Corporate & Commercial Monthly Newsletter | August 2021

Publication Date06 Aug 2021
SubjectCorporate/Commercial Law, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Securities, Shareholders
Law FirmHSA Advocates
AuthorMr Dipti Lavya Swain, Soumya Kanti De Mallik, Himanshu Seth, Sunando Mukherjee, Kshitij Gupta, Tanvi Tekriwal, Kaishori Raut, Sinjini Saha, Meghna Rajesh and Muskan Jain

SEBI tightens norms on independent directors

On June 29, 2021, Securities Exchange Board of India (SEBI) made several crucial decisions regarding independent directors on boards of listed companies.

An independent director being a non-executive director aids the company in revamping the governance standards and corporate credibility. The concept of independent directors was added in The Companies Act, 2013 (Act) after the need was felt of having an autonomous voice to speak on behalf of minority shareholders. Section 149 of the Act (to be read along with Rule 4 and Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014), showcases the provisions for appointment of directors, including the code of conduct to be adhered by them. The provision of the Act mandates the requirement of one- third of the total directors to be independent in all the listed public companies.

A consultation paper (Consultation Paper on Review of Regulatory Provisions related to Independent Directors) was released by SEBI on March 1, 2021, to review the provisions with respect to the independent directors. Considering the same, major amendments have been done in the rules governing the appointment, removal, re-appointment, resignation of the independent directors.

Key amendments announced by SEBI

  • Appointment of directors: Applicable for all entities, a special resolution with 75% of votes in support must be passed for the appointment, reappointment, and removal of the independent directors. Furthermore, instead of the existing requirement of a majority, there will be a Nomination Committee and a Remuneration Committee having 2/3rd independent directors. The selection of the candidate as an independent director will be done by this committee only, which shall also disclose the skillset of the candidate thereby justifying the selection.
  • Cooling-off period: Key managerial personnel and their relatives or the promoter group's employees will have to necessarily undergo a three-year cooling off period before getting appointed as an independent director. Similarly, an independent director transitioning into a full-time director in the same company/subsidiary/any company that belongs to the promoter group will have to observe a cooling period of one year.
  • Resignation of independent directors: If an independent director resigns from the board, the company must disclose the complete resignation letter, including a list of his/her present membership and directorship...

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