Sebi amends rules; introduces new option for appointment, removal of independent directors

Capital markets regulator has introduced a new option for appointment and removal of independent directors from the boards of companies, a move that will provide flexibility to such a process.

Under this, the appointment and removal of independent directors could be done by way of two parameters — threshold for ordinary resolution and threshold for majority of minority shareholders. Currently, the appointment, re-appointment or removal of independent directors is made through a special resolution. For a special resolution to be passed, 75 per cent of ‘yes’ votes are needed from a company’s board. To give these effects, Sebi has amended LODR (Listing Obligations and Disclosure Requirements) rules, according to a notification made public by the regulator on Tuesday.

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Under the alternate mechanism, if the special resolution for appointment of an independent director does not get the requisite majority, then two other thresholds — for ordinary resolution and for majority of minority shareholders — would be tested. If the resolution crosses the above two thresholds in the same voting process then such a resolution for appointment of the independent director would be deemed to be approved by shareholders. “In case a special resolution for the appointment of an independent director fails to get the requisite majority of votes, but the votes cast in favour of the resolution exceed the votes cast against the resolution, and the votes cast by the public shareholders in favour of the resolution exceed the votes cast against the resolution then the appointment of such an independent director shall be deemed to have been made,” Sebi said.

The same threshold will also be applicable for removal of an independent director appointed under this alternate mechanism. In addition, the regulator has introduced provisions pertaining to schemes of arrangement for entities having listed debt securities, handling of unclaimed amounts pertaining to non-convertible securities of listed entities, and continuous disclosure norms for entities with listed non-convertible securities, pertaining to financial results and related requirements. The entity that has listed non-convertible debt securities or non-convertible redeemable preference shares intending to undertake a scheme of arrangement will have to file the draft scheme of arrangement with the stock exchanges, along with a non-refundable fee for obtaining the “no-objection” letter, before filing of such scheme with the National Company Law Tribunal (NCLT).

The listed entity would not file any scheme of arrangement with the NCLT unless it has obtained a no-objection letter from the stock exchanges. The listed entity would have to place the no-objection letter before the NCLT at the time of seeking approval for the scheme of arrangement. “The validity of the no-objection letter of the stock exchange(s) shall be six months from the date of issuance, within which the draft scheme of arrangement shall be filed by the listed entity with the National Company Law Tribunal,” Sebi said.

Any amount lying unclaimed in the escrow account for more than seven years pertaining to non-convertible securities issued by listed entities would be transferred to the Investor Protection and Education Fund created by Sebi. The regulator has eased the requirements/timelines pertaining to submission of
financial results, provided clarity in provisions pertaining to disclosure of line items/ ratios, publication of results in newspapers and thereby brought uniformity in the disclosure requirements in parity with those for specified securities.