Markets News

SEBI imposes stricter rules on independent directors

On Monday, India’s market regulator proposed tighter eligibility and appointment rules for independent directors of listed companies.

Moreover, the move aims to protect minority investors according to reports.

SEBI stated that the proposal requires the “dual approval” of shareholders and a majority of the company’s minority investors.

This comprises first from shareholders and majority of minority shareholders and then the promoter and promoter group.

However, failure to comply with the requirements will not allow appointment of any new person. Also, it will not allow removal of existing independent directors.

SEBI will revise the proposal only if it receives public feedback and there is no clear timeline on its implementation.

If a candidate fails to pass both approval rounds, the company will either propose a new candidate or same person.

This will take place after a 90-days cooling period along with reasons for proposing the same person.

An ID removal will call for a second vote of all shareholders after a cooling period of 90 days

Currently, it requires only a 51% shareholder approval for appointing or removing such directors in most cases.

In fact, there’s no need for separate sign-off from minority investors.

The need for independent directors and diverse board views came under the spotlight after Tata Group fired its chairman Cyrus Mistry in 2016.

Mandatory cooling off period is of 1 year for an ID resignation from the board including preoccupation or personal reasons.

Moving forward, the proposal is open for public consultation till April 1.

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