Sebi issues detailed corporate governance norms for protection of investor rights

Apr 17 2014, 22:43 IST
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Sebi norms would be effective from Oct 1 and require cos to get shareholders' approval for related party transactions. Reuters Sebi norms would be effective from Oct 1 and require cos to get shareholders' approval for related party transactions. Reuters
SummarySebi norms would requires cos to get shareholders' approval for related party transactions.

Sebi today came out with detailed corporate governance norms for listed companies providing for stricter disclosures and protection of investor rights, including equitable treatment for minority and foreign shareholders.

The new rules, which would be effective from October 1, require companies to get shareholders' approval for related party transactions, establish whistle blower mechanism, elaborate disclosures on pay packages and have at least a woman director on their boards.

Sebi's norms issued today are aligned with the new Companies Act and is aimed to encourage companies to "adopt best practices on corporate governance".

The capital market regulator has amended clauses -- 35B and 49 -- of the listing agreement. Now, under changed 35B norms, listed companies are required to provide the option of facility of e-voting to shareholders on all resolutions proposed to be passed at general meetings.

Under clause 49, pertaining to corporate governance, listed entities have to get shareholders' nod for related party transactions. It would be effective prospectively from October 1 onwards.

"All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 shall be placed for approval of the shareholders in the first general meeting subsequent to October 1, 2014," Sebi said in the circular today.

Besides the market watchdog has come out with norms to ensure "equitable treatment of all shareholders including minority and foreign shareholders".

Apart from providing adequate and timely information to all shareholders, listed companies should also facilitate the exercise of voting rights by foreign shareholders.

"The company should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices," the circular said.

The new norms, which have been finalised after detailed consultations over draft regulations released in January 2013, excludes 'nominee directors' from the definition of independent directors.

Besides, there would be expanded role of audit committee and enhanced disclosure of remuneration policies.

Separate meetings of independent directors, and constitution of 'stakeholders relationship committee' are also a part of the proposals.

The watchdog has decided that the maximum number of boards an independent director can serve on listed companies be restricted to 7, while the directorship would be capped at three if the person is serving as a whole time director in any listed company.

The board of Securities and Exchange Board of India (Sebi) had approved the new set of norms during its meeting

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