Key Takeaways of SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2021 (LODR)

SEBI vide its notification dated 03rd August, 2021 have amended Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”) for the third time in 2021.

Such an amendment has been published in the official gazette on 03rd August, 2021 and is effective from January 1, 2022.

Link of gazette notification: Notification No. SEBI/LAD-NRO/GN/2021/35, Dated:03/08/2021

Link of gazette corrigendum:  Notification No. SEBI/LAD-NRO/GN/2021/38, dated: 06/08/2021

Key takeaways of such third amendment to LODR are as follow:

AMENDMENTS RELATING TO INDEPENDENT DIRECTOR

1. Amendment in Regulation 16 to align the criteria of independent directors with the provisions of Companies Act, 2013.

2. Amendment to Regulation 25 by inserting sub-regulation (2A) which requires that 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.

Impact: Earlier the appointment of independent director for the first term required ordinary resolution only, however, from 01.01.2022, the appointment can be done by passing special resolution only. 

3. Amendment to Regulation 25(6) Appointment of Independent Director pursuant to vacancy arises due to resignation or removal.

Earlier Requirement Amended Requirement
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: 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 the listed entity at the earliest but not later than the three months from the date of such vacancy.

Impact: Pursuant to new requirements the vacancy arises on the board due to resignation or removal of independent director shall be filled within the period of 3 months.

4. Amendment to Regulation 25 by inserting sub-regulation (11) which states that the independent director, who resigns from a listed entity, shall not 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 cooling off period of one year has elapsed from the date of resignation as an independent director.

5. Amendment to Regulation 36 whereby the disclosure requirement related to the independent director proposed to be appointed at general meeting has been enhanced.

Impact: As per such amendment, now, the board is required to provide the skills and capabilities required for the role and the manner in which the proposed person meets such requirements.

6. With effect from 01.01.2022, top 1000 companies based on market cap 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.

AMENDMENTS RELATING TO DIRECTORs

7. Insertion of Regulation 17(1)(C) by virtue of which, 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.

AMENDMENTS RELATING TO NOMINATION AND REMUNERATION COMMITTEE

8. Amendment in Regulation 19(1)(c) relating to change in composition of Nomination and Remuneration Committee in following manner:

Earlier composition Amended composition
>  the committee shall comprise of at least three directors;

>  all directors of the committee shall be non-executive directors;

>  at least 50% of the directors shall be independent directors

> the committee shall comprise of at least three directors;

> all directors of the committee shall be non-executive directors;

> at least 2/3rd of the directors shall be independent directors

Illustration: If a committee has 6(six) directors as its members, then as per the new requirement 4(four) members of the committee shall be independent directors. However, the erstwhile requirement mandates appointment of 3 independent directors only.

9. Amendment to Schedule II by enhancing the role of Nomination and Remuneration Committee (NRC) which requires that NRC should evaluate the following and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director:

a. balance of skills

b. knowledge and experience on the Board.

Based on such evaluation and description so prepared, the person recommended by NRC to the Board for appointment as an independent director shall have the capabilities identified in such description.

Further, in terms of Reg. 36, the board has to disclose the same to the shareholders while recommending the appointment of an independent director at the general meeting.

AMENDMENTS RELATING TO RELATED PARTY TRANSACTION

10. Amendment in Regulation 23(2) relating to approval of audit committee for related party transaction:

Earlier provision Amended provision
All related party transactions shall require prior approval of the audit committee All related party transactions shall require prior approval of the audit committee

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

Impact: Only Independent director shall approve related party transactions and other directors including non- executive non independent and executive director shall recuse themselves from taking part from such business.

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