SEBI tightens norms related to independent directors

Source: TOI

What is the News?

Securities Exchange Board of India (SEBI) has approved various amendments to rules governing the appointment, re-appointment, and removal of Independent Directors.

Who are Independent Directors?

• An independent Director is a director on a board of directors representing minority shareholders. He/she does not have a pecuniary relationship with the company or related persons, except for sitting fees.
• Their role is to take an unambiguously and independently stand to have a check and balance on the majority shareholders. It reduces exposure of the company to unwarranted risks.
• As per the Companies Act, 2013 all listed public companies need to have at least one-third of the total Directors to be independent.

Amendments approved by SEBI for Independent Directors:

Appointment of Independent Directors(IDs)

• The appointment, re-appointment, and removal of independent directors shall be through a special resolution. It will now require 75% votes in support instead of 51%. This will be applicable to all listed entities.
• The nomination and remuneration committee(NRC) will be required to have two-third Independent Directors(IDs) instead of the existing requirement of a majority. NRC selects candidates for appointment as independent directors
• Further, the NRC will have to disclose and justify the skill-sets while selecting a candidate as an independent director.
• The key managerial personnel and their relatives or employees of the promoter group will have to observe a three-year cooling-off period before they get appointed as an independent director.

Resignation of Independent Directors:

• In case an independent director resigns, the company must disclose the entire resignation letter along with a list of her/his present directorships and membership in board committees.
• Moreover, a cooling-off period of one year has been introduced for an independent director transitioning to a whole-time director in the same company or subsidiary company or any company belonging to the promoter group.

Audit Committee:

• At least 2/3rd of the members of an audit committee should be independent directors.