Diverging corporate laws

The government of India recently constituted a committee to enhance and create more opportunities by reshaping the existing rules and regulations. This is in relation to the Company Law for which SEBI (Securities Exchange Board of India) has come up with amendments providing a phased timeline from October 1, 2018 to April 1, 2020 for most of the impediments.

Key amendments effective from April 1, 2019 made by SEBI:

1. Divergence of related party transactions  on consolidation basis

In accordance to Regulation 23 of SEBI (Listing Obligations and Disclosures Requirements’) (Amendment) Regulations, 2018, disclosure of related party transactions by listed entities on a consolidated basis to the stock exchange should also be published at the website of the company within a time span of 30 days from the date of publication of its standalone and consolidated financial results.

 2. Criteria for determination of material subsidiary

This amendment states that unlisted material subsidiaries referred to under sub-regulation 1 of regulation 24 shall include the companies “whether established in India or not”. Thus, foreign subsidiary companies shall also be included within the spread of material subsidiaries. Antecedently, regulation 24 of listing regulations provided the material subsidiaries to include only those subsidiary companies which were incorporated in India.

3. Secretarial audit report and its material unlisted subsidiaries

Regulation 24A of the amended regulation requires appending of secretarial audit report for F.Y. 2018-19 by all listed entity and its material unlisted subsidiaries established in India.

4. Defining Independent Director

The definition of independent director shall exclude:

• • Member persons of the promoted group of a listed entity.
  • Person who neither himself nor whose relative is a CEO/ MD/ WTD / Manager, CS & CFO, of any non- profit entity receiving 25% or more of its receipts or corpus from the listed entity, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2 % or more of the total voting power of the listed entity.
  • Non-independent directors of other company on the board of which any non-independent director of the listed entity is an independent director.

5. Revised quorum for Board meeting for top 1000 listed companies

The revised quorum requirement for Board Meeting of top 1000 listed companies shall be 1/3 of its total strength or 3 directors whichever is higher, including at least one Independent Director.

6. Independent women director

Companies falling in top 500 listed entities based on their market capitalization as on March 31, 2019 will be now required to appoint a woman independent director.

7. Maximum number of directorship

Eight (8) is the maximum number of directorships that can be held at any point of time in equity listed entities.

8. Minimum number of directors in board for top 1000 listed companies

Regulation 17(1) (a) of the amended regulations, the Board of directors of the top 1000 listed entities comprise of not less than 6 directors. Hence, the companies in which minimum number of directors is less than 6 shall have to appoint additional directors, subject to shareholders’ approval, whose appointment should be regularized at the ensuing AGM (Annual General Meeting).

Changes in SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018 effective from April 01, 2019

On December 31, 2018, SEBI (Securities Exchange Board of India) notified the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018, effective from April 01, 2019 dealing the follow changes:

1. To eliminate ambiguity, the ‘material events in accordance with listing agreement’ has been removed as it was noted that the material events may or may not be price sensitive information.

2. SEBI has mandated the board of directors of the listed company or intermediaries defining their own policy relating to legitimate purposes which means listed company can have freedom to decide what may or may not be the legitimate purpose of business-related needs.

3. All the listed entities must maintain an electronic record containing name of person whom UPSI (Unpublished price sensitive information) is shares and the nature of UPSI.

4. The regulations currently required a common code of conduct applicable for all the listed entities, intermediaries and other person who are required to handle UPSI during the course of business operations.

To conclude, these rules have a significant role to play in understanding the substantive provisions as compared to the previous one. The impediments were guided by a broad objective for addressing difficulties in implementation owing to undue stringency of compliance requirements.