Securities and Exchange Board of India (SEBI), in its board meeting held on 28 March 2018 in Mumbai accepted several recommendations (with and without modifications) given by the Kotak Committee relating to corporate governance. By way of background, the Kotak Committee was constituted under the chairmanship of Mr. Uday Kotak with a view of enhancing standards of corporate governance of listed entities in India. The Kotak Committee had accordingly submitted its report to SEBI on 5 October 2017.
SEBI accepted the following recommendations of the Kotak Committee without modifications:
- There will be a reduction in the maximum number of listed entity directorships from ten to eight with effect from 1 April 2019 and will be reduced further to seven with effect from 1 April 2020;
- The eligibility criteria for independent directors has been expanded;
- Utilization of funds from Qualified Institutional Placement (QIP)/Preferential Issue will need to be disclosed;
- Auditor credentials, audit fee, reasons for resignations of auditors etc. will need to be disclosed;
- Directors expertise and skills will need to be disclosed;
- Enhanced disclosure of related party transactions and related parties are to be permitted to vote against related party transactions;
- Consolidated quarterly results will have to be mandatorily disclosed from financial year 2019-2020;
- The listed entities will have enhanced obligations with respect to their subsidiaries;
- Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, secretarial audit will be mandatory for listed entities and their material unlisted subsidiaries; and
- The role of Audit Committee, Nomination Committee, Remuneration Committee and Risk Management Committee has been expanded.
SEBI accepted the following recommendations of the Kotak Committee with modifications:
- There will be minimum six directors in the top one thousand listed entities (by market capitalisation) with effect from 1 April 2019 and the same will be applicable to top two thousand listed entities (by market capitalisation) with effect from 1 April 2020;
- There will be minimum one woman director in the top five hundred listed entities (by market capitalisation) with effect from 1 April 2019 and the same will be applicable to top one thousand listed entities (by market capitalisation) with effect from 1 April 2020;
- There will be separation of Chief Executive Officer (CEO)/Managing Director (MD) and Chairperson with effect from 1 April 2020. This will initially be applicable to top five hundred listed entities (by market capitalisation);
- Top one hundred entities will be required to hold their annual general meetings within five months after the end of financial year 2018-2019 i.e. 31 August 2019;
- Top one hundred entities with effect from financial year 2018-2019 will compulsorily be required to webcast their annual general meetings;
- Royalty/brand payments exceeding 2% of consolidated turnover to related party will require shareholder approval (majority of minority); and
- Quorum for Board meetings in the top one thousand listed entities (by market capitalisation) will be 1/3rd of the size of the Board or three members, whichever is higher, with effect from 1 April 2019. The same will be applicable to top two thousand listed entities (by market capitalisation) with effect from 1 April 2020.
SEBI has also referred certain recommendations such as strengthening the role of ICAI (Institute of Chartered Accountants of India), internal financial controls, adoption of Ind-AS, treasury stock etc. to other stakeholders.
A copy of the Press Release may be accessed through the following link:
https://www.sebi.gov.in/media/press-releases/mar-2018/sebi-board-meeting_38473.html