In a bid to bring in transparency and more corporate discipline in terms of Independent Directors, the SEBI board on Tuesday approved amendments to regulations regarding Independent Directors (ID).
As per the amended norms to be effective from January 1, 2022, appointment, re-appointment and removal of independent directors shall be made through a special resolution of shareholders for all listed entities.
“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,” it said.
Further, the composition of NRC has been modified to include two-third IDs instead of existing requirement of majority of IDs. Shareholder approval for appointment of all directors, including IDs, will have to be taken at the next general meeting, or within three months of the appointment on the board, whichever is earlier.
The board of the capital market regulator has also introduced a cooling off period of three years for key managerial personnel (and their relatives) or employees of the promoter group companies, for appointment as an ID.
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.
In case of resignation, the entire resignation letter of an ID shall be disclosed along with a list of her or his present directorships and membership in board committees.
A cooling-off period of one year has been introduced for an ID transitioning to a whole-time director in the same company or holding or a subsidiary company or any company belonging to the promoter group.
The requirement of undertaking directors and officers insurance has also been extended to the top 1,000 companies.
The board 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, among others, within the overall prescribed limit specified under Companies Act, 2013.
Sonam Chandwani, Managing Partner at KS Legal & Associates, noted that in its board meet, SEBI has attempted major regulatory overhauls, including amendments pertaining to risk disclosures and heightened requirements for issuance of debt securities.