SEBI (LODR) (AMENDMENT) REGULATIONS, 2018

SEBI (LODR) (AMENDMENT) REGULATIONS, 2018

INTRODUCTION:

In exercise of the powers conferred by Section 11, Section 11A (2) and Section 30 of the Securities and Exchange Board of India (SEBI) Act, 1992 read with Section 31 of the Securities Contracts (Regulation) Act, 1956, SEBI has further amended the SEBI (Listing Obligations And Disclosures Requirements) Regulations, 2015 (hereinafter called SEBI (LODR) Regulations) which had been notified on May 9, 2018. The amendments notified shall come into force w.e.f. April 1, 2019, and thus given the listed entities enough time to take the necessary steps to comply with the amendments.

SEBI (LODR) REGULATION 2(1)(ZB)—RELATED PARTY

A new proviso to Regulation 2 (1)(zb) inserted which further define that any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more of shareholding in the listed entity shall be deemed to be a related party.

SEBI LODR REGULATION- 16(1) – DEFINITIONS

(b)(viii)—Independent Director

A new sub clause added further defining independent director as a person who is not a non-independent (non-executive) director of another company on the board of which any non-independent director of the listed entity is an independent director.

(c) Material Subsidiary

In the definition of “material subsidiary” the percentage of income or net worth is substituted “ten” with existing “twenty”.

(Material subsidiary shall mean a subsidiary, whose income or net worth exceeds ten percent of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.)

(d) Senior Management elaborating further members of management as chief executive officer/managing director/whole time director/manager (including chief executive officer/manager, in case they are not part of the board) and shall specifically include company secretary and chief financial officer.

Related Topic:
Note on Employer-Employee Transactions

SEBI (LODR) REGULATION- 17 – BOARD OF DIRECTORS

Proviso and explanation to sub-regulation (1)(a) inserted directing top 500 and top 1000 listed entities to have at least one woman Independent director by April 1, 2019 and April 1, 2020 respectively. (The top 500 and 1000 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year.)

New sub clause (c) to sub-regulation (1) added directing top 1000 and 2000 listed entities to have at least 6 directors on Board by April 1, 2019 and April 1, 2020 respectively.

New Sub regulation (1A) restraints the directorship of non- executive director who has attained the age of 75. Such person can be appointed only after a special resolution passed and explanatory statement annexed to notice indicate proper justification for such appointment.

New Sub regulation (1B) directs top 500 listed companies to appoint a Chairperson of Board who is a non-executive director and not related to MD or CEO of company. Provided that this sub-regulation shall not be applicable to the listed entities which do not have any identifiable promoters as per the shareholding pattern filed with stock exchanges.

SEBI (LODR) REGULATION 17 (2A) QUORUMS

The newly inserted sub-regulation (2A) of SEBI(LODR) Regulations, 2018 requires the quorum of every meeting of the board of directors of the top 1000 and top 2000 listed entities with effect from April 1, 2019 and April 1, 2020 respectively, to be one-third of its total strength or three directors, whichever is higher, including at least one independent director.

SEBI (LODR)  REGULATION 17 (6) REMUNERATION

In the SEBI (LODR) Regulations, 2018, two new clauses added to sub-regulation 17 (6) with respect to remuneration paid to directors which read as follows-

Clause (ca) in sub-regulation (6) is added which requires the approval of shareholders by special resolution, obtained every year in which the annual remuneration payable to a single non-executive director exceeds fifty percent of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof.

Clause (e) in sub-regulation (6) specifies the conditions where fees or compensation payable to executive directors who are promoters or members of the promoter group requires the approval of the shareholders by special resolution in general meeting, if-

(i) The annual remuneration payable to such executive director exceeds rupees 5 crores or 2.5 percent of the net profits of the listed entity, whichever is higher; or

(ii) Where there is more than one such director, the aggregate annual remuneration to such directors exceeds 5 percent of the net profits of the listed entity.

Provided that the approval of the shareholders under this provision shall be valid only till the expiry of the term of such director.

(For the purposes of this clause, net profits shall be calculated as per section 198 of the Companies Act, 2013.)

Sub-regulation (10) of Regulation 17 is substituted with the following:

The evaluation of independent directors shall be done by the entire board of directors which shall include –

(a) performance of the directors; and

(b) fulfilment of the independence criteria as specified in these regulations and their independence from the management:

Provided that in the above evaluation, the directors who are subject to evaluation shall not participate.

Apart from above amendments made in Regulation 17 of SEBI (LODR) Regulations, 2018 a new sub-regulation 11inserted which read as follows:

New sub-regulation 11 states that the statement to be annexed to the notice as referred to in sub-section (1) of section 102 of the Companies Act, 2013 for each item of special business to be transacted at a general meeting shall also set forth clearly the recommendation of the board to the shareholders on each of the specific items.

SEBI (LODR) NEW REGULATION 17A -MAXIMUM NUMBER OF DIRECTORSHIPS

The directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, including any alternate directorships that can be held by them at any point of time –

(1) A person shall not be a director in more than eight listed entities with effect from April 1, 2019 and in not more than seven listed entities with effect from April 1, 2020:

Provided that a person shall not serve as an independent director in more than seven listed entities.

(2) Notwithstanding the above, any person who is serving as a whole time director / managing director in any listed entity shall serve as an independent director in not more than three listed entities.

For the purpose of this sub-regulation, the count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange.

SEBI (LODR) REGULATION 19 – NOMINATION AND REMUNERATION COMMITTEE

New sub-regulation (2A) added which says that the quorum for a meeting of the nomination and remuneration committee shall be either two members or one third of the members of the committee, whichever is greater, including at least one independent director in attendance.

New sub-regulation (3A) requires that the above said committee shall meet at least once in a year.

SEBI (LODR) REGULATION 20 – STAKEHOLDERS RELATIONSHIP COMMITTEE

Sub-regulation (1) will read as follows:

The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into the various aspects of interest of shareholders, debenture holders and other security holders.

New sub-regulation (2A) added requiring at least three directors, with at least one being an independent director, shall be members of the Committee.

Sub-regulation (3) is substituted which requires the presence of the Chairperson of the Stakeholders Relationship Committee at the Annual General Meetings to answer queries of the security holders.

New sub-regulation (3A) requires that the above said committee shall meet at least once in a year.

SEBI (LODR)  REGULATION 21- RISK MANAGEMENT COMMITTEE

New sub-regulation (3A) requires that the above said committee shall meet at least once in a year.Further in sub-regulation (4) the committee will also monitor and review such function which specifically covers cyber security.Sub-regulation (5) directs to top 500 listed entities (earlier 100) to comply with the provisions of this regulation.

SEBI (LODR) REGULATION 23 – RELATED PARTY TRANSACTIONS

Sub-regulation (1) will read as follows:

The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly.

New sub-regulation (1A) specify that a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed two percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.

New sub-regulation (9) inserted which directs the listed entity to file disclosures of related party transactions on a consolidated basis, in the format specified in the relevant accounting standards for annual results to the stock exchanges and publish the same on its website within 30 days from the date of publication of its standalone and consolidated financial results for the half year.

The amendment shall come into force with effect from the half year ending March 31, 2019.

SEBI (LODR) REGULATION 24 – CORPORATE GOVERNANCE REQUIREMENTS WITH RESPECT TO SUBSIDIARY OF LISTED ENTITY

Sub-regulation (1) will now be applicable to an unlisted material subsidiary, whether incorporated in India or not. (as before it applicable only to unlisted material subsidiary incorporated in India.)

24A SECRETARIAL AUDIT-

 A new regulation inserted which mandates every listed entity and its material unlisted subsidiaries incorporated in India to undertake secretarial audit and annex with its annual report, a secretarial audit report, given by a company secretary in practice, in such form as may be specified with effect from the year ended March 31, 2019.

SEBI (LODR) REGULATION 25 – OBLIGATIONS WITH RESPECT TO INDEPENDENT DIRECTORS

With the new amendment made in SEBI (LODR), 2018 the existing sub-regulation (1) is substituted with new sub-regulation which restricts a person to be appointed or continue as an alternate director for an independent director of a listed entity with effect from October 1, 2018.

The regulation further amended inserting a new sub- regulation (8) which requires every independent director to submit a declaration that he meets the criteria of independence as provided in Regulation 16(1)(b), at the first meeting of the board in which he participates as a director and thereafter at the first meeting of the board in every financial year or whenever there is any change  in the circumstances which may affect his status as an independent director or could impair or impact his ability to discharge his duties with an objective independent judgment and without any external influence.

New sub-regulation (9) directs the board of directors of the listed entity to take on record the declaration and confirmation submitted by the independent director under sub-regulation (8) after undertaking due assessment of the veracity of the same.

New sub-regulation (10) mandates the top 500 listed entities by market capitalization calculated as on March 31 of the preceding financial year to 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 w. e. f. October 1, 2018.

SEBI (LODR)REGULATION 29 -PRIOR INTIMATIONS

The proviso to clause (f) of sub-regulation (1) stands omitted w. e. f. October 1, 2018. From now on prior intimation to stock exchange by the listed entities is required, in case the declaration of bonus is not on the agenda of the meeting of board of directors.

SEBI (LODR) REGULATION 32 – STATEMENT OF DEVIATION(S) OR VARIATION(S)

New sub-regulation (7A) inserted which requires the listed entity to disclose every year the utilization of funds, raised through preferential allotment or qualified institutions placement, in its Annual Report until such funds are fully utilized.

SEBI (LODR) REGULATION 33- FINANCIAL RESULTS

In Sub-regulation (3)(b) substitution of word ‘may’ is done with ‘shall’ which mandates the listed entity having subsidiaries to submit quarterly/year-to-date consolidated financial results in addition to the requirement mentioned in sub-regulation (3)(a). Further, the sub-clauses to Sub-regulation (3)(b) stands omitted.In Sub-regulation (3) new clauses are inserted as follows:

(g) The listed entity shall also submit as part of its standalone and consolidated financial results for the half year, by way of a note, statement of cash flows for the half-year.

 (h) The listed entity shall ensure that, for the purposes of quarterly consolidated financial results, at least eighty percent of each of the consolidated revenue, assets and profits, respectively, shall have been subject to audit or in case of unaudited results, subjected to limited review.

(i) The listed entity shall disclose, in the results for the last quarter in the financial year, by way of a note, the aggregate effect of material adjustments made in the results of that quarter which pertain to earlier periods.

New sub-regulation (8) to Regulation 33 requires that the statutory auditor of a listed entity shall undertake a limited review of the audit of all the entities/ companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by the Board on this matter.

SEBI (LODR) REGULATION 34 – ANNUAL REPORT

The existing sub-regulation (1) shall be substituted with the following new sub-regulation, which read as follows:

(1) The listed entity shall submit to the stock exchange and publish on its website–

(a) a copy of the annual report sent to the shareholders along with the notice of the annual general meeting not later than the day of commencement of dispatch to its shareholders;

(b) in the event of any changes to the annual report, the revised copy along with the details of and explanation for the changes shall be sent not later than 48 hours after the annual general meeting.”

Further, the above amendment shall be applicable in respect of the Annual report filed for the year ended March 31, 2019 and thereafter.

SEBI (LODR) REGULATION 36 – DOCUMENTS & INFORMATION TO SHAREHOLDERS

With a new amendment in existing clause (a) of sub-regulation (1) the listed entity is required to send the soft copies of full annual report to all those shareholder(s) who have registered their email address (es) either with the listed entity or with any depository.

Further, the above amendment shall be applicable in respect of the Annual report filed for the year ended March 31, 2019 and thereafter.

New sub-regulation (4) added which, from the date of notification of these amendments, requires the listed entity to file the disclosures with immediate effect:

 (a) to the stock exchanges in XBRL format in accordance with the guidelines specified by the stock exchanges from time to time; and

(b) to the stock exchanges and publish on its website, in a format that allows users to find relevant information easily through a searching tool.

Provided that the requirement to make disclosures in searchable formats shall not apply in case there is a statutory requirement to make such disclosures in formats which may not be searchable, such as copies of scanned documents.

New sub-regulation (5) also inserted which requires disclosures regarding fees and terms of appointment/ re-appointment of statutory auditors as part of the explanatory statement to the notice and read as follows:

The notice being sent to shareholders for an annual general meeting, where the statutory auditor(s) is/are proposed to be appointed/re-appointed shall include the following disclosures as a part of the explanatory statement to the notice:

(a) Proposed fees payable to the statutory auditor(s) along with terms of appointment and in case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change;

(b) Basis of recommendation for appointment including the details in relation to and credentials of the statutory auditor(s) proposed to be appointed.

SEBI (LODR) REGULATION 44 – MEETINGS OF SHAREHOLDERS AND VOTING (Earlier Voting by shareholders)

New sub-regulation (5) mandates the top 100 listed entities by market capitalization to hold their annual general meetings within a period of five months from the date of closing of the financial year.

New sub-regulation (6) requires that the top 100 listed entities shall provide one-way live webcast of the proceedings of the annual general meetings.

Explanation: The top 100 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

SEBI (LODR)REGULATION 46 – WEBSITE

In sub-regulation (2), new clauses inserted which read as follows:

New clause (r) specifies that with effect from October 1, 2018, all credit ratings obtained by the entity for all its outstanding instruments, updated immediately as and when there is any revision in any of the ratings.

New clause (s) states that separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial year uploaded at least 21 days prior to the date of the annual general meeting which has been called to inter alia consider accounts of that financial year.