Analysis on SEBI Notification dated May 9, 2018 By CS Shweta Dubey

Dear Professional Colleagues,

"SEBI is of the view that Stricter Compliances are required for better Corporate Governance."

SEBI constituted the Kotak Committee (the Committee) under the chairmanship of Mr. Uday Kotak (executive vice-chairman and managing director of Kotak Mahindra Bank) in June 2017. This Committee was framed with the motive to strengthen the Corporate Governance of the Listed Entities. As per SEBI, “the Committee was asked to suggest measures for “ensuring independence in the spirit of independent directors and their active participation in the functioning of the company”.

The Committee had twelve meetings over a period of four months and after the last on September 29, 2017, it submitted the Committee Report on 05th October 2017, after its unfathomable research and to improve the existing scenario and policies of the listing entities, formulated recommendations overhauling the listed norms on Corporate Governance enduring more disclosures of Related Party Transactions, safeguarding shareholders’ interests etc. SEBI then sought for comments from the experts of various sectors and industrialists and finally accepted most of the recommendations of the Committee in its meeting held on 28th March 2018.

All the regulations will be effective from April 1, 2019, save as specifically provided otherwise in the regulations.

The Snapshot of the Regulations which are made effective by
SEBI Vide Notification dated 9th May 2018 is produced below:

Regulation 2(1) (zb): The related party definition is amended by including the person or entity belonging to the promoter or promoter group entity which holds 20% or more of shareholding in the listed entity. So, now the Related Party disclosures require an additional check for the compliances.

Reg.16(1)(b): The Definition of Independent Director is modified by making the person ineligible to be an Independent Director

(ii) if he/she is the member of the promoter group of the listed entity

(viii) Who is not an independent Director of another company on the Board of which any non-independent Director of the listed entity is an independent Director-effective from October 01, 2018.
Reg.16(1)(c): The definition of the material subsidiary is amended by reducing the parameter of income or net worth to be a material Subsidiary from 20% to 10%.

Reg.16(1)(d): The term Senior Management Personnel shall now include the Chief Executive Officer (if they were not a part of the Board earlier) and mandated inclusion of CS and CFO of the Company. So, Now Nomination and Remuneration Committee shall recommend the appointment of the Senior Management Personnel in Listed Entities i.e. appointment of CS, CFO, CEO and so on.

Reg.17(1)(a): A proviso under after this clause has been inserted mandating the appointment of one independent women Director of the top 500 listed entities* by April 1, 2019, and 1000 Listed entities by April 1, 2020*. This is a good step in improving and strengthening the gender diversification further.

Reg.17(1)(b): A new clause is inserted increasing the minimum number of the Directors in a Listed Company shall not be less than Six of top 1000 entities from April 1, 2019, and of top 2000 entities* from April 2, 2020.

Reg.17(1A): This sub-section is inserted which requires the approval of Shareholders via Special Resolution if a Non – Executive Director attains the age of 75 years and the justification of his appointment should be given in the annexed explanatory statement.

Reg.17(1)(B): This is also a new clause inserted making it mandatory to separate theChairpersonn form the MD/ CEO and the chairmanship should be limited to the Non-executive Directors of the 500 Listed Entities*. This is one of the most important change as recommended by the Committee to separate the two crucial positions of the management. Now the Chairman should not be a relative (as per Companies Act, 2013) of the MD or CEO of the Company. But a provision is given that this sub-regulation shall not be applicable to the listed entities which do not have any identifiable promoters as per the shareholding pattern filed with stock exchanges- Effective from April 1, 2020.
Reg.17(1)(2A): The quorum of the Board Meeting is amended for top 1000 listed entities from 01.04.2019 and of top 2000 listed entities*, shall be 1/3rd of the total strength (attendance including audio visual and video conferencing) or 3 Directors, higher of the two including presence of one ID.

Reg.17(6) (ca): To make the remuneration of every single Non Executive Director, this insertion is done making it compulsory to take prior approval of shareholders via Special Resolutions if a single Non Executive Director receives remuneration exceeding fifty percent of the total annual remuneration payable to all non-executive directors and the details of the same to be provided correspondingly with such remuneration to be paid every year.
Reg. 17 (6) (e): To curb the disproportionate remuneration payable to the executive director, a new clause (e) is inserted that shareholders approval vide Special Resolution is required if the remuneration payable to a single executive promoter-director to Rs. 5 crores or 2.5% of the net profit, whichever is higher. The net profits to be calculated as per Section 198 of the Companies Act, 2013.
Reg. 17(10): The evaluation of the Independent Directors which is already covered under the Companies Act, 13 and LODR Regulations mandated that independence criteria of the IDs and the performance of their responsibilities to be evaluated every year. To note the fact, this was already present under the code of conduct schedule IV of the Companies Act 13.
Reg.17(11): The explanatory statement for every special business item should contain the recommendation from the Board specifically.
Reg.17A: Number of Directorships
A new Clause has been inserted reducing the number of directorships any director can hold in listed companies.


  • Under CA 2013- Maximum directorship in public companies is 10
  • Under SEBI LODR Regulations- i) 7 Companies to get appointed in as an ID and if a person is a WTD of any listed entity, then can only hold directorship as ID in3 Companies.

  • No person shall hold office as a director, including any alternate directorship, in more than eight listed entities at the same time (of which independent directorships shall not exceed seven), with effect from April 1, 201,9 and not more than seven listed entities with effect from April 1, 2020:

Newly Inserted (2A): Quorum for NRC Meetings: A new clause has been inserted fixing the quorum of the Nomination & Remuneration Committee be either two members or one-third of the members of the committee, whichever is greater, including at least one independent director in attendance.

Newly Inserted (3A): Frequency of mandatory meetings: The NRC is required to meet once in a year compulsorily.

Reg.20 Stakeholders Relationship Committee

(1)The words “the mechanism of redressal of grievances” shall be substituted with the words “various aspects of interest”. This amendment was required a significant increase in its scope and responsibilities to include actively engaging and communicating with the major shareholders of the company.

Composition and frequency of Meetings: (2A & 3A): The composition of 3 directors of Shareholders grievances Committee should at least contain 1 ID and the SRC should meet at least once in a year to discuss the safeguard of the interest of the shareholders.

Reg.21: Risk Management Committee (RMC)

The RMC is now mandatory for 500 listed entities* and owing to the dynamic competitive environment, the Committee should meet once in every year and the area of RMC scope is widened inserting such function shall specifically cover cybersecurity in sub-regulation (4).

Reg.23: Board Responsibilities:

  • The Board of Directors shall fix the clear threshold limits of the materiality policy of the Company and such policies to be reviewed by the Board once in every 3 years.
Newly Inserted:(1A) If a transaction involving payments made to a related party 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 a financial year, exceed two percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

Related Party Not to vote to approve:(4) Now the related parties to the transactions shall not vote at the meeting to approve the transaction but are allowed related parties to cast a negative vote, as such voting cannot be considered to be in conflict of interest.

Newly Inserted (9): 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 website. Effective from: The amendment shall come into force with effect from the half-year ending March 31, 2019.

Reg.24: Appointment of ID in Unlisted Material Subsidiary:

Previously, Sub-Regulation (1) mandated the appointment of at least 1 ID of the Listed Entity to be a director on the board of directors of an unlisted material subsidiary, incorporated in India. This sub-regulation is however substituted with the requirement of the appointment of the ID of the Listed Entity on the board of an unlisted material subsidiary, whether incorporated in India or not.

For this purpose, Unlisted Material Subsidiaries shall mean the subsidiary, which whose income or net worth exceeds twenty percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.

Further, sub-regulation (4), now the Listed Entity shall review significant transactions and arrangements, enterd by its Unlisted Subsidiaries irrespective of being material or not.

Newly Inserted 24A: For strengthening group oversight and improving compliance at a group level, all listed entities and its material unlisted subsidiaries shall undertake secretarial Audit. Effective from March 31, 2019.

Reg:25: Alternate Directorship not in case of IDs

Newly Inserted (1A): Unlike Companies Act, 2013 which permits the appointment of an alternate director in place of ID, a listed entity shall not appoint any person as an alternate director for an independent director of a listed entity. Effective from April 1, 2018.

Newly Inserted (8): Every independent director shall, at the first meeting of the board in which he participates as a director and thereafter at the first meeting of the board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, submit a declaration that he meets the criteria of independence as provided in clause (b) of sub-regulation (1) of regulation 16 and that he is not aware of any circumstance or situation, which exist or may be reasonably anticipated, that could impair or impact his ability to discharge his duties with an objective independent judgment and without any external influence.

(10): Directors and Officers insurance (‘D and O insurance’) for all their independent directors of such quantum and for such risks as may be determined by its board of directors.: Effective from October 1, 2018, the top 500 listed entities.*

Reg 29: Complusory intimation of Bonus Issue

Sub-Regulation (1)(f): The clause of intimation of Bonus Issue to the stock exchange only in case the same is mentioned in the agendas of the meeting is dropped of, making it mandatory advance notice for consideration of bonus issue by the board should be required to be submitted to stock exchanges.

Newly Inserted: For better transparency, appropriate disclosures of the utilization of funds proceeds is mandated. So, If funds are raised by preferential allotment or QIPs to be disclosed in the Annual Report every year until the funds as fully utilized.

Reg.33: Financial Disclosures made more frequent

In the interest of greater transparency at the group level, it is recommended that that disclosure of consolidated financial statements should be made mandatory for all listed entities on a quarterly basis. It is also clarified that standalone results shall continue to be required to be published.

Further, publishing a cash flow statement on a half-yearly basis should be made mandatory for all listed entities. (Newly Inserted g,h,i).

“(8) The statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/ companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by the Board on this matter.”

Reg.34: Annual Reports disclosure within a specific time frame

Sub-regulation(1): The requirement of disclosure of the annual report to the exchanges within 21 working days after the AGM results in delayed disclosures to the shareholders. So, now Copy of the annual report sent to the shareholders along with the notice of the AGM to be disclosed not later than the day as dispatched to the shareholders and in the event of any changes to the annual report, the revised copy along with the details of explanation for the changes shall be sent not later than 48 hours after the annual general meeting. Effective from March 31, 2019.

Reg.36: Stock Exchange Intimation

In sub-regulation(1)(a) the words “ for the purpose” shall be omitted and the words “either with the listed entity or with any depository” shall be inserted. Effective from Annual Report of March 31, 2019.

Newly Inserted (4): To facilitate better transparency, (a) to the stock exchanges shall be in XBRL format in accordance with the guidelines specified by the stock exchanges from time to time; and (b) to the stock exchanges and on its website, shall be in a format that allows users to find relevant information easily through a searching tool: Effective with immediate effect from the date of publication in the official gazette.

Newly Inserted (5): In case of appointment of Statutory Auditor appointment, the explanatory statement attached with the Notice shall specifically contain the credentials of the statutory auditor(s) proposed to be appointed and detailed Proposed fees payable to the statutory auditor.

Reg.44: Reducing timelines for holding of AGMs by listed entities

To make in line with the global practices, and to avoid a bunching up of AGMs which results in lower shareholder participation, two few sub-regulations have been added:

(5)The top 100 listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their annual general meetings within a period of five months from the date of closing of the financial year.  

(6) The top 100 listed entities* shall provide a one-way live webcast of the proceedings of the annual general meetings.

Reg 46: Separate section of disclosure on Website:

To ease the availability and access of pertinent information in one place to investors and regulators, it is mandated for all the listed entities to have a separate section on the website for investors and regulators.

Newly Inserted:

Clause (r) & (s): All credit rating changes to be disclosed as soon as any changes take place and separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year, uploaded at least 21 days prior to the date of the annual general meeting which has been called to inter alia consider accounts of that financial year: Effective from October 1, 2018

Schedule II: Corporate Governance:

PART C-Role of the Audit Committee and Review of Information by Audit Committee:

Newly Inserted: Clause (21): Now, the Audit Committee shall review the utilization of loans and/ or advances from/investment by the holding company in the subsidiary exceeding rupees 100 crore or 10% of the asset size of the subsidiary, whichever is lower including existing loans / advances / investments existing as on the date of coming into force of this provision.

Part D (A): Role Of Nomination And Remuneration Committee:

Newly Inserted (6): The NRC shall henceforth recommend to the board, all remuneration, in whatever form, payable to senior management.

PART D: Stakeholders Relationship Committee (SRC):

To securing the interests of all shareholders is a fiduciary duty of the board an inclusive detailed role of the SRC is substituted with the existing one:

(Clause B): Resolving the grievances of the security holders of the listed entity including complaints related to transfer/transmission of shares, non-receipt of annual report, non-receipt of declared dividends, issue of new/duplicate certificates, general meetings etc. (2) Review of measures taken for the effective exercise of voting rights by shareholders. (3) Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the Registrar & Share Transfer Agent etc.

Schedule III Part A:
Newly Inserted (7A): resignation of the auditor
In case of resignation of the auditor of the listed entity, detailed reasons for the resignation of an auditor, as given by the said auditor, shall be disclosed by the listed entities to the stock exchanges as soon as possible but not later than twenty-four hours of receipt of such reasons from the auditor.

Newly Inserted (7A): resignation of the Independent Director
In case of resignation of an independent director of the listed entity, within seven days from the date of resignation, the disclosures like reasons of resignation, confirmation that there is no other material reasons by the ID to be provided.
Schedule V: PART A: Related Party Disclosures: Effective from the Annual Reports ended March 31 and thereafter:
Newly Inserted (2A): The disclosures of transactions of the listed entity with any person or entity belonging to the promoter/promoter group which hold(s) 10% or more shareholding in the listed entity, in the format prescribed in the relevant accounting standards for annual results.
PART C: Corporate Governance (CG) Report:
In the CG Report, more information w.r.t the directorship in other companies and the category of directorship” shall be inserted. Effective from the Annual Report for the year ended 31st March 2019.

After the existing sub-clause (g), the following new sub-clauses shall be inserted, namely, -

Newly Inserted:(h): Skills/ Expertise of the Board: A chart or a matrix setting out the skills/expertise/competence of the board of directors specifying the following:
  • The list of core skills/expertise/competencies identified by the board of directors as required in the context of its business(es) and sector(s): Effective from March 31, 2019
  • the names of directors who have such skills/expertise /competence: Effective from March 31, 2020
  • confirmation of the Independency of IDs
(j)  Detailed reasons for the resignation of an independent director who resigns before the expiry of his tenure along with a confirmation by such director that there are no other material reasons other than those provided.”  

Newly Inserted: clause(9)(q): Details of all credit ratings obtained by the entity along with any revisions thereto during the relevant financial year.”

Newly Inserted clause (10)(h): Details of utilization of funds raised through preferential allotment or qualified institutions placement as specified under Regulation 32 (7A).

Newly Inserted clause (10)(i) a certificate from a company secretary in practice that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as directors of companies by the Board/Ministry of Corporate Affairs or any such statutory authority.

(j) where the board had not accepted any recommendation of any committee of the board which is mandatorily required, in the relevant financial year, the same to be disclosed along with reasons thereof:

(k)total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm/network entity of which the statutory auditor is a part.” total fees for all services paid by
Note:* On the basis of market capitalization, as at the immediate previous financial year.
Advertise With Us

Click here to read the disclaimer

Write a Comment