Analysis: SEBI (LODR) (Third Amendment) Regulations, 2021

Sr. No.

Amendment

Effect

1

Substitution: Regulation 16(1)(b)(iv)

after the words 'during the' and before the word 'immediately', the word 'two' shall be substituted by the word 'three'.

An Independent Director means a non-executive director, other than a nominee director of the listed entity who apart from receiving director's remuneration, has or had no material pecuniary relationship with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, during the three immediately preceding financial years or during the current financial year.

2

Substitution: Regulation 16(1)(b)(v)

the words and symbols 'has or had pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed from time to time, whichever is lower, during the two immediately preceding financial years or during the current financial year' shall be substituted with the following namely:

'(A) is holding securities of or interest in the listed entity, its holding, subsidiary or associate company during the three immediately preceding financial years or during the current financial year of face value in excess of fifty lakh rupees or two percent of the paid-up capital of the listed entity, its holding, subsidiary or associate company, respectively, or such higher sum as may be specified;

(B) is indebted to the listed entity, its holding, subsidiary or associate company or their promoters or directors, in excess of such amount as may be specified during

the three immediately preceding financial years or during the current financial year;

(C) has given a guarantee or provided any security in connection with the indebtedness of any third person to the listed entity, its holding, subsidiary or associate company or their promoters or directors, for such amount as may be specified during the three immediately preceding financial years or during the current financial year; or

(D) has any other pecuniary transaction or relationship with the listed entity, its holding, subsidiary or associate company amounting to two percent or more of its gross turnover or total income:

Provided that the pecuniary relationship or transaction with the listed entity, its holding, subsidiary or associate company or their promoters, or directors in relation to points (A) to (D) above shall not exceed two percent of its gross turnover or total income or fifty lakh rupees or such higher amount as may be specified from time to time, whichever is lower.'

Sub-clause (v) is completely revamped. The amended provision is self-explanatory.

3

Substitution, Insertion: Regulation 16(1)(b)(vi)

i. the symbol and word '/herself' shall be inserted after the word 'himself' and before the symbol and word ', nor'.

ii. in point (A), after the words 'associate company' and before the words 'in any', the words and symbols 'or any company belonging to the promoter group of the listed entity,' shall be inserted.

iii. under the point (A), a new proviso shall be inserted namely:

'Provided that in case of a relative, who is an employee other than key managerial personnel, the restriction under this clause shall not apply for his / her employment.'

Amended sub-clause:

(vi) who, neither himself/ herself, nor whose relative(s) -

(A) holds or has held the position of a key managerial personnel or is or has been an employee of the listed entity or its holding, subsidiary or associate company or any company belonging to the promoter group of the listed entity in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

Provided that in case of a relative, who is an employee other than key managerial personnel, the restriction under this clause shall not apply for his / her employment.

4

Insertion: after Regulation 17(1B)

(1C) The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier.

Self-explanatory.

5

Insertion: Regulation 18(1)(b)

the words 'At least' shall be inserted before the words 'two-thirds'.

This amendment clarifies that in an Audit Committee, at least 2/3^rd members shall be Independent Directors.

6

Substitution, Omission: Regulation 19(1)(c)

a. the words 'fifty percent' shall be substituted by the words 'two-thirds'.

b. the symbols and words '[and in case of a listed entity having outstanding SR equity shares, two thirds of the nomination and remuneration committee shall comprise of independent directors]' shall be omitted.

This amendment provides that in a Nomination and Remuneration Committee, at least 2/3^rd members shall be Independent Directors.

7

Insertion: Regulation 23(2) proviso

Provided that only those members of the audit committee, who are independent directors, shall approve related party transactions.

This is a big change. It is provided by the SEBI that only IDs in an Audit Committee can approve related party transactions.

8

Insertion: after Regulation 25(2)

(2A) The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution.

Appointment, re-appointment or removal of an ID is subject to the passing of SR.

9

Omission: Regulation 25(6)

i. the words 'the immediate next meeting of the board of directors or' appearing after the words 'later than the' and before the words 'three months' shall be omitted.

ii. the symbol and words ', whichever is later' appearing after the words 'such vacancy' and before the proviso shall be omitted.

In case of resignation by or removal of an ID, he/she shall be replaced by a new ID within 3 months from the date of such vacancy.

10

Substitution: Regulation 25(10)

the word, numbers and symbol 'October 1, 2018' shall be substituted with the word, numbers and symbol 'January 1, 2022' and the number '500' shall be substituted with the number '1000'.

With effect from January 1, 2022, the top 1000 listed entities by market capitalization calculated as on March 31 of the preceding financial year, shall 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.

11

Insertion: after Regulation 25(10)

(11) No independent director, who resigns from a listed entity, shall be appointed as an executive / whole time director on the board of the listed entity, its holding, subsidiary or associate company or on the board of a company belonging to its promoter group, unless a period of one year has elapsed from the date of resignation as an independent director.

Self-explanatory.

12

Insertion: Regulation 36(3)(d)

after the words 'the board', the words 'along with listed entities from which the person has resigned in the past three years' shall be inserted.

In case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the names of listed entities in which the person also holds the directorship and the membership of Committees of the board along with listed entities from which the person has resigned in the past three (3) years.

13

Insertion: after Regulation 36(3)(e)

(f) In case of independent directors, the skills and capabilities required for the role and the manner in which the proposed person meets such requirements.

This is an additional requirement of disclosure of information to shareholders in case of appointment/ re-appointment of IDs.

14

Insertion: Schedule II, in Part D, in Para A, after clause (1)

(1A) For every appointment of an independent director, the Nomination and

Remuneration Committee shall evaluate the balance of skills, knowledge and experience on the Board and on the basis of such evaluation, prepare a description of the role and capabilities required of an independent director. The person recommended to the Board for appointment as an independent director shall have the capabilities identified in such description. For the purpose of identifying suitable candidates, the Committee may:

a. use the services of an external agencies, if required;

b. consider candidates from a wide range of backgrounds, having due regard to diversity; and

c. consider the time commitments of the candidates.

Self- explanatory.

15

Insertion, Omission: Schedule III, in Part A, in Para A, in clause (7B) sub-clause (i)

i. the words 'The letter of resignation along with' shall be inserted before the words 'detailed reasons'.

ii. the words 'of independent directors' appearing after the word 'resignation' and before the words 'as given' shall be omitted.

iii. the words 'shall be disclosed by the listed entities to the stock exchanges' appearing after the word 'director' shall be omitted.

The listed entity in case of resignation by an ID shall disclose to the stock exchanges letter of resignation along with detailed reasons of resignation as provided by the ID.

16

Insertion: Schedule III, in Part A, in Para A, in clause (7B) after sub-clause (i)

(ia) Names of listed entities in which the resigning director holds directorships, indicating the category of directorship and membership of board committees, if any.

Additional disclosure is added by the SEBI which is to be made by a listed entity to the Stock Exchanges in case of resignation by an ID.

17

Substitution, Insertion: Schedule III, in Part A, in Para A, in clause (7B) sub-clause (iii)

i. the words 'detailed reasons' appearing after the words 'along with the' shall be substituted by the word 'disclosures'.

ii. after the words and symbols 'sub-clause (i)' and before the word 'above', the word and symbols 'and (ii)' shall be inserted.

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