As per the powers granted to SEBI under Section 11(1) of the SEBI Act 1992, read with provision...
The article talks about the background of the concept of independent directors and the SEBI review on the independent director’s regulatory provisions.
As a result of the lack in transparency in the regulations, SEBI presented the paper to review the provisions of Independent directors.
SEBI is the market regulator and it has proposed changes by presenting the consultation paper to review the current situation of independent directors. The paper was published on SEBI’s website on 1st march and it talks about change in the regulations dealing with appointment, removal & renumeration of independent director & their role in the audit committee.
The paper recommends that the resignation letters of independent directors must be fully disclosed to the stock exchanges.
SEBI in its paper talks about giving the shareholders a strong voice and the need to strengthen the independence & effectiveness of the independent directors to protect minority shareholders.
The SEBI presented a consultation paper to review the regulatory provisions of independent directors.
The paper contained these key proposals:
Presently, there are several limitations on the KMP (Key Managerial Persons) in a company or for the persons who had a material pecuniary relationship with the company, its subsidiaries or promoters; the cooling off period for each was 2 or 3 years respectively.
In order to balance the interests of the company, SEBI proposed to introduce a single cooling off period must be of 3 years. In simpler terms, it means, any KMP or a relative who had a pecuniary relationship with the company, its subsidiaries or promoters, can be appointed as independent director in a listed entity after 3 years of cooling period.
SEBI in its paper proposes dual approval to be taken for appointment or re-appointment or removal of independent director, through a single voting process & the meeting following 2 thresholds:
SEBI also proposed detailed disclosures by the Nomination & Renumeration Committee (NRC) about selection of candidates for the post of independent director.
When the office of independent director is vacant, a new candidate can be appointed by obtaining shareholder’s approval.
SEBI in the paper proposed that there is a need to strengthen the disclosure of resignation of directors.
It states that:
Presently, 2/3rd of the Board’s Audit Committee comprises of independent directors.
The SEBI has reviewed and proposed that:
SEBI proposed this because the audit committee holds the finalizing of accounts to the related party, thus, it needs people who can act independently and in the interest of the company.
The SEBI presented with the consultation paper with an objective of inviting comments from the public in respect of the Independent Directors. In the paper there are various key changes proposed to have transparency and better functioning, by giving the shareholders a stronger voice.
Thus, the public can comment till 1st April 2021, on the paper that deals with the independent director, their eligibility to be appointed and the process.