The Securities and Exchanges Board of India (SEBI) on March 28, 2018 accepted 40 out of 80 recommendations suggested by the Uday Kotak Committee on Corporate Governance.
One of the major recommendations of the committee was to separate the post of CEO or MD and Chairperson of the listed companies.
Since this recommendation has been accepted by SEBI, the separation of posts would come into effect from April 1, 2020. Initially, it will be applicable only for the top 500 listed firms in terms of market capitalisation.
Recommendations accepted by SEBI without any modifications
• Reduction in the maximum number of listed entity directorships from 10 to 8 by April 01, 2019 and to 7 by April 1, 2020.
• Expanding the eligibility criteria for independent directors.
• Enhanced role of the Audit Committee, Nomination and Remuneration Committee and Risk Management Committee.
• Disclosure of utilization of funds from preferential issue.
• Disclosures of auditor credentials, audit fee, reasons for resignation of auditors, etc.
• Disclosure of expertise of directors.
• Enhanced disclosure of related party transactions (RPTs) and related parties to be permitted to vote against RPTs.
• Mandatory disclosure of consolidated quarterly results with effect from FY 2019-20.
• Enhanced obligations on the listed entities with respect to subsidiaries.
• Mandatory secretarial audit for the listed entities and their unlisted subsidiaries under SEBI LODR Regulations.
Recommendations accepted with certain modifications
• Requirement of minimum 6 directors in the top 1000 listed entities by market capitalization by April 1, 2019 and in the top 2000 listed entities by April 1, 2020.
• At least one woman independent director in the top 500 listed entities by market capitalization by April1, 2019 and in the top 1000 listed entities by April 1, 2020.
• Separation of CEO/MD and Chairperson posts.
• Setting up of quorum for board meetings in the top 1000 listed entities by market capitalization by April 1, 2019 and in the top 2000 listed entities by April 1, 2020. The quorum should be 1/3rd of the size of the Board or 3 members, whichever is higher.
• Top 100 entities to hold AGMs within 5 months after the end of FY 2018-19 i.e. by August 31, 2019.
• Webcast of AGMs will be compulsory for top 100 entities by market capitalization from FY 2018-19.
• Shareholder approval for Royalty payments to related party exceeding 2 percent of consolidated turnover.
Moreover, the board of the market regulator referred certain recommendations to various agencies, considering that the matters involved relate to them.
Some of these recommendations include strengthening the role of ICAI, internal financial controls, treasury stock, governance aspects of PSEs, etc.
Uday Kotak Committee
SEBI constituted the committee on corporate governance in June 2017, under the chairmanship of Uday Kotak, to make recommendations to SEBI for improving standards of corporate governance of listed entities in India.
The committee was represented by different stakeholders including the government, industry, stock exchanges, academicians, proxy advisors, professional bodies, lawyers, etc.
The committee submitted its report detailing several recommendations on October 5, 2017, however, the report was placed on the SEBI website for public comments.