Analysis of Chapter IV of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) related to
OBLIGATIONS OF LISTED ENTITY WHICH HAS LISTED ITS SPECIFIED SECURITIES

Now, Securities and Exchange Board of India took direct regulatory role over the listed entities in India. Securities and Exchange Board of India notified in official gazette its SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 on 2nd September 2015.

Date of Publication in Official Gazette:                                      September 2, 2015

Date of Applicability:                                                                 December 1, 2015

OBLIGATIONS OF LISTED ENTITY WHICH HAS LISTED ITS SPECIFIED SECURITIES:

REGULATION 15- APPLICABILITY:-

A. The below given provisions shall apply to following Listed Entities, which has listed with any recognize Stock Exchange (s) for its [1]specified securities either on

  • [2]Main Board;
  • [3]SME Exchange
  • Institutional Trading Platform

NON APPLICABILITY:-

B. The compliance with the provisions as specified in regulation given below shall not apply to followings:

i. The listed entity having below given limits as on the last day of the previous financial year:

  • Paid up Equity Share capital not exceeding rupees 10 Crore (Ten Crore) and
  • Net Worth not exceeding rupees 25 Crore (Twenty Five Crore)

ii. The listed entity which has listed its specified securities on the SME Exchange.

iii. Listed Entities which are not companies, but body Corporate or are subject to regulations under other statues shall not apply to the extent that it does not violate their respective statutes and guidelines or directives issued by the relevant authorities

Note:

  • In Point No. (i) – If any time Listed Company cross the Limits given in point no (i) then such listed entity shall comply with the requirements those regulations within six months from the date on which the provisions became applicable to the listed entity
  • Notwithstanding provisions above, the provisions of Companies Act, 2013 shall continue to apply, wherever applicable
S. NO. No. of

Regulation

Particular of Regulation
1. 17 Board of Directors
2. 18 Audit Committee
3. 19 Nomination and Remuneration Committee
4. 20 Stakeholders Relationship Committee
5. 21 Risk Management Committee
6. 22 Vigil Mechanism
7. 23 Related Party Transactions
8. 24 Corporate Governance requirements with respect to subsidiary of listed Company
9. 25 Obligations with respect to independent Directors
10. 26 Obligations with respect to Directors and Senior Management
11. 27 Other Corporate Governance Requirements
12. 46(2)(i)(b) Website
13. Schedule V Para C,D,E

Regulation 17- BOARD OF DIRECTORS:-

(1) The Composition of Board of directors of the listed entity shall be as follows:

[4]Executive/Non Executive:

  • Board of Directors shall have an optimum combination of executive and non-executive directors
    • One Women Director
    • At least 50% of Board of Directors shall comprise of Non-Executive Director.

[5]Independent Director:

  • If Chairman of the Board is Non-Executive director
    • at least (1/3) one-third of the board of directors shall comprise of independent directors.
  • where the listed entity does not have a regular non-executive chairperson
    • at least (1/2) half of the board of directors shall comprise of independent directors
  • where the regular non-executive chairperson is a [6]promoter of the listed entity; or is [7]related to any promoter; or is related to person occupying management positions at the level of board of director; or is related to person occupying management positions at one level below the board of directors;
    • at least (1/2) half of the board of directors of the listed entity shall consist of independent directors.

(2)_ Frequency of Meeting:

  • At least 4 Board Meetings in a Year
  • Maximum Gap B/w Two Meetings 120 days.
  • [8]The Board shall meet at least once in every calendar quarter

(3) Review of Compliance Report:

  • The board of directors shall periodically review compliance reports pertaining to all laws applicable to the listed entity.
  • The board of directors shall periodically review steps taken by the listed entity to rectify instances of non-compliances

(4) (5) Duties of Board of Director:

  • Plans for Ordinary succession of appointment: The board of directors of the listed entity shall satisfy itself that plans are in place for orderly succession for appointment to the board of directors and senior management.
  • Code of Conduct: The board of directors shall lay down a [9]Code of Conduct for all members of board of directors and senior management of the listed entity.
  • Duties of Independent Director: The code of conduct shall suitably incorporate the duties of independent directors as laid down in the Companies Act, 2013.

(6) Fees or Compensation:

  • Recommendation of Fees: The board of directors shall recommend all fees or compensation, if any, paid to non-executive directors, including independent directors.
  • General Meeting Approval: After Recommendation of Board of Directors approval of Shareholder through Ordinary Resolution in General Meeting Required (to paid fees and compensation to non-executive directors including independent directors).

Approval of shareholders mentioned in clause (a), shall specify the limits for the maximum number of stock options that may be granted to non-executive directors, in any financial year and in aggregate.

Independent Director not entitled to any Stock Option

  • Payment of Sitting Fees: There is no need to obtain approval of Shareholder for payment of Sitting fees to Non-executive Director, If sitting fees paid according to the limit prescribed under Companies Act, 2013[10].

(8) Compliance Certificate: The chief executive officer and the chief financial officer shall provide the compliance certificate to the board of directors as specified in Part B of Schedule II.

(9) Risk Management Plan:

  • The board of directors shall be responsible for framing, implementing and monitoring the risk management plan for the listed entity.
  • Listed entity shall lay down procedure to inform members of the Board about risk assessment and minimization process.

(10) Performance evaluation of Independent Director:

  • The performance evaluation of independent directors shall be done by the entire board of directors.
  • In the above evaluation the directors who are subject to evaluation shall not participate.

COMMITTEES UNDER LISTING REGULATIONS:-

Name of Mandatory Committees:

LISTING REGULATIONS1Let’s Discuss Provisions Relating to all the committees one by one:

Regulation 18- AUDIT COMMITTEE: Every listed entity shall constitute a qualified and independent audit committee.

LISTING REGULATIONS2[11] [12]

♣ Chairperson:

  • The chairperson of the audit committee shall be an Independent Director.
  • He shall be present at Annual general meeting to answer shareholder queries

♣ Company Secretary: The Company Secretary shall act as the secretary to the audit committee.

♣ Invitation to attend Meeting of Audit Committee: The audit committee at its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee

♣ Frequency of Meetings:

  • At least 4 Board Meetings in a Year
  • Maximum Gap B/w Two Meetings 120 days.

♣ Quorum of Meetings:

Quorum♣ Powers of Committee: The audit committee shall have powers to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.

♣ Discretion of the Audit Committee: Its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee:

♣ Meeting without executive Director: Occasionally the audit committee may meet without the presence of any executives of the listed entity.

NOTE:

  • The ROLE of the audit committee and the INFORMATION TO BE REVIEWED by the audit committee shall be as specified in Part C of Schedule II.

Regulation 19. NOMINATION & REMUNERATION COMMITTEE:

  • Who Will Constitute This Committee?
    • Board of Directors shall constitute the nomination and remuneration committee. Constitution of N&R Committee will be as follow:
  • LISTING REGULATIONS 3Chairman of the company shall not Chair such Committee.
  • Chairman of Company can appoint as Member of committee.
  • Chairperson of Committee may be present at the Annual General Meeting.
  • What will be purpose of presence of Chairman of N&R Committee in Annual General Meeting?
    • To answer the shareholders’ queries

Regulation 20. STAKE HOLDER RELATIONSHIP COMMITTEE:

  • Purpose of Constitution: To look into the mechanism of redressal of grievances of shareholders, debenture holders and other security holders.
  • The chairperson of this committee shall be a non-executive director.
  • The board of directors shall decide other members of this committee.

NOTE:

  • The ROLE of the audit committee shall be as specified in Part D of Schedule II.

Regulation 21. RISK MANAGEMENT COMMITTEE:

  • Who Will Constitute this Committee?
    • Board of Directors shall constitute the committee.
  • Applicability: The provisions of this regulation shall be applicable to top 100 Listed Entities, determined on the basis of market capitalization, as at the end of the immediate previous financial year.
  • Constitution: Majority of Members of committee will be members of the board.
  • Chairperson: The Chairperson of the Risk management committee shall be a member of the board of directors and senior executives of the listed entity may be members of the committee.
  • Role and Responsibility: The board of directors shall define the role and responsibility of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit

Regulation 22- VIGIL MECHANISM:

  • Purpose: The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns.
  • The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism.
  • The Vigil Mechanism also provides for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

Regulation 25- OBLIGATIONS WITH RESPECT TO INDEPENDENT DIRECTORS:

  • LISTING REGULATIONS 4
  • Tenure of Independent Director:

LISTING REGULATIONS 5♠ Meeting of Independent Director:

  • The independent directors of the listed entity shall hold at least one meeting in a year.
  • Non-Independent Director will not present in such Meeting.
  • Members of the Management will not present in such Meeting.
  • All the Independent Directors shall strives to present in such Meeting.

♠ Agenda for the Meeting of Independent Director:

  • Review the performance of non-independent directors and the board of directors as a whole.
  • Review the performance of the chairperson of the listed entity.

(Taking into account the views of executive directors and non-executive directors 😉

  • Assess the quality, quantity and timeliness of flow of information between the management of the listed entity and the board of directors that is necessary for the board of directors to effectively and reasonably perform their duties.

♠ Liability of Independent Director:

An independent director shall be held liable, ONLY in respect of such acts of omission or commission by the listed entity which had occurred;

  • with his knowledge and
  • attributable through processes of board of directors, and
  • with his consent or connivance or
  • where he had not acted diligently with respect to the provisions contained in these regulations.

[13]Intermittent vacancy of an Independent Director: Any Intermittent Vacancy of an Independent director shall be filled-up by the

Board of Directors at the earliest but not later than

  • Immediate Next Board Meeting OR
  • 3 (Three) Months from the date of Such Vacancy, Whichever Is Later:

♠ Duties of the Company towards Independent Director: The listed entity shall familiarize the independent directors through various programmes about the listed entity, including the following:

  • Nature of the industry in which the listed entity operates;
  • Business model of the listed entity;
  • Roles, rights, responsibilities of independent directors; and
  • Any other relevant information.

Regulation 26- OBLIGATIONS WITH RESPECT TO DIRECTORS AND [14]SENIOR MANAGEMENT:

♠ Limit of Number of Membership in Committee by Independent Director:

For the purpose of considering the limit of companies Private Company & Foreign Company & Section-8 Company are excluded.

Committee♠ Duties of Board of Directors:

  • Every director of Listed entity shall inform the Board about his position in committees of other Listed entities and intimate if there is any change and the date when these position take place.
  • All members of the board of directors and senior management personnel shall affirm compliance with the code of conduct of board of directors and senior management on an annual basis.
  • Senior management shall make disclosures to the board of directors relating to all material, financial and commercial transactions, where they have personal interest that may have a potential conflict with the interest of the listed entity at large

♠ Duty of disclosure at the time of appointment:

  • Non-executive directors shall disclose their shareholding, held either by them or on a beneficial basis for any other persons in the listed entity in which they are proposed to be appointed as directors, in the notice to the general meeting called for appointment of such director.

Regulation 27- OTHER CORPORATE GOVERNANCE COMPLIANCE REQUIREMENT:

[15]Quarterly Compliance Report on Corporate Governance:

  • The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognized stock exchange(s) within fifteen days from close of the quarter.
  • Details of all material transactions with related parties shall be disclosed.
  • Report shall be sign Either by Compliance officer or Chief Executive officer.

Requirement of Intimation to Stock Exchange as per Regulation No.15 – 27:

S. No. Regulation No. Particular of Regulation Time Period of filing of Certificate
1. 27(1) The listed entity shall submit a quarterly compliance report on corporate governance in the format as specified by the Board from time to time within fifteen days from close of the quarter

Requirement of discussion and placement before Board of Directors as per Regulation No. 15-27:

S. No. Regulation No. Particular of Regulation Time Period for placement before Board
1. 17(3) The board of directors shall review compliance reports pertaining to all laws applicable to the listed entity periodically
2. 17(3) The board of directors shall review steps taken by the listed entity to rectify instances of non-compliances periodically
3. 17(5) The board of directors shall lay down a code of conduct for all members of board of directors and senior management of the listed entity. N.A.
4. 17(7) The minimum information to be placed before the Board of Directors is specified in Part A of Schedule II (Bare act language given below). N.A.
5. 17(8) The chief executive officer and the chief financial officer shall provide the compliance certificate to the board of directors as specified in Part B of Schedule II. N.A.
6. 17(9) The board of directors shall be responsible for framing, implementing and monitoring the risk management plan for the listed entity.

Listed entity will inform before the Board about risk assessment and minimization process

N.A.

TERMS USE UNDER REGULATION DISCUSSED ABOVE:

Independent Director:

“Independent Director” means a non-executive director, other than a nominee director of the listed entity:

(i) who, in the opinion of the board of directors, is a person of integrity and possesses relevant expertise and experience;

(ii) who is or was not a promoter of the listed entity or its holding, subsidiary or associate company;

(iii) who is not related to promoters or directors in the listed entity, its holding, subsidiary or associate company;

(iv) 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;

(v) 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;

(vi) who, neither himself, nor whose relative(s) —

(A) 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;

(B) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of —

(1) a firm of auditors or company secretaries in practice or cost auditors of the listed entity or its holding, subsidiary or associate company; or

(2) any legal or a consulting firm that has or had any transaction with the listed entity, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;

(C) holds together with his relatives two per cent or more of the total voting power of the listed entity; or

(D) is a chief executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent 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 two per cent or more of the total voting power of the listed entity;

(E) is a material supplier, service provider or customer or a lessor or lessee of the listed entity;

(vii) who is not less than 21 years of age.

It shall have the same meaning as assigned to them respectively in clauses (za) and (zb) of sub-regulation (1) of regulation 2 of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

Promoter:

“Promoter” includes:

  1. the person or persons who are in control of the issuer;
  2. the person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public;
  3. the person or persons named in the offer document as promoters:

A director or officer of the issuer or a person shall not be deemed as a promoter, if such director or officer or person is acting as such merely in his professional capacity. A financial institution, scheduled bank, foreign portfolio investor other than Category III foreign portfolio investor, and mutual fund shall not be deemed to be a promoter merely by virtue of the fact that ten percent or more of the equity share capacity of the issuer is held by such person. A financial institution, scheduled bank and foreign portfolio investor other than Category III foreign portfolio investor shall be treated as promoter for the subsidiaries or companies promoted by them or for mutual fund sponsored by them.

Related to Any Promoter:

For the purpose of this clause, the expression “related to any promoter” shall have the following meaning:

(i)  if the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it;

(ii) if the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.

“Senior management”

Senior Management shall mean officers/personnel of the listed entity who are members of its core management team excluding board of directors and normally this shall comprise all members of management one level below the executive directors, including all functional heads.

———————————————-

[1]  Non-convertible debt securities, non-convertible redeemable preference shares, perpetual debt instrument, perpetual non-cumulative preference shares, Indian depository receipts, securitized debt instruments, units issued by mutual funds and any other securities as may be specified by the Board. [Regulation 2(1) (h) of SEBI (LODR) Regulations, 2015]

[2] *“Main Board” means a recognized stock exchange having nationwide trading terminals, other than SME exchange;

[3] “SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued in accordance with this Chapter and includes a stock exchange granted recognition for this purpose but does not include the Main Board;

[4] Definition of Executive Director given in Rule 1(K) of Companies (Specification of definition details) Rules, 2014- Executive Director means a whole-time Director as defined in clause (94) of Section 2 of the Act. Clause (94) section 2 of Companies Act, 2013 Whole time director includes a director in the whole-time employment of the Company.

[5] Define at the end of the Article.

[6] Define at the end of the Article.

[7] Define at the end of the Article.

[8] As per clause 2.1 of Secretarial Standard- 1.

[9]code of conduct is a set of rules outlining the social norms and rules and responsibilities of, or proper practices for, an individual, party or organization.

[10] A Company may pay a sitting fees to a director for attending meeting of the Board or Committees thereof, such sum as may be decided by Board of directors thereof which shall not exceed Rs. 100,000/- per meeting of the Board or Committee thereof; However, for Independent Director and Women Director, the sitting fees shall not be less than the sitting fees payable to other directors.

[11] Financially Literate shall mean the ability to read and understand basic financial statements i.e. balance sheet, profit and loss account, and statement of cash flows.

[12] a member shall be considered to have accounting or related financial management expertise if he or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities

[13] Note: 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

[14] Discussed at the end of the Article.

[15] The listed entity may, at its discretion, comply with requirements as specified in Part E of Schedule II.

CS Divesh Goyal(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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