ANALYSIS: SECURITIES AND EXCHANGE BOARD OF INDIA (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) (THIRD AMENDMENT) REGULATIONS, 2021 DATED 3RD AUGUST, 2021

The SEBI vide its notification dated 03rd August, 2021 makes the following amendment in the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 effective from on the date of their publication in the Official Gazette i.e. 03rd August, 2021:

1. Regulation 16 of SEBI LODR, 2015

Amendment in definition of Independent Director
Regulation 16 sub regulation 1 clause (b)Sub Clause (iv)

S. No Existing Regulation After Amendment
1. Who, apart from receiving director’s remuneration, has or had no material pecuniary relationship with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, during the Two immediately preceding financial years or during the current financial year; Who, apart from receiving director’s remuneration, has or had no material pecuniary relationship with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, during the Three immediately preceding financial years or during the current financial year;
Conclusion:

Independent director (Proposed to be appointed): means a non-executive director, other than a nominee director of the listed entity who, apart from receiving director’s remuneration has or had no material pecuniary Relationship with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, during the Three immediately preceding financial years.

Amendment in definition of Independent Director Regulation 16 sub regulation 1 clause (b) Sub Clause (v)

Existing Regulation After Amendment
None of whose relatives has or had pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed from time to time, whichever is lower, during the two immediately preceding financial years or during the current financial year; (A) is holding securities of or interest in the listed entity, its holding, subsidiary or associate company during the three immediately preceding financial years or during the current financial year of face value in excess of fifty lakh rupees or two percent of the paid-up capital of the listed entity, its holding, subsidiary or associate company, respectively, or such higher sum as may be specified; (B) is indebted to the listed entity, its holding, subsidiary or associate company or their promoters or directors, in excess of such amount as may be specified during the three immediately preceding financial years or during the current financial year; (C) has given a guarantee or provided any security in connection with the indebtedness of any third person to the listed entity, its holding, subsidiary or associate company or their promoters or directors, for such amount as may be specified during the three immediately preceding financial years or during the current financial year; or (D) has any other pecuniary transaction or relationship with the listed entity, its holding, subsidiary or associate company amounting to two percent or more of its gross turnover or total income: Provided that the pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company or their promoters, or directors in relation to points (A) to (D) above shall not exceed two percent of its gross turnover or total income or fifty lakh rupees or such higher amount as may be specified from time to time, whichever is lower.”
Conclusion:

Definition of pecuniary relationship or transaction clarified.

Amendment in definition of Independent Director Regulation 16 sub regulation 1 clause (b) Sub Clause (vi)

S. No Existing Regulation After Amendment
3. who, neither himself, nor whose relative(s) holds or has held the position of a key managerial personnel or is or has been an employee of the listed entity or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed; who, neither himself/herself, nor whose relative(s) holds or has held the position of a key managerial personnel or is or has been an employee of the listed entity or its holding, subsidiary or associate company “or any company belonging to the promoter group of the listed entity, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed; Newly inserted proviso “Provided that in case of a relative, who is an employee other than key managerial personnel, the restriction under this clause shall not apply for his / her employment.”
Conclusion:

1) Independent director (Proposed to be appointed): means a non-executive director, other than a nominee director of the listed entity who neither himself/herself, nor whose relative(s) holds or has held the position of a key managerial personnel or is or has been an employee of the listed entity or its holding, subsidiary or associate company “or any company belonging to the promoter group of the listed entity, in any of the three financial years immediately preceding the financial year.

2) Exemption: Relative who is an employee other than key managerial personnel, the restriction under this clause shall not apply for his / her employment.”

2. Regulation 17 of SEBI LODR, 2015

Amendment in Board of Directors (Regularisation of Director) Regulation 17 sub regulation (1C)

S. No Existing Regulation After Amendment
1.

Newly Inserted regulation

The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier.”

Conclusion:

Regularisation of Director by shareholders in General Meeting shall be done within three months from the date of appointment or Next Annual General Meeting, whichever is earlier.

In general Companies Regularise Directors in Next AGM after the appointment but after introduction of this newly inserted sub regulation those Companies who appoint Director during the year and whose date of AGM is beyond 3 months from the date of appointment of such Director, have to call EGM and Regularise Directors before AGM.

3. Regulation 18 of SEBI LODR, 2015

Amendment in Audit Committee (Composition of Audit Committee) Regulation 18 sub regulation (1) clause (b)

S. No Existing Regulation After Amendment
1.

Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to:

Two-thirds of the members of audit committee shall be independent directors 33[and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors].

Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to:

At least Two-thirds of the members of audit committee shall be independent directors 33[and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors].

4. Regulation 19 of SEBI LODR, 2015

Amendment in Nomination and remuneration committee (Composition of Committee) Regulation 19 sub regulation (1) clause (c)

S. No. Existing Regulation After Amendment
1. at least fifty percent of the directors shall be independent directors [and in case of a listed entity having outstanding SR equity shares, two thirds of the nomination and remuneration committee shall comprise of independent directors]. at least two-thirds of the directors shall be independent directors [and in case of a listed entity having outstanding SR equity shares, two thirds of the nomination and remuneration committee shall comprise of independent directors].

5. Regulation 23 of SEBI LODR, 2015

Amendment in Related party transactions Regulation 23 sub regulation (2)

S. No Existing Regulation After Amendment
1. All related party transactions shall require prior approval of the audit committee.

All related party transactions shall require prior approval of the audit committee.

New proviso inserted

“Provided that only those members of the audit committee, who are independent directors, shall approve related party transactions.”

6. Regulation 25 of SEBI LODR, 2015

Amendment in Obligations with respect to independent directors Regulation 25 sub regulation (2A)

S. No. Existing Regulation After Amendment
1. New inserted sub regulation The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.

Amendment in Obligations with respect to independent directors Regulation 25 sub regulation (6)

S. No Existing Regulation After Amendment
2. An independent director who resigns or is removed from the board of directors of the listed entity shall be replaced by a new independent director by listed entity at the earliest but not later than the immediate next meeting of the board of directors or three months from the date of such vacancy, whichever is later: Provided that where the listed entity fulfils the requirement of independent directors in its board of directors without filling the vacancy created by such resignation or removal, the requirement of replacement by a new independent director shall not apply.

An independent director who resigns or is removed from the board of directors of the listed entity shall be replaced by a new independent director by listed entity at the earliest but not later than the or three months from the date of such vacancy,

Provided that where the listed entity fulfils the requirement of independent directors in its board of directors without filling the vacancy created by such resignation or removal, the requirement of replacement by a new independent director shall not apply.

Amendment in Obligations with respect to independent directors Regulation 25 sub regulation (10)

S. No Existing Regulation After Amendment
3. With effect from October 1, 2018, the top 500 listed entities by market capitalization calculated as on March 31 of the preceding financial year, shall undertake 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.] With effect from January 1, 2020, the top 1000 listed entities by market capitalization calculated as on March 31 of the preceding financial year, shall undertake 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.]

Amendment in Obligations with respect to independent directors Regulation 25 sub regulation (11)

S. No Existing Regulation After Amendment
4. New inserted sub regulation No independent director, who resigns from a listed entity, shall be appointed as an executive / whole time director on the board of the listed entity, its holding, subsidiary or associate company or on the board of a company belonging to its promoter group, unless a period of one year has elapsed from the date of resignation as an independent director.

7. Regulation 36 of SEBI LODR, 2015

Amendment in Documents & Information to shareholders Regulation 36 sub regulation (3) Clause (d)

S. No Existing Regulation After Amendment
1. In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with names of listed entities in which the person also holds the directorship and the membership of Committees of the board; In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with names of listed entities in which the person also holds the directorship and the membership of Committees of the board along with listed entities from which the person has resigned in the past three years;

Amendment in Documents & Information to shareholders Regulation 36 sub regulation (3) Clause (f)

S. No Existing Regulation After Amendment
2. New inserted sub Clause In case of independent directors, the skills and capabilities required for the role and the manner in which the proposed person meets such requirements.

8. Schedule II of SEBI LODR, 2015

Amendment in disclosure of information having bearing on performance/ operation of listed entity and/or price sensitive information: securitised debt instrument Schedule II Part D in Para A clause (1) Sub Clause (1A)

S. No Existing Regulation After Amendment
2. New inserted sub Clause For every appointment of an independent director, the Nomination and Remuneration Committee shall evaluate the balance of skills, knowledge and experience on the Board and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director. The person recommended to the Board for appointment as an independent director shall have the capabilities identified in such description. For the purpose of identifying suitable candidates, the Committee may: a. use the services of an external agencies, if required; b. consider candidates from a wide range of backgrounds, having due regard to diversity; and c. consider the time commitments of the candidates.”

9. Schedule III of SEBI LODR, 2015

Amendment in Disclosures of Events or Information: Specified Securities Schedule III Part A in Para A clause (7B) Sub Clause (i)

S. No Existing Regulation After Amendment
1. Detailed reasons for the resignation of independent directors as given by the said director shall be disclosed by the listed entities to the stock exchanges. The letter of resignation along with detailed reasons for the resignation directors as given by the said director.

Amendment in Disclosures of Events or Information: Specified Securities

Schedule III Part A in Para A clause (7B) Sub Clause (ia)

S. No Existing Regulation After Amendment
2

New inserted sub Clause

Names of listed entities in which the resigning director holds directorships, indicating the category of directorship and membership of board committees, if any.

Amendment in Disclosures of Events or Information: Specified Securities

Schedule III Part A in Para A clause (7B) Sub Clause (iii)

S. No S. No After Amendment
3.

The confirmation as provided by the independent director shall also be disclosed by the listed entities to the stock exchanges along with the detailed reasons as specified in sub-clause (i) above.] 

The confirmation as provided by the independent director shall also be disclosed by the listed entities to the stock exchanges along with the disclosures as specified in sub-clause (i) and (ii) above.] 

Conclusion:

In case of Resignation of Independent Director/Auditor the Listed company shall intimate Stock Exchange

i. The letter of resignation along with detailed reasons for the resignation as given by the said director.

ii. The independent director shall, along with the detailed reasons, also provide a confirmation that there is no other material reasons other than those provided.

iii. Confirmation Letter received from Independent director/Audior.

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