recommendations By Indian Securities Market Regulator.

1. 

RELATED PARTY 

Scope of the term ‘related party’ has been extended to include any person/ entity, belonging to the promoter or promoter group of the listed entity and holding 20% or more of shareholding in the listed entity. 

[Regulation 2(1)(zb)] 

Scope of the definition has been widened and accordingly, any transaction with a person/ entity, belonging to the promoter or promoter group of the listed entity and holding 20% or more of its shareholding will be considered as a related party transaction. 

2. 

INDEPENDENT DIRECTOR 

A person who is: (a) a member of the promoter group; or (b) 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; cannot be an independent director in the listed company w.e.f. 1 October 2018. 

[Regulation 16(1)(b)] 

As per the amendment, firstly no member belonging to the promoter group can become an Independent Director. 

Secondly, the amendment also aims to exclude ‘board interlocks’ arising due to common non-independent directors on boards of listed entities. For instance, if Mr. A is an executive director on Company A (being a listed entity) and is also an independent director on Company B, then no non-independent director of Company B can be an independent director on the board of Company A. 

3. 

MATERIAL SUBSIDIARY 

Threshold for determining a material subsidiary has been reduced from 20% of the consolidated income or net worth to 10% of the consolidated income or net worth. 

[Regulation 16(1)(c)] 

The threshold has been amended in the interest of better monitoring of group entities. Accordingly, the listed entity will have to inter alia observe the following compliances for a larger number of subsidiaries: 

1. (a) Disposal of shares in its material subsidiary resulting in reduction of its shareholding to less than 50% or cease the exercise of 

1. control only by passing a special resolution. 

1. (b) Selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution. 

4. 

INDEPENDENT WOMAN DIRECTOR 

Top 500 listed entities and top 1000 listed entities shall have at least 1 independent woman director by 1 April 2019 and 1 April 2020 respectively. 

[Regulation 17(1)(a)] 

This amendment has been made to improve gender diversity on corporate boards. 

5. 

NUMBER OF DIRECTORS AND QUORUM 

Top 500 listed entities and top 1000 listed entities shall have at least 6 directors by 1 April 2019 and 1 April 2020 respectively, and quorum for board meetings for such companies would be higher of one-third of the total strength or 3 directors and shall include at least 1 independent director. 

[Regulation 17(1)(b) and Regulation 17(2A)] 

Currently, there is no requirement of minimum number of directors as per the Listing Regulations. The amendment mandates appointment of at least 6 (six) directors which is double the minimum number of directors in a public company as per the Companies Act, 2013 (“Companies Act”). Further, presence of an independent director has been made mandatory for a valid quorum. 

6. 

APPOINTMENT OF NON-EXECUTIVE DIRECTOR 

Appointment or continuation of directorship of a person as a non-executive director who has attained the age of 75 years shall require special resolution to be passed by the shareholders. 

[Regulation 17(1A)] 

The provisions of the Companies Act require a special resolution to be passed for appointment / continuation of directorship of a person as an executive director who has attained the age of 70 years. This amendment has been made to insert a similar provision for non-executive directors. 

7. 

SEPARATE POSTS FOR CHAIRPERSON AND CEO 

W.e.f. 1 April 2020, top 500 listed entities (excluding such companies which do not have any identifiable promoters) shall have a non-executive chairperson who is not a relative of the managing director or the CEO. 

[Regulation 17(1B)] 

Top 500 listed entities will have to separate the posts of CEO and chairperson so as to provide a better and more balanced governance structure. 

8. 

PAYMENT OF REMUNERATION TO NON-EXECUTIVE DIRECTORS 

Currently, there are no specific provisions in the Listing Regulations on maximum 

Payment of annual remuneration to a single non-executive director requires special resolution if remuneration payable exceeds 50% of the total annual remuneration payable to all non-executive directors. 

[Regulation 17(6)(ca)] 

remuneration payable to directors. Approval of shareholders by way of a special resolution in the general meeting will now be required, where the remuneration to the non-executive director or executive promoter director (as the case may be) exceed the prescribed threshold. 

9. 

PAYMENT OF REMUNERATION TO EXECUTIVE PROMOTER DIRECTORS 

Payment of fees or compensation to executive directors who are promoters or members of the promoter group shall be approved by way of special resolution in general meeting if the annual remuneration to 1 executive director exceeds the higher of INR 5 crores or 2.5% of the net profits of the listed entity; or aggregate annual remuneration to all such directors exceeds 5% of the net profits of the listed entity. 

[Regulation 17(6)(e)] 

10. 

MAXIMUM NUMBER OF DIRECTORSHIPS 

A person shall not be a director in more than 8 listed entities w.e.f. 1 April 2019 and not more than 7 listed entities w.e.f. 1 April 2020. 

[Regulation 17A] 

Under the Companies Act, the maximum number of public companies in which a person can be appointed as a director shall not exceed ten. The Listing Regulations provide that a person shall not serve as an independent director in more than 7 listed entities and if the director is a whole-time director in one listed entity, then he/she cannot serve as an independent director in more than three listed entities. While the current provisions still stand, this additional requirement has been specified to enable directors to allocate sufficient time to a company. Adequate transition time has been provided by SEBI to comply with the said additional requirement. 

11. 

ROYALTY OR BRAND PAYMENTS TO RELATED PARTIES 

Any related party transactions involving payments with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during the financial year, exceed 2% of the annual consolidated turnover of the listed entity. 

[Regulation 23(1A)] 

Approval of the shareholders will now be required to make royalty payments to the related parties if such payments exceed the prescribed threshold. Also, related parties cannot vote in favor of the same. 

12. 

CORPORATE GOVERNANCE REQUIREMENTS WITH RESPECT TO UNLISTED MATERIAL SUBSIDIARY 

At least 1 independent director of the listed entity shall be appointed as a director of an unlisted material subsidiary (whether in India or outside India). Material subsidiary, for this purpose, shall mean a subsidiary, whose income or net worth exceeds 20% of the income or net worth of the listed entity, on a consolidated basis. 

[Regulation 24(1)] 

Currently, the listed entity is required to appoint one of its independent directors on the board of unlisted Indian material subsidiary. The requirement has now been extended to foreign material subsidiaries as well. 

13. 

ALTERNATE DIRECTORS FOR INDEPENDENT DIRECTORS 

W.e.f. 1 October 2018, no person shall be appointed as an alternate director for an independent director. 

[Regulation 25(1)] 

The listed entities will not be able to appoint alternate for their independent directors even during such independent director’s absence from India for 3 months or more. 

14. 

D&O INSURANCE FOR INDEPENDENT DIRECTORS 

Top 500 listed entities shall obtain Directors &Officers insurance for their independent directors, w.e.f. 1 October 2018 

[Regulation 25(10)] 

Listed entities will have to undertake D&O insurance for their independent directors as they assume significant responsibilities and liabilities in their capacity as independent directors 

15. 

DISCLOSURE ON UTILIZATION OF ISSUE PROCEEDS OF PREFERENTIAL ISSUE AND QIPS 

A listed entity shall be required to disclose in its Annual Report, the utilization of funds raised through preferential allotment or qualified institutional placement. 

[Regulation 32(7A)] 

Currently, periodic disclosures on utilization of funds raised through public issue are required to be made as per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. This amendment has been made to provide for annual disclosures for utilization of funds raised by way of preferential allotments and QIPs. 

16. 

CONSOLIDATED FINANCIAL RESULTS 

In case the listed entity has subsidiaries, it shall also submit quarterly/year-to-date consolidated financial results. 

[Regulation 33(3)] 

At present, the requirement to submit quarterly / year-to-date consolidated financial results by the listed entities having subsidiaries is optional. The same has now been made mandatory. 

17. 

SUBMISSION OF ANNUAL REPORT TO STOCK EXCHANGES 

The listed entity shall submit to the stock exchange and publish on its website, a copy of the annual report sent to the shareholders along with the notice of the AGM not later than the day of 

Currently, the annual report is required to be sent to the stock exchanges within 21 working days of it being approved and adopted in the general meeting. The said requirement has been removed and the annual report shall now be sent to the stock exchanges and published on the website 

commencement of dispatch to its shareholders. 

[Regulation 34(1)] 

on or before the day of commencement of dispatch to its shareholders. 

18. 

ANNUAL GENERAL MEETING 

Top 100 listed entities shall hold their annual general meetings within 5 months of closure of the financial year. 

[Regulation 44(5)] 

This amendment will help in avoiding bunching up of AGMs (especially in the month of September) which in turn will increase shareholder participation in the meetings. 

19. 

LIVE WEBCAST OF ANNUAL GENERAL MEETINGS 

Top 100 listed entities to provide one-way live webcast of the proceedings of the annual general meetings. 

[Regulation 44(6)] 

Shareholders, who could not attend the meeting, may now observe the proceedings of the meeting. 

20. 

ROLE OF AUDIT COMMITTEE 

Audit Committee shall review the utilization of loans and/or investment by a listed entity in its subsidiary exceeding the lower of INR 1 billion or 10% of the asset size of the subsidiary. 

[Schedule II, Part C, Clause A(21)] 

The role of the audit committee has been extended to review end use utilization of loans and/or investment exceeding the prescribed threshold given to / invested in the subsidiary.