Norms to curb fund diversion mooted: 

Norms to curb fund diversion mooted: 

Context:

SEBI panel proposes that audit committees must monitor flows to unlisted units.

Introduction:

• Audit committees should monitor the flow of funds to unlisted subsidiaries, including those established overseas.
• The audit committee should also review the utilization of funds of the listed entity infused into unlisted subsidiaries, including foreign subsidiaries.
• Recommendations:
• Among recommendations related to the role of independent directors, the panel sought disclosure of the expertise of the directors being appointed, and capping the maximum number of directorships to seven by April 2020.

Rules for listed entities:

• Listed entities should put in place proper regulatory framework while sharing unpublished price-sensitive information with promoters or any other significant shareholders.
• Listed companies should also be required to have at least six directors on the board with a minimum of 50% representation of independent directors — including one woman director.
• Enhanced disclosure requirements related to abrupt resignation of independent directors and auditors should be put in place.

Why recommendation is important?

• The recommendation assumes significance in the wake of SEBI’s January order barring Vijay Mallya and six other entities from the securities market after a probe found that funds were diverted from United Spirits to group companies, including Kingfisher Airlines.
• It would strengthen corporate governance; implementation would require fundamental changes on multiple fronts.