Mumbai: To ease process of implementing stronger corporate governance norms by listed firms, regulator SEBI Monday relaxed various provisions of the new law, especially for smaller companies, and extended the deadline for appointing at least one woman director to April 1, 2015.
Changes have been made to the new regulatory regime, which would come into effect from next month, following numerous representations received by the regulator with regard to these regulations that would vastly change the way listed companies function and are regulated in the country.
While amendments have been made to various provisions of this Corporate Governance Code to align them with the relevant sections of the new Companies Act, the deadline would remain unchanged at October 1, 2014, except for requirement of a minimum one woman director on the boards of listed companies.
The listed companies would have time till April 1 next year to comply with the woman director-related provision.
SEBI has also exempted smaller companies -- those having equity share capital of up to Rs 10 crore and networth not exceeding Rs 25 crore, as also listed on SME platforms of the stock exchanges -- from the mandatory compliance to the new Code "for the time being".
Among others, the proposed regulations related to tenure of independent directors, as also the definition and exemption from mandatory prior approval for certain related party transactions, have also been amended to align them with the Companies Act.
Announcing the changes, SEBI said it has "received representations from market participants including companies and industry associations, highlighting certain practical difficulties in ensuring compliance, seeking clarifications on interpretation of certain provisions and suggesting various options to ease the process of implementation."
These issues were examined and discussed in the Primary Market Advisory Committee of SEBI and "in order to address the above mentioned concerns and facilitate the listed companies to ensure compliance with the provisions of the revised Clause 49 (which deals with the Corporate Governance norms at listed companies), it has been decided to make certain amendments to Clause 49," the regulator said.
The new corporate governance norms were proposed after detailed discussions by SEBI and with concerned stakeholders for over a year and had prescribed stronger regulations for listed companies than those prescribed under the Companies Act for general classes of companies.
Since implementation of the new Companies Act with effect from April 1, 2014, the Ministry of Corporate Affairs has issued various circulars on matters related to Corporate Governance clarifying certain provisions of the new law.
These include clarification on rules relating to appointment and qualification of directors and independent directors, matters relating to related party transactions, and the rules governing meetings of board and its powers.
These amendments and clarifications have been taken into account by SEBI also to make necessary changes in the new norms. Besides, SEBI had also sought earlier this year the status of preparedness of top 500 listed companies by market capitalization for ensuring timely compliance with the new corporate governance norms.
According to the new norms, related party transactions entered into between two government companies and between a holding company and its wholly owned subsidiary would not be applicable for prior approval from audit committee.
Moreover, Sebi has allowed an audit committee to "grant omnibus approval" for related party transactions proposed to be entered into by the company subject to certain conditions.
For the same the audit committee would have to lay down the criteria "for granting the omnibus approval in line with the policy on related party transactions of the company and such approval shall be applicable in respect of transactions which are repetitive in nature".
Among others, the committee would also have to satisfy itself the need for such omnibus approval and that whether such approval is in the interest of the company and would have review atleast every quarter the details of transactions entered pursuant to the approval.
On modifications with regard to tenure of independent director, Sebi said that "the maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and clarifications/ circulars issued by the Ministry of Corporate Affairs, in this regard, from time to time."
Under the Act, an independent director can have a maximum of two tenures of five consecutive years (a total of ten years), with a cooling off period of three years.
Other than this, the watchdog has said that the terms and conditions of appointment of the independent directors have to be placed on the website of the company as against the earlier norms that required firms to disclose the letter of appointment along with the detailed profile of the director.
Besides, it has also asked the firms to disclose the details of "familiarisation programmes" for independent directors and policy on dealing with related party transactions not only in the company's annual report but also their respective website and a web link.
Additionally, Sebi has brought in norms that allow the chairperson of the company to be appointed in the nomination and remuneration committee. However, the chairperson is not permitted to chair such a committee.
Sebi also noted that the risk management committee would be constituted by the firm "through its board of directors".
"The majority of Committee shall consist of members of the Board of Directors" and "Senior executives of the company may be members of the said Committee but the Chairman of the Committee shall be a member of the Board of Directors," Sebi said.
For norms on subsidiary companies, the market regulator has said that a company can dispose of shares in its material subsidiary without passing a special resolution in its general meeting in cases "where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal."
"Selling, disposing and leasing of assets amounting to more than 20 percent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal," SEBI added.
Moreover, the norms would require companies to "formulate a policy for determining 'material' subsidiaries and such policy shall be disclosed to stock exchanges and in the annual report".
Meanwhile, the market regulator has done away with norms that require disclosure related to resignation of directors, disclosure of formal letter of appointment of independent director and certain disclosures like details of establishment of vigil mechanism in the annual report.
