Owing to the recent amendments brought in by the lawmakers in order to enhance the corporate governance norms applicable to companies, the Securities and Exchange Board of India (“SEBI”) at its Board meeting held on 28th March 2018 and pursuant to the commendations made by the Uday Kotak Committee through its Committee Report, suggested amendments proposed to be made in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’). Ministry of Corporate Affairs (“MCA”) also in its attempts to streamline the compliance requirements under the Companies Act, 2013 (“the Act”) and in order to remove certain discrepancies therein came up with the Companies (Amendment) Act, 2017 on January 3, 2018.
Below amendment notifications issued by SEBI:-
SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 (“Amendment Regulations”) dated May 9, 2018
SEBI (Listing Obligations and Disclosures Requirements) (Sixth Amendment) Regulations, 2018 on November 16, 2018
SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 (“PIT Amendment Regulations”) dated December 31, 2018
SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2019 dated January 21, 2019
Amendment Notification dated September 12, 2018
Accordingly, it is of utmost essence for listed entities to assess their preparedness and take immediate steps to fulfill the requirements at the earliest. Herein, it is pertinent to note that amongst those diverse compliances that the companies are required to proactively work upon, there also is an exhaustive requirement to update their existing policies and codes in line with the above-mentioned amendments by virtue of which the existing policies and codes of the companies are required to be updated by the end of the Financial Year i.e. March 31, 2019. In this write up we discuss on all those policies and codes that are required to be maintained by the companies including those substantial changes which are required to be inculcated into the same before April 1, 2019.
Policies / Codes
Relevant provisions of the Act/ SEBI Regulations
Policy for determining ‘Material Subsidiary’
Reg. 16(1)(c ), Reg. 24(1) & Sec. 2(87)
· Threshold for determining material subsidiary to be reduced from 20% to 10% in the definition
· Definition of Subsidiary to inter alia include a company in which the holding company exercises or controls more than one-half of the ‘total voting power’ in place of ‘share capital’
· Foreign subsidiaries to qualify as material subsidiaries. A threshold for determining material subsidiaries shall be 20% for this provision [Reg 24(1)].
Policy on Related Party Transactions
Reg. 23 (1) & Reg. 46(2)(g)
· Definition of related party to include any person or entity belonging to the promoter/promoter group of the listed entity and holding 20% or more of shareholding in such entity
· RPTs to include clear threshold limits duly approved by the board
· Policy shall be reviewed by the board at least once in every 3 years and updated accordingly
· Revision in the threshold of ‘material RPTs’ involving payments made to a related party for brand usage or royalty
· Amendments pertaining to AS/IND AS, as may be applicable
· While voting for Material RPTs, related parties shall not abstain from voting but can cast vote against/ not in favor of the transaction
· Updated policy to be placed on the website and web-link for the same to be furnished in the Annual Report
Policy for determination of Materiality
· Policy to be amended to the extent of amendments in schedule III in case they are a part of the existing policy
Nomination and Remuneration Policy
Section 178 (3)&(4) of the Act and Reg. 19, Schedule II (Part D) of the Listing Regulations
· Policy to provide a criteria for determining qualifications, positive attributes and independence of a director along with remuneration of the directors, key managerial personnel and other employees.
· Policy shall be amended to the extent it includes the criteria of independence in Section 149 and Managerial Remuneration as per Section 196, 197, 198 of the Act which has been amended pursuant to the Companies Amendment Act, 2017
Policy on diversity of board of directors
Reg 17 and Schedule II, Part D
· The policy shall set an approach to have a diversity on the Board in order to maintain a balance of skills, experience, expertise and other distinctions between Directors
· The optimum composition of the board to be amended pursuant to Reg. 17, if included in the policy
Whistle Blower Policy
Reg. 46(2)(e) of the Listing Regulations & Reg. 9A(6) of SEBI(PIT)Regulations, 2015
· Policy to contain the details of establishment of vigil mechanism and be placed on the website
· The details of establishment of such policy shall also be a part of the Corporate Governance Report.
· The existing policies shall be amended to insert the scope of any instances related to insider trading as well, to enable employees to report instances of leak of UPSI or suspected leak of UPSI and appropriate actions to be taken in this regard.
Code of Practices and Procedures for Fair Disclosure of Unpublished Price
Sensitive Information (‘UPSI’)
Reg. 8 read with Schedule A of the PIT Regulations
Reg. 3(2A) of PIT (Amendment) Regulations, 2018
· The policy shall lay down principles and practices to be followed by the Company pertaining to universal disclosure of UPSI.
· Definition of UPSI as per the PIT Amendment Regulations
· Companies shall be required to incorporate the policy for determination of legitimate purposes for sharing of UPSI, as a part of the code.
· The policy shall provide procedures for inquiry in case of leak of UPSI or suspected leak of UPSI and to initiate appropriate inquiries on becoming aware of leak of UPSI or suspected leak of UPSI and inform SEBI promptly of such leaks, inquiries and results of such inquiries.
Code of Conduct to regulate, monitor and report trading by Insiders
Reg. 9 read with Schedule B of the PIT Regulations and SEBI Circular No. SEBI/HO/CFD/DCR1/CIR/P/2018/85 dated May, 28, 2018
The applicability of the code has changed from employees & connected persons on the basis of their roles and functions to designated persons and their immediate relatives
The existing Code of Conduct shall be amended to include the following:-
· Appropriate procedures to regulate, monitor and report trading by its designated persons and immediate relatives of designated persons in line with Schedule B (in case of a listed company) or Schedule C (in case of a intermediary) of the PIT Regulations, as applicable.
· Specify the persons who shall be covered within the ambit of the term ‘Designated Persons’ as provided in the Amended PIT Regulations and on the basis of their role, functions, seniority and professional designation and access to UPSI
· Circumstances and procedures to ensure how and when people tend to handhold on the sensitive transactions
· An institutional mechanism i.e. the system for internal controls framed by the company to ensure compliance of the PIT Regulations
· Details and personal information to be submitted by the Designated Persons to the compliance officer
· Amendments pertaining to ‘Initial’ & ‘Continual’ Disclosures as provided in Regulation 7 of the PIT Regulations and the requirement for the ‘Members of the promoter group’ also to disclose the securities held and/or traded.
· Functions and obligations of the Compliance Officer
The entire contents of this article are solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation by the Author. Compliance Calendar LLP and the Author of this Article do not constitute any sort of professional advice or a formal recommendation. The author has undertaken utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify and confirm the updates from the genuine sources before acting on any of the information’s provided hereinabove. Compliance Calendar LLP shall not be responsible for any loss or damage in any circumstances whatsoever.