The Indian securities market regulator, the Securities and Exchange Board of India (SEBI), in its Board Meeting held on 29 June 2021 took various significant decisions, including approving certain amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR) pertaining to Independent Directors (IDs), based on which, on 3 August 2021, SEBI notified the SEBI LODR (Third Amendment) Regulations, 2021 (Amendment Regulations), which will come into force on 1 January 2022.
The key highlights of the Amendment Regulations are:
- certain modifications to the eligibility criteria for appointment as an ID have been prescribed along with a cooling-off period of 3 years. However, in case of a relative, who is an employee other than a key managerial personnel, the modified restrictions would not apply for his/ her employment;
- the appointment, re-appointment and removal of IDs to be done through a special resolution of shareholders for all listed entities and the shareholder approval for appointment of all directors (including IDs) to be taken at the following general meeting or within 3 months of the appointment on the board, whichever is earlier;
- elaborate and more transparent process to be followed by the Nomination and Remuneration Committee (NRC) while selecting candidates for appointment as IDs, including enhanced disclosures regarding the skills required for appointment as an ID and how the proposed candidate fits into that skillset and modification to the composition of the NRC to include at least 2/3rd members as IDs;
- disclosure to be made of the complete resignation letter of an ID along with a list of such ID’s present directorships and membership in board committees. Moreover, a cooling-off period of 1 year has been introduced for an ID transitioning to an executive or whole-time director in the same company/ holding/ subsidiary/ associate company or any company belonging to the promoter group;
- at least 2/3rd of audit committee members to be IDs and all related party transactions to be approved by only IDs on the audit committee; and
- requirement of undertaking Directors and Officers insurance has been extended to the top 1,000 companies (by market capitalization).
The Amendment Regulations may be accessed at: