SEBI Update: Key Amendments relating to Independent Directors, payment mechanism for IPO & more

✓ SEBI in its Meeting held on June 29, 2021 approved key proposals, including following:

✓ Provisions related to Independent Directors

- These amendments shall be applicable with effect from Jan 01, 2022.

- SEBI approved amendments to Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) pertaining to regulatory provisions related to Independent Directors (IDs), which include the following: 

1. Appointment/Re-appointment and Removal of IDs

o Appointment/Re-appointment and Removal of IDs shall be through a special resolution of shareholders for all listed entities.

o The process to be followed by Nomination and Remuneration Committee (NRC), while selecting candidates for appointment as IDs, has been elaborated and made more transparent including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate fits into that skillset.

o The composition of NRC has been modified to include 2/3rd IDs instead of existing requirement of majority of IDs.

o Shareholder approval for appointment of all directors including IDs shall be taken at the next general meeting, or within three months of the appointment on the Board, whichever is earlier. 

2. Eligibility requirement

o A cooling off period of three years has been introduced for Key Managerial Personnel (and their relatives) or employees of the promoter group

companies, for appointment as an ID.

o Relatives of employees of the company, its holding, subsidiary or associate company have been permitted to become IDs, without the requirement of a cooling off period, in line with Companies Act, 2013. 

3. Resignation of IDs

o The entire resignation letter of an ID shall be disclosed along with a list of her/his present directorships and membership in board committees.

o A cooling-off period of one year has been introduced for an ID transitioning

to a whole-time director in the same company/ holding/ subsidiary/ associate company or any company belonging to the promoter group.

4. Audit Committee - At least 2/3rd of the members of the audit committee shall be independent directors and all related party transactions shall be approved by only Independent Directors on the Audit Committee.

5. Directors and Officers insurance - The requirement of undertaking Directors and Officers insurance has been extended to the top 1000 companies (by market capitalization). 

- SEBI also agreed to make a reference to the Ministry of Corporate Affairs (MCA), for giving greater flexibility to companies while deciding the remuneration for all directors (including IDs), which may include profit linked commissions, sitting fees, ESOPs, etc., within the overall prescribed limit specified under Companies Act, 2013.

✓ Amendment to SEBI (Bankers to an Issue) Regulations, 1994

- To provide easy access to investors to participate in Public/Rights issues by using various payment avenues, it has approved the proposal of amending the SEBI (Bankers to an Issue) Regulations, 1994 by way of permitting such other banks, other than scheduled banks, as may be specified by SEBI from time to time, to register as a Banker to an Issue.

✓ Amendments to the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.

- With a view to streamlining the process of reward payment and to enhance the quantum of reward under the informant mechanism, it has considered and approved certain amendments to SEBI (Prohibition of Insider Trading) Regulations, 2015. 

1. The maximum amount of reward has been increased from Rupees 1 Crore, at present, to Rupees 10 Crore. 

2. If the total reward payable to the informant is less than or equal to Rupees 1 Crore, then the reward may be granted by SEBI, after the final order is  

issued.

3. If the total reward payable to the informant is more than Rupees One Crore, then an interim reward not exceeding Rupees 1 Crore may be granted by

SEBI, after the final order is issued. The remaining reward amount will be granted only upon receipt of the monetary sanctions amounting to at least twice the balance of the reward amount payable by SEBI.

✓ Other decisions include following:

✓ Introduction of Framework for Accredited Investors in securities market

✓ Amendments to SEBI (Infrastructure Investment Trusts) Regulations, 2014

- The minimum number of unit holders, other than sponsor, its related parties and its associates shall be five together holding not less than 25% of the total unit capital of the InvIT.

✓ Permitting Resident Indian fund managers to be constituents of FPIs

✓ Amendment to SEBI (Mutual Funds) Regulations, 1996

- To provide for investment of a minimum amount as skin in the game in the Mutual Fund (MF) schemes by Asset Management Companies (AMCs) based on the risk associated with the scheme, instead of the current requirement of one percent of the amount raised in New Fund Offer or an amount of INR fifty lacs, whichever is less.

✓ Amendment to SEBI (Credit Rating Agencies) Regulations, 1999

- To define a Credit Rating Agency (CRA) in terms of rating of securities that are listed or proposed to be listed on a recognized stock exchange, and to provide for an explanation in clause (f) of Regulation 9 specifying that ratings undertaken by a CRA under the respective guidelines of a financial sector regulator or authority shall be under the purview of the concerned financial sector regulator or authority.