Reporting Insights. India. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, Issue 5: June 2018

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1 Reporting Insights SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018 The Kotak Committee enhances corporate governance June 2018 Issue 5: June 2018 India

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3 Content Executive summary Composition and role of the board of directors The institution of Independent Directors (ID) Board Committees Enhanced monitoring of group entities Promoters / Controlling shareholders and RPTs Disclosures and transparency Accounting and audit related issues Investor participation in meetings of listed entities Recommendations referred to other agencies Appendix A Amendments effective from 1 October 2018 (half-year ended March 31, 2019) Appendix B Amendments currently applicable, with reporting for year ended March 31, Appendix C - Recommendations not notified by SEBI Glossary

4 Executive Summary 4 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

5 The Securities and Exchange Board of India (SEBI) released on 9 May 2018, the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 (SEBI (LODR) (Amendment) Regulations, 2018 or Corporate Governance Amendments or the Amendments) in order to adopt and give effect to several recommendations that were proposed in a Report given on 5 October 2017 by the SEBI Committee on Corporate Governance formed on 2 June 2017 under the Chairmanship of Mr. Uday Kotak (Kotak Committee). The SEBI also issued a circular on 10 May 2018 for implementation of certain recommendations of the Kotak Committee. The Kotak Committee made a set of 81 recommendations to the SEBI on the following issues with an aim to support in improving standards of corporate governance of listed companies in India: 1. Improving the role, composition and effectiveness of the board and its committees, including evaluation practices 2. Ensuring independence in the spirit of Independent Directors and their active participation in the functioning of the company 3. Improving safeguards and disclosures pertaining to Related Party Transactions 4. Improving transparency in accounting and auditing practices by the listed companies 5. Addressing issues faced by investors on voting and participation in general meetings 6. Enhanced monitoring of group entities 7. Disclosure and transparency related issues, if any SEBI s Corporate Governance Amendments reflects SEBI s acceptance of 42 recommendations made by the Kotak Committee, out of which 14 recommendations were accepted with modifications either to scope of its application, or expected timeline for its implementation. SEBI decided to refer eight recommendations to various agencies (i.e., government, professional bodies, other regulators, etc.), considering that the matters involved relate to them. Remaining 31 recommendations were not accepted. The current corporate governance practices of the Indian listed corporate entities, where still a sizeable number of such entities are promoter-led, are on the verge of evolution with these Corporate Governance Amendments. These amendments pave a way for aligning with some of the best practices followed globally and bring in a renewed focus on improved corporate governance by way of better structure, more rigorous checks and balances and greater independence of all key gate-keepers including boards and auditors. Though the SEBI aims to put into effect these Corporate Governance Amendments from 1 April 2019, it has provided a phased timeline from 1 October 2018 to 1 April 2020 for most of the amendments, so that the companies are able to adjust to new governance requirements as well as overcome any implementation challenges. We explore more in this publication about how these Corporate Governance Amendments provide a mechanism to the listed companies in creating long-term value and at the same time, protect shareholders interest by applying proper care, skills and diligence to business decisions. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

6 Composition and role of the board of directors 6 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

7 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities: Disclosure of expertise/ skills overall of the board* For all listed entities: Approval by special resolution for non-executive directors on attaining the age of 75 Person must not be a director in more than eight listed entities Disclosure of expertise / skills along with the name of each board member^ For all listed entities: Person must not be a director in more than seven listed entities For top 500 listed entities: Separate roles of non-executive Chairperson and MD / CEO For top 1,000 listed entities: At least one independent woman director on the board For top 500 listed entities: At least one independent woman director on the board For top 1,000 listed entities: Min. six directors on the board Quorum higher of 1/3 of total board strength or three directors For top 2,000 listed entities: Min. six directors on the board Quorum higher of 1/3 of total board strength of three directors * Currently applicable, with reporting from the year ended 31 March 2019 ^ With effect from the year ended 31 March 2020 The board of directors is responsible to all the stakeholders for meeting the corporate governance standards since they are responsible for the control and direction of the business decisions. These Amendments seek to address aspects relating, inter-alia, to the size of the board and its diversity, disclosure of expertise / skills of the directors, separation of the roles of chairperson and executive management and the maximum number of directorships. Minimum number of directors on the board [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(i)(2)] The Amendments propose to increase the minimum number of directors on the Board to six as against three under the Companies Act. This will be in phased manner where it will come into effect from 1 April 2019 for top 1,000 listed entities and from 1 April 2020 for top 2,000 listed entities. Gender diversity on the board [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(i)(1)] The Amendments require at least one independent woman director on the board of the top 500 listed entities by 1 April 2019 and for the top 1000 listed entities by 1 April The Companies Act and SEBI (LODR) Regulations require at least one woman director to be on the board of listed entities who may be either an independent or a non-independent director. Disclosure of expertise / Skills of directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(i) (2)] The Companies Act and SEBI (LODR) Regulations require the disclosure of a brief profile of a director on his/her appointment, including expertise in specific functional areas, without providing any matrix of skills / expertise / competence of the board on a regular basis. The Amendments now require to disclose the following, in a phased manner: List of core skills / expertise / competencies identified by the board as required in the context of its business(es) and sector(s) for an efficient functioning. It also requires disclosure of those skills / expertise / competencies that its board members actually possess, without disclosing the names of the directors. This is to be made effective from the financial year ending 31 March 2019 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

8 Skills / expertise / competencies of each and every member of the board along with their names is required from the financial year ending 31 March 2020 Approval for non-executive directors on attaining a certain age [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(ii)] The Amendments introduce a requirement to obtain shareholders approval under a special resolution by a listed entity for the appointment of a person or continuation of any person as a non-executive director on attaining the age of 75 years for the relevant term. Explanatory statement annexed to the notice for such motion should indicate the justification for appointing such a person. While it is recognized that age itself may not be a determinant of efficiency or capability of a person or the basis for disqualification, a higher level of shareholder endorsement may be required for directors to continue in their position beyond a certain age. The Companies Act has a similar requirement only for the managing director, whole-time director, or managers attaining the age of 70 years. Quorum for board meetings [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(iv)] The Companies Act requires a quorum of one-third of the total strength of the board of directors or two directors, whichever is higher, for every board meeting. SEBI (LODR) Regulations do not prescribe any quorum for meetings of the board of directors. The Amendments require the quorum for every meeting of the board of directors of the listed entity to be 1/3 of its total strength or three directors, whichever is higher, including at least one independent director. The participation of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of such quorum. The above amendment for top 1,000 listed entities shall come into effect from 1 April 2019 and for top 2,000 listed entities shall come into effect from 1 April Separation of the roles of non-executive chairperson and managing director / CEO [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(iii) and Para 3(u)(c)] The Amendments introduce a requirement to have the chairperson of the board as a non-executive director and not be related to the managing director or the chief executive officer as per Companies Act, The separation of powers of the chairperson and MD/CEO would enable better and more balanced governance structure by enabling more effective supervision of the management. This amendment shall come into effect from 1 April 2020 for top 500 listed entities. However, this requirement is not applicable to the listed entities, which do not have any identifiable promoters as per the shareholding pattern filed with stock exchanges. Maximum number of directorships [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(e)] The Amendments restrict maximum directorships to eight listed entities and seven listed entities with effect from 1 April 2019 and 1 April 2020 respectively. Directorship as independent director is restricted to seven listed entities, except where a 8 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

9 How we see it person who is serving as a whole time director / managing director in any listed entity, shall serve as an independent director in not more than three listed entities. The count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange. References to top 500, top 1,000 and top 2,000 listed entities above shall be determined on the basis of market capitalization, as at the end of an immediate previous financial year. Disclosure of board evaluation [SEBI Circular: SEBI/HO/CFD/CMD/CIR/P/2018/79, dated May 10, 2018] The Companies Act and SEBI (LODR) Regulations contain broad provisions on board evaluation, i.e., evaluation of the performance of: (i) The board as a whole, (ii) Individual directors (including Independent Directors and chairperson) and (iii) Various committees of the board. The provisions also specify responsibilities of various persons/committees for the conduct of such evaluation and the disclosure requirements that are a part of the listed entity s corporate governance obligations. In order to strengthen disclosures on board evaluation, SEBI s circular specifies that every listed entity may consider the following as a part of its disclosures on board evaluation: i. Observations of board evaluation carried out for the year ii. Previous year s observations and actions taken iii. Proposed actions based on current year observations The board s role is to oversee the management and governance of the company and to monitor senior management s performance. 155 of the top 500 NSE listed entities by market capitalization will have to appoint a woman independent director by 1 April 2019, while 336 of the top 1,000 NSE listed entities by market capitalization will have to do so by 1 April 2020*. Gender diversity on the board will result in introduction of new perspectives to the companies. At the same time availability of directors with expected degree of experience can be challenging and requires time to enact. Increasing the quorum of the meeting and the presence of at least one independent director will result in better corporate governance. Independent directors play a critical role in voicing on the actions of the board, flag non- promoter group issues, assessing related party transactions and thus, result in balancing the powers of the board. Separation of the roles of non-executive chairperson and MD / CEO will result in improving Corporate Governance standard in the listed entities and provide structural advantage to the company s board to act independently. There are 640 NSE listed entities where the same person holds both, the role of a chairman and the managing director* Multiple directorships beyond a reasonable limit may lead to a director to not being able to allocate sufficient time to a particular company, and thus hindering their ability to play an effective role. Accordingly, such restriction is a welcoming move Increasing the number of directors on the board may result in increase in the cost of governance and shareholders should appoint directors after careful consideration of who can add value to the whole governance process *Source: SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

10 The institution of Independent Directors (ID) 10 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

11 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities: Definition of ID exclude persons who constitute the promoter group Resolution of board inter-locks Alternate director cannot continue or be appointed as ID Confirmation by the board regarding fulfilment of specified conditions by IDs* Disclosure on resignation of IDs in annual report* For top 500 listed entities: Director and Officers Insurance for all the IDs For all listed entities: Evaluation of IDs by the board Disclosure of IDs independence in Corporate Governance Report Declaration of independence to be submitted by ID Disclosure on resignation of IDs to stock exchanges * Currently applicable, with reporting from the year ended 31 March 2019 The institution of Independent Directors is vital for an efficient and effective functioning of the corporate governance framework in any company. Given the importance of the role of an ID, these Amendments seek to lay greater emphasis on the aspects, such as the definition and scope of independent directors, eligibility criteria, their reasons for resignation and addressing the fear of disproportionate liability. Eligibility criteria for Independent Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(vi), Para 3(c)(i), Para 3(l)(ii), Para 3(x)(c)(i)(2)] Definition of Independent Directors The Amendments extend the definition of an Independent Director to exclude even those persons who are members of the promoter group of a listed entity. The Amendments are also made to the definition in order to exclude the possibilities of board inter-locks that arise due to common non-independent directors on the boards of listed entities. The definition would now exclude persons who are non-independent directors of another company on the board of which any nonindependent director of the listed entity is an independent director. Companies will need to comply with the amended definition of Independent Directors with effect from 1 October Example of a board inter-lock situation If Mr. A is an executive director on company A (being a listed company) and is also an independent director on the board of company B, then no non-independent director of company B can be an independent director on the board of company A. Eligibility criteria The Amendments have modified the criteria for evaluation of IDs by the board by specifically requiring an evaluation of: a. Performance of the directors b. Fulfilment of the independence criteria as specified in the SEBI (LODR) Regulations and their independence from the management In addition to above, the Amendments introduce a new requirement for independent directors to submit a declaration stating that they meet the criteria of independence as specified in the amended definition of an Independent Director, followed with a confirmation that they are not aware of any circumstance or situation, which exists or may be reasonably anticipated, that could impair or impact their ability to discharge duties with objective independent judgements and without any external influence. Such declaration and confirmation needs to be given by every ID at the board meeting in which they first participate and thereafter, at the first board meeting held in every financial year or whenever there is any change in the circumstances affecting their independence status. The Amendments also cast an onus on the board of directors of the listed entity to assess the veracity of the declaration and confirmation given by ID before taking the same on record. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

12 Further, in the Corporate Governance Report, the board is required to state their confirmation that independent directors fulfill the conditions specified in SEBI (LODR) Regulations and are independent of the management. Disclosures on resignation of Independent Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(v) and Para 3(x)(c)(i)(2)] The Amendments introduce a new requirement for the listed entities to disclose to the stock exchanges and also as a part of the Corporate Governance Report, the detailed reasons for resignation of the Independent Directors before the expiry of their tenure along with a confirmation given by such director(s) that there are no other material reasons other than those provided. Directors and Officers Insurance for Independent Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(l)(ii)] The Amendments introduce a new requirement for top 500 listed entities to undertake Directors and Officers (D and O) Insurance for all their independent directors of such quantum and for such risks as may be determined by its board of directors. Market capitalization would be calculated as on 31 March of the preceding financial year for determining top 500 listed entities. Companies will need to comply with the D and O Insurance requirement with effect from 1 October Alternate directors for Independent Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(l)(i)] The Amendments prohibit an alternative director from being appointed or continue as an independent director of a listed entity. This shall take effect from 1 October How we see it Independent Directors have emerged as the cornerstones of the worldwide Corporate Governance movement. Their increased presence in the board room has been hailed as an effective deterrent to fraud and mismanagement, inefficient use of resources, inequality and unaccountability of decisions and as a harbinger for striking the right balance between individual, economic and social interests. Changes brought in will ease the burden of ensuring independence of companies as well as their IDs. However, these changes would not relieve the highly onerous obligations on IDs including pursuance of several executive responsibilities. Moreover, the reason for resignation for IDs need to be disclosed in the Annual Report for the year ended 31 March 2019 and with effect from 1 April 2019 stock exchanges need to be intimated. This will require that companies be prepared with an effective reporting mechanism in place. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 introduces the concept of materiality in section 149(6) of the Companies Act, 2013, when determining independence arising from pecuniary relationships between IDs and the company, its holding, subsidiary or associate company, or company s promotors or directors. Accordingly, the amendments state that the remuneration as a director or transaction not exceeding to 10% of the director s total income or such amount as may be prescribed will not impair independence. This move is with a view to align with the concept under SEBI (LODR) Regulations that only material pecuniary relationships disqualify a person for appointment as an ID. 12 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

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14 Board Committees 14 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

15 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities: Audit committee review of utilization of loans / advances / investments Definition of senior management widened and Nomination and Remuneration Committee (NRC) to recommend board on remuneration of senior management Min. three directors of which at least one ID on the Stakeholders Relationship Committee (SRC) SRC s roles and responsibilities widened SRC chairperson to be present in AGM NRC quorum higher of 1/3 of total strength or two directors SRC and NRC to meet at least once a year For top 500 listed entities: Mandatory set-up of Risk Management Committee (RMC) and to specifically cover cyber security RMC to meet at least once a year The board of directors is responsible for acting on behalf of and in the interest of the stakeholders. The constitution of committees enables the board to effectively govern and make decisions on various aspects through small-group discussions, focus and diligence. While the Companies Act and the SEBI (LODR) Regulations require several mandatory board committees with distinct roles and responsibilities, these Amendments not only widen the role of the committees but also address the fundamentals such as balanced representation in board committees and a quorum for each such committee. Role of audit committee [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(u)(a)] The Amendments widen the role of audit committee by requiring a review of utilization of loans and / or advances from investment by the holding company in the subsidiary exceeding INR100 crore or 10% of the asset size of the subsidiary, whichever is lower. This requirement is also applicable to loans / advances / investments existing as on 1 April Role of Nomination and Remuneration Committee (NRC) [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(c)(iii) and Para 3(u)(b)(i)] Definition of senior management The Amendments modify the definition of senior management by specifying that it comprises all members of the management one level below the chief executive officer / managing director / whole time director / manager (including chief executive officer / manager, in case they are a not part of the board) as well as the company secretary and the chief financial officer. Amendment to the role The role of the NRC of the board of a listed entity is amended to include recommendations to be made to the board on all the payments made, in whatsoever form, to the senior management. Composition and Role of Stakeholders Relationship Committee [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(g) and Para 3(u)(b)(ii)] The Amendments introduce the requirement to have at least three directors, with at least one independent director, as members of the Stakeholders Relationship Committee (SRC). Also, it requires the SRC to meet at least once in a year. The current role of the SRC comprises considering and resolving the grievances of the security holders of the listed entity including complaints related to transfer of shares, nonreceipt of annual report and non-receipt of declared dividends. The Amendments modify and widen the role and responsibilities of SRC to include the following: SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

16 Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 requires that the remuneration policy for directors, key managerial personnel and other employees should be placed on the website of the company, if any. The salient features of the policy and any changes, therein along with the web address of the policy, if any, will be disclosed in the board s report. The interplay of these amendments imply that the remuneration policy for directors, key managerial personnel and other employees would also cover the increased scope of the senior management s remuneration, which should be disclosed on the website and also be disclosed as a part of the board s report. 1. Resolving the grievances of the security holders of the listed entity including complaints related to transfer/transmission of shares, non-receipt of annual report, non-receipt of declared dividends, issue of new/duplicate certificates, general meetings, etc. 2. Review of measures taken for effective exercise of voting rights by the shareholders 3. Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the Registrar & Share Transfer Agent 4. Review of the various measures and initiatives taken by the listed entity for reducing the quantum of unclaimed dividends and ensuring timely receipt of dividend warrants / Annual Reports / statutory notices by the shareholders of the company Further, the Chairperson of the SRC will now be required to be present at the AGMs to answer queries of the security holders. Quorum for Nomination and Remuneration Committee Meetings [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(f)(a) and Para 3(f)(b)] The Amendments specify that the quorum for a meeting of the NRC shall be either two members or one third of the members of the committee, whichever is greater, including at least one independent director in attendance. Further, the NRC is required to meet at least once in a year. Applicability and Role of Risk Management Committee [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(h)(a) and Para 3(h)(b)] The Amendments widen the requirements of Risk Management Committee (RMC) to top 500 listed entities by market capitalization determined as at the end of the immediate previous financial year. It introduces as a function of the RMC to also specifically cover cyber security, given the increase in the use of cyber and digital technology. In addition, the Amendments require the RMC to meet at least once in a year. 16 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

17 How we see it Scrutinizing the purpose of lending funds, overseeing performance of proper analysis and credit evaluation, sufficiency of the subsidiary s internal cash generating ability to repay these amounts and other similar factors will be required to be assessed by the audit committee for mitigating any risks to the Group. Companies will need to devise systems and processes to accurately and efficiently capture this information. Widening the roles and responsibilities of the SRC is a move towards providing prompt and high quality investor services to those shareholders who hold a non-controlling interest or are other security holders (including preference holders and debenture holders). Inclusion of an independent director as a part of this committee and presence of the Chairperson of the Committee would help in building an effective Corporate Governance practice. As a part of the increased roles and responsibilities of the RMC, it should oversee techniques to protect the integrity of networks, software, programs and data from attack, damage and unauthorized access. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

18 Enhanced monitoring of group entities 18 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

19 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 Group Governance Unit/Committee set-up For all listed entities: Secretarial audit to be performed for every listed entity and its material unlisted Indian subsidiary* For all listed entities: Wider ambit of definition of material subsidiary Appoint at least one ID on the board of unlisted material subsidiary including foreign subsidiaries * Currently applicable, with reporting from the year ending 31 March 2019 Complexities in businesses increase as companies grow in scale and size with increased cross-border flow of capital. Globalization has led to blurring of the lines of businesses of any single company. The operations of globalized companies have created significant presence across different geographies which add to legal, financial as well as structural complexities that has necessitated the creation of holding and operating network of entities (i.e., subsidiaries, associates and joint ventures). To keep a track and manage operations at the group level, it is important for the boards to ensure that good governance trickles down to the entire structure. These Amendments provide for better transparency on the governance levels of downstream investee entities of the listed entity and to improve the monitoring of the listed entity at a consolidated level. Obligation on the board of the listed entity with respect to subsidiaries [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(c)(ii), Para 3(j)(a) and Para 3(j)(b)] Definition of material subsidiary The Amendments widen the ambit of material subsidiary to mean a subsidiary whose income or net worth exceeds 10% (from the current 20%) of the consolidated income or net worth, respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year. However, material subsidiary is considered based on the 20% threshold for the purpose of appointment of an independent director of a listed entity as a director on the board of an unlisted material subsidiary, whether incorporated in India or not. Corporate Governance requirements for subsidiary of listed entity The requirement to appoint at least one independent director of a listed entity as a director on the board of an unlisted material subsidiary has been expanded to those material subsidiary entities, which are incorporated outside India. Further, the Amendments require the board of a listed entity to have under its purview all significant transactions and arrangements entered into it by all its unlisted subsidiaries (as compared to the current applicability to only material unlisted subsidiary). This would be brought to the notice of the board of the listed entity by the management of the unlisted subsidiary on a periodic basis. SEBI (LODR) Regulations specify that significant transaction or arrangement means all individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the unlisted subsidiary for immediately preceding accounting year. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

20 The Amendment has extended this requirement to all unlisted subsidiaries instead of only material subsidiaries. This is based on the perspective that transactions which could be higher than the prescribed limits of even those companies which are not material subsidiaries should also be covered. How we see it Companies with a large number of subsidiaries will need to put in place a strong monitoring mechanism so that directors of the holding company are aware of all significant transactions on a timely basis. In addition, companies will also need to have an effective governance program in place even for its subsidiaries, such that it aligns with the governance program at the listed parent entity s board, which results in same values, ethics, controls and processes being reflected across the Group. Appointing at least one independent director to the board of all unlisted material subsidiary is a step in this direction to build an effective oversight role. Governance practices for all unlisted subsidiaries, whether in India or overseas, need to be such that it recognizes the differences in legal environment, tax regimes and local business cultures. With an increase in complexity of transactions, increased risks and responsibilities of directors, having all significant transactions and arrangements of all unlisted subsidiaries under the purview of the listed parent entity s board creates a strong group governance framework that can prevent costly financial and reputational damage. Group Governance Unit / Committee and Policy [SEBI Circular: SEBI/HO/CFD/CMD/CIR/P/2018/79, dated May 10, 2018] There are currently no provisions under the Companies Act or SEBI (LODR) Regulations with respect to group governance unit/governance committee or a group governance policy. In order to improve monitoring of group entities, SEBI s circular does not amend the SEBI (LODR) Regulation but rather specifies that where a listed entity has a large number of unlisted subsidiaries: i. The listed entity may monitor their governance through a dedicated group governance unit or Governance Committee comprising the members of the board of the listed entity ii. A strong and effective group governance policy may be established by the entity iii. However, the decision of setting up of such a unit/committee and having such a group governance policy may be left to the board of the listed entity Secretarial audit [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(k)] The Amendments extend the requirement of a secretarial audit to every listed entity and its material unlisted Indian subsidiaries along with the requirement to annex with its annual report, a secretarial audit report given by a practicing company secretary. The SEBI is required to prescribe the form of the secretarial audit report and these Amendments shall take effect from the year ending 31 March SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

21 Interplay with Companies (Amendment) Act, 2017 The definition of subsidiary in section 2(57) of the Companies Act, 2013 has been amended to state that the control should be over more than half of total voting power instead of total share capital, which now becomes consistent with AS 21 that defines control based on voting power. Such an amendment narrows down the control criteria to merely those instruments issued by an entity which contains voting rights (for e.g., different classes of equity shares would be considered, but only optionally convertible preference shares will be excluded if they do not have voting rights). This amendment is in contrast with the definition of control under Ind AS 110, which requires considering even the potential voting rights (which are substantive and exercisable at the time of relevant decision-making) are to be considered as well as in contrast with the definition of material subsidiary above. Accordingly, listed entities will have to apply three different definitions of subsidiary / material subsidiary for the purpose of legal and regulatory compliance under the Companies Act, SEBI (LODR) Regulations and for preparing Consolidated Financial Statements as per the applicable accounting standards viz., Indian GAAP or Ind AS. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

22 Promoters / Controlling shareholders and RPTs 22 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

23 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities: Disclosure of RPTs on a consolidated basis to stock exchanges and on website* Related parties allowed to cast a negative vote on RPTs* Threshold specified for Royalty and Brand payments to related parties* Disclosure of board approved thresholds for material RPTs* For all listed entities: Definition of related party is widened and disclosure required in annual report Shareholder approval required for payment of remuneration to executive promoter directors/ non-executive directors exceeding threshold * Applicable from 1 October 2018, with effect from the half-year ending 31 March 2019 A majority of Indian listed entities continue to be promoter driven, with significant shareholding held by promoter/promoter group. Accordingly, checks and balances on interactions and relationships between listed entities and the promoters/significant shareholders is crucial for good governance. Therefore, these Amendments focus on approval and disclosure of related party transactions including the materiality thresholds as well as remuneration policy for executive / non-executive directors. Disclosure of Related Party Transactions (RPTs) [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(a), Para 3(i)(e) and Para 3(x)(a)] Definition of Related Party The definition of related party has been modified to include any person or entity belonging to the promoter or promoter group of the listed entity and holding 20% or more shareholding in the listed entity. This follows on from Kotak Committee s observations that certain promoters / promoter group entities were not getting categorized as related parties under SEBI (LODR) Regulations, as these did not strictly fall under the definition of related parties under the relevant accounting standards. Amendment to disclosures The Amendments introduce a new requirement for a listed entity to submit disclosures of related party transactions on a consolidated basis as per the format specified in the relevant accounting standards for annual results to stock exchanges and to publish the same on its website. This requirement needs to be complied within 30 days from the date of publication of the standalone and consolidated financial results for the half-year by the listed entity. All listed entities will need to comply with this amendment from the half-year ending 31 March Further, the Amendments have introduced, as a part of the Related Party Disclosure in the annual report, disclosures of transactions of the listed entity with any person or entity belonging to the promoter or promoter group which hold(s) 10% or more shareholding in the listed entity. This disclosure should also be in the format prescribed in the relevant accounting standards for annual results. How we see it Amending the definition of related party is a move in the right direction for identifying the related party relationships in true spirit of the definition given in the relevant accounting standards as well as resulting in the disclosure of such related party transactions as a better corporate governance practice. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

24 Interplay with Companies (Amendment) Act, 2017 The definition of related party in section 2(76) of the Companies Act, 2013 used the word company, e.g., it used the words holding, subsidiary or associate company. Foreign company is not a company under the Companies Act, 2013; rather, it is a body corporate. Thus, some may have interpreted the definition of the term Related Party to include only companies / entities incorporated in India within its purview. Such an interpretation will have a consequence that companies / entities incorporated outside India, such as foreign holding / subsidiary / associate / fellow subsidiary of an Indian company, were excluded from the purview of related party requirements for an Indian company. This was not the intention of the government and such an interpretation may have seriously diluted compliance with related party requirements under the 2013 Act. To address this issue beyond any doubt, the Companies (Amendment) Act, 2017 substitutes the word company with the word body corporate. Hence, upon enactment of the Companies (Amendment) Act, 2017, it is now clear that a body corporate that is a holding/subsidiary/ associate/fellow subsidiary of an Indian company should be treated as a related party. Further, the associate company and its investor should be treated as related parties for each other, instead of only an associate company considered as the Related Party of its investor. How we see it Negative voting by related party on a related party transaction enables those related party individuals or entities to express their dissenting opinion when they are not in favor of the transaction even if they are a party to such a transaction, thereby providing more commercial substance to it. Interplay with Companies (Amendment) Act, 2017 Section 47 of the Companies Act, 2013 dealing with members right to vote has been amended to align with section 188(1) of the Companies Act, 2013 thereby restricting related parties right to vote on ordinary/special resolution to approve related party transactions. Further, the amendment also provides the flexibility of contracts being voidable at the option of the shareholders in addition to contracts being voidable at the option of the board. These contracts/arrangements are those that are entered by a director or any other employee without obtaining board consent and/or approval by an ordinary resolution in the AGM. Approval of RPTs [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(c) and Para 3(i)(d)] The Amendments in the clauses pertaining to the approval of related party transaction allows related parties to cast a negative vote, as the Kotak Committee believes that such a vote cannot be considered to be in conflict of interest. Such an amendment has been made in order to plug the gap in the legal framework, wherein, Companies Act allows related parties to vote on (but not in favor of) a transaction in which they are interested. On the other hand, currently, SEBI (LODR) Regulations require all related parties to abstain from voting on a transaction in which they are interested. This brings consistency between the two legislations and aligns the SEBI (LODR) Regulations with the Companies Act. Royalty and brand payments to related parties [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(b)] Many companies make payment towards royalty / brand usage as a part of recognizing value in brand strength and product technology. For shareholders to be able to comprehend the terms and conditions of such payouts, the Amendments intend that all companies make better disclosures on the value a company derives from a brand or technology, for which it has agreed to pay royalty, brand, or technical fees to the parent company / promoters. This amendment shall come into effect from the half-year ending 31 March SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

25 Interplay with Companies (Amendment) Act, 2017 Sections 197 and 198 of the Companies Act, 2013 dealing with managerial remuneration have been amended. Amendment to section 197 removes the requirement to seek the central government s approval for paying remuneration exceeding 11% of the net profit of the company, but requires the following: The Amendment specifies a threshold of 2% of the annual consolidated turnover of the listed entity as per its last audited financial statements for transactions involving payment made to a related party with respect to brand usage or royalty, either transacted individually or taken together with previous transactions during a financial year. This amendment shall come into effect from the half-year ending 31 March Remuneration to executive promoter directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(v)(2)] The Amendments introduce a new requirement to obtain a shareholder approval by a special resolution for the total remuneration paid to the executive directors who are promoters or members of the promoter group, if: The annual remuneration payable to such executive director exceeds INR5 crores or 2.5% of the net profits of the listed entity, whichever is higher In case if there is more than one such director, the aggregate annual remuneration to such directors exceeds 5% of the net profits of the listed entity Shareholders approval shall be valid only till the expiry of the term of such director and the calculation of net profit should be as per section 198 of the Companies Act. Remuneration to non-executive directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(v)(1)] The Amendments introduce a new requirement to obtain shareholder approval by a special resolution every year, in case the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. Prior approval of the bank or public financial institution concerned, or non-convertible debenture holders or other secured creditors, as the case may be, whose dues have been defaulted in payment by the company. Such prior approval to be obtained by the company before its general meeting For exceeding the limits of remuneration payable to each managerial personnel / director and total remuneration payable which are prescribed in the second proviso to Section 197(1), a special resolution will be required instead of an ordinary resolution at the shareholder s meeting These amendments align with the amendments in SEBI (LODR) Regulations that require only shareholder approval for paying managerial remuneration in excess of the specified limits. Further, section 198 has been amended to clarify the following in calculating the profits for managerial remuneration: Profit on sale of investments will not be excluded for investment entities since that is their principal business activity Deduct brought forward losses relating to any year beginning on or after the commencement of Companies Act, 2013 insofar as such losses have not been deducted in any subsequent year Materiality policy [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(a)] Currently, SEBI (LODR) Regulations require listed entities to formulate a policy on materiality of related party transactions and on dealing with related party transactions. The Amendments intend that companies also disclose, as a part of their materiality policy, a clear threshold limits duly approved by the board of directors. Such materiality policy is required to be reviewed and updated by the board of directors at least once every three years. This amendment shall come into effect from the half-year ending 31 March SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

26 Disclosures and transparency 26 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

27 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities (from 1 Oct. 2018): Disclosure of credit ratings of all outstanding instruments Prior intimation to stock exchange of board meeting to discuss bonus issue For all listed entities: Disclosure of subsidiary accounts separately on website For all listed entities: Searchable format of disclosures to stock exchanges and on website For all listed entities: Timeline for annual report submission to stock exchanges and sending to shareholders aligned*; Sending soft copy of annual report to shareholders with registered id*; Disclosures of Key Changes in Financial Indicators*; Disclosure of utilisation of Proceeds of Preferential Issue and Qualified Institutional Placement (QIP)*; Disclosure of no. of other boards or committees on which director is a member or chairperson*; Disclosure of CS certificate that no director is a disqualified director*; Disclosure of board committee recommendations not accepted by the board* * Currently applicable, with reporting from the year ending 31 March 2019 Disclosure and transparency underpin good governance and the efficient functioning of the markets. A corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, business performance, strategic shifts, ownership and governance of the company. These Amendments seek to address aspects relating to proactive disclosure of material information by boards and management so as to build trust with stakeholders, which may impact decision making variables. Submission of annual reports [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(q) and Para 3(r)(i)] Timeline for submission of annual report to stock exchange and publishing on website: SEBI (LODR) Regulations require submission of annual report to the stock exchange within 21 working days of it being approved and adopted in the AGM as per the provisions of the Companies Act. While, on the other hand, the SEBI (LODR) Regulations require sending the annual report to shareholders in not less than 21 days before the AGM. The Amendments, aiming to reduce the above time-gap between disclosures to the shareholders and submission to stock exchange, requires the listed entity to submit to the stock exchange and publish on the website: A copy of the annual report shall be sent to the shareholders along with the notice of the AGM to be disclosed not later than the day as dispatched to the shareholders; In the event of any changes to the annual report, the revised copy along with details of and explanation for the changes is required to be sent in not later than 48 hours after the AGM. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

28 Submission of annual report in electronic mode: The Companies Act read with the relevant Accounts Rules require listed entities to send soft copies of financial statements by electronic mode to those members (holding Demat securities) whose ids are registered with the depository and also dispatch physical copies in all other cases. However, currently, SEBI (LODR) Regulations requires sending soft copies of full annual report to all those shareholders who have registered their address(es). While it requires sending hard copies of statement containing the salient features of all the documents, as per Section 136 of the Companies Act read with Companies (Accounts) Rules, 2014, to those shareholders whose address(es) are not registered. Further, it requires sending hard copies of full annual reports to those shareholders who request for the same. The Amendments now clarifies that the listed entity to send soft copies of full annual report to all those shareholders who have registered their address(es), either with the listed entity or with any depository. Both of the above requirements with respect to the submission of annual reports are applicable in respect of the annual reports filed for the year ending 31 March 2019 and thereafter. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 amends section 136 of the Companies Act, 2013 by allowing companies to circulate financial statements at a shorter notice, if it is so agreed by 95% of the members entitled to vote at the meeting. This is in line with the existing requirement to call an AGM at a shorter notice. Practically, listed entities may be able to take the benefit, of circulating financial statements at a shorter notice, in complying with the requirement to submit annual report to stock exchange and publish it on the website, which needs to be no later than the day as dispatched to the shareholders. Disclosures pertaining to credit rating [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(t)(ii) and Para 3(x)(c)(ii)] The Amendments require listed entity to disclose, under a separate section on its website, all credit ratings obtained for all its outstanding instruments which shall be updated immediately as and when there is any revision in any of the ratings. Further, as a part of the Corporate Governance Report, a list of all credit ratings obtained by the listed entity for all debt instruments or for any fixed deposit program, or any scheme or proposal involving mobilization of funds, needs to be disclosed along with any revisions thereto during the relevant financial year. Currently, there is no specific provision in the Companies Act regarding the disclosure of credit ratings however, SEBI (LODR) Regulations require disclosure of revision in credit rating for different instruments from time to time to the stock exchanges as and when changes happen. All listed entities will need to comply with this amendment with effect from 1 October Searchable formats of disclosures [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(r)(ii)] The Amendments introduce the requirement for the listed entity to make disclosures: to stock exchanges, in XBRL format, in accordance with the guidelines specified by the stock exchanges from time to time; to stock exchanges and on the entity s website in a format that allows users to find relevant information easily through a searching tool. The above requirement does not override any statutory requirement to make disclosures in formats which may not be searchable, such as copies of scanned documents. All listed entities will need to comply with this amendment from the date of notification of these amendments, i.e., 9 May Currently, there is no specific provision for the same in the Companies Act and SEBI (LODR) Regulations. Disclosures of key changes in financial indicators [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(b)] The Amendments introduce a requirement for all the listed entities to disclose in the Management Discussion and Analysis (MD&A) section of the annual report: a. Details of significant changes (i.e., change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, along with detailed explanations thereof, including: 1. Debtors turnover 2. Inventory turnover 3. Interest coverage ratio 4. Current ratio 5. Debt equity ratio 6. Operating profit margin (%) 7. Net profit margin (%) or, sector-specific equivalent ratios, as applicable b. Details of any change in Return on Net Worth as compared 28 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

29 to the immediately previous financial year along with a detailed explanation thereof All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter. Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same. Utilization of proceeds of preferential issue and Qualified Institutional Placement (QIP) [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(n) and Para 3(x)(c)(iii)] Currently, SEBI (ICDR) Regulations, 2009 require periodic disclosure on the utilization of issue proceeds in case of public issues. However, these disclosures are not required for funds raised by way of preferential allotments and QIPs. The Amendments introduce a requirement to disclose details of utilization of funds raised through preferential allotment or QIP as specified under Regulation 32(7A) as a part of the Corporate Governance Report. All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter. Disclosure pertaining to directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(i)] Currently, SEBI (LODR) Regulations require disclosure of number of other boards or committees, in which a director is a member or a chairperson. The Amendments introduce an additional requirement to disclose separately the names of the listed entities where the person is a director and the category is of directorship. All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter. Disclosures pertaining to disqualification of directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)] The Amendments introduce a requirement to disclose a certificate from a company secretary in practice that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as the directors of companies by the board / MCA or any such statutory authority. Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same. All listed entities will need to comply with this amendment in the annual report filed for the year ending 31 March 2019 and thereafter. Disclosures of subsidiary accounts [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(t)(ii)] In order to enhance transparency and have an ease of reference for public shareholders of listed entities, the Amendments require that at least 21 days prior to the date of the AGM called to consider accounts of that financial year, separately audited financial statements of each subsidiary of the listed entity should be uploaded under a separate section on the website of the listed entity. SEBI (LODR) Regulations currently only require a listed entity to maintain a functional website containing certain specified information. However, this amendment aligns the requirement to the current proviso to Section 136(1) of the Companies Act which requires every company to place separate audited accounts of each of its subsidiary on its website, if any. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 clarifies the requirements of section 136(1) of the Companies Act, 2013 by stating the following: The requirement for placing financial statements on the website will be met by placing the consolidated financial statement of such foreign subsidiary on the listed entity s website, where such foreign subsidiary is statutorily required to prepare consolidated financial statements under any law of the country of its incorporation The holding Indian listed entity may place unaudited financial statements of the concerned foreign subsidiary on its website, where such foreign subsidiary does not get its financial statements audited since it is not required to get its financial statement audited under any law of the country of its incorporation Practically, listed entities having foreign subsidiaries will have to evaluate whether the above clarification can also be extended to the SEBI (LODR) Regulations requirement of uploading separate audited financial statements for each subsidiary. Prior Intimation of board meeting to discuss bonus issue [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(m)] Currently, SEBI (LODR) Regulations provides that prior intimation is not required to be given to the stock exchanges about the board meeting, where the declaration of bonus by the listed entity is not as one of the items on the agenda. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

30 The announcement of issue of bonus shares generally has a market price impact and therefore, its disclosure becomes critical. Accordingly, the Amendments require the proviso to Regulation 29(f) of SEBI (LODR) Regulations, to be deleted with effect from 1 October 2018, which states that prior intimation is not required to be given to the stock exchange(s) in case the declaration of bonus by the listed entity is not on the agenda of the board meeting. Views of committees not accepted by the board of directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)] The Amendments extend the requirement to disclose, along with the reasons thereof, where the board had not accepted any recommendation of any committee of the board which is mandatorily required, in the relevant financial year. However, such disclosure requirement shall only apply where recommendation of / submission by the committee is required for the approval of the board and shall not apply where prior approval of the relevant committee is required for undertaking any transaction under SEBI (LODR) Regulations. Currently, except for Section 177(8) of the Companies Act (in relation to audit committee), there is no provision for a disclosure to the shareholders, if recommendations of the relevant committee are not accepted by the board. All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 clarifies that if the audit committee does not approve related party transactions which are not covered under section 188 of the Companies Act, 2013 then the audit committee will make its recommendation to the board. This will require the board to consider and approve these transactions, even if they were otherwise not covered under the approval requirement of section 188. Combined effect of the amendments to Companies Act and SEBI (LODR) Regulations imply that all recommendations made by the audit committee to the board for related party transactions which are not covered under section 188 should be disclosed to the shareholder, in case if the board does not accept those recommendations. The Companies (Amendment) Act, 2017 also clarify that if the related party transactions between a holding company and its wholly-owned subsidiaries require board approval under section 188, then they will also require approval of the audit committee. How we see it Submission of annual accounts in soft copies will boost the green initiatives in corporate governance undertaken by MCA Credit rating disclosure for all outstanding instruments of the issuer will help enhance transparency in credit risk across issuers, instruments and sectors. Also, this will result in the evolution of credit risk pricing by market participants and development of credit spreads over government bond yields in the near future Using searchable formats of the disclosures will reduce the hardships to the investors at large and also regulators for searching information in the company filings using relevant key words for analytical purposes Generally, disclosure of key financial indicators and changes in them are made in the investor presentations / earnings call. However, this requirement to disclose in MD&A strengthens the focus around a mix of qualitative and quantitative analysis to be provided by the management with respect to the company s business and financial performance. This will result into an informed decisionmaking by investors and would also put an onus on the management to appropriately explain any variance in the disclosed financial indicators Disclosure of the name of the listed entities where a person is a director may enable investors to understand if the director is involved in any business(es) that competes or is likely to compete against each other Certificate from company secretary on disqualification of directors will assure the investors that the directors will act in good faith in order to promote the objects of the company for the benefit of its members as a whole and in the best interest of the company, its employees, the shareholders, and the community for the protection of the environment Disclosure of subsidiary accounts will provide complete overview of the group and help understand the financial results in a better manner. Overall, it will enable investors, analysts, business owners and other interested parties in making an informed investment decision Prior intimation / advance notice is required to be given to the stock exchange for consideration of bonus issuance due to its sensitive nature and the impact it will have on market prices of the securities, given the risk of insider trading 30 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

31 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

32 Accounting and audit related issues 32 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

33 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct 2018 to 31 Mar Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For all listed entities: Disclosure of total fees paid at consolidated level for all services of auditor and its network firms/ entities* For all listed entities: Auditor to review and report on management estimates of audit qualifications Mandatory submission of quarterly / year-to-date consolidated financial statements Limited review of last quarter financial results with disclosure of material adjustments pertaining to earlier period Submission of standalone and consolidated cash flow statements for the half year Limited review of subsidiary entities by statutory auditor of parent listed entity Disclosure to stock exchange of detailed reasons for auditor resignation Disclosure as a part of AGM notice the auditors credentials and proposed audit fees * Currently applicable, with reporting from the year ending 31 March 2019 Financial statements are the primary document that stakeholders (including investors, lenders, customers and suppliers) rely upon in gauging the role that management played in earning returns on the capital employed by the stakeholders. These statements give a snapshot of the financial position of the business at a point in time as well as the earnings generated out of all the business activities (both operating and nonoperating) for a period of time. Good quality financial statements having a balanced disclosure of material items that may potentially influence decision-making reinforces stakeholder s trust in the management. These Amendments seek to improve disclosures and enhance the quality of financial statements and audit. Audit qualifications [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(w)] The Amendments modify the requirement, thereby making it mandatory, in case where audit qualifications are not quantifiable: The management shall mandatorily make an estimate, which the auditor shall review and report accordingly Notwithstanding the above, the management may be permitted to not provide estimates on matters, like going concern or sub-judice matters; in which case, the management shall provide the reasons and the auditor shall review the same and report accordingly Currently, SEBI (LODR) Regulations provide that if the management is unable to make an estimate with respect to any audit qualification, it shall provide the reasons and the auditor shall review the same and report accordingly. This is narrowed down to matters like going concern and sub-judice matters. The Amendments aim to strengthen disclosures by bringing an increased focus on quantification of audit qualifications (mandatory), with the exception being only for matters like going-concern or sub-judice matters. The Circular issued by SEBI on 27 May 2016 has clause 4.4 that requires management to provide reasons in case it is unable to make an estimate of audit qualification and the same shall be reviewed and commented by the auditor. SEBI Circular dated 10 May 2018 removes this requirement to align with the above Amendments. Quarterly financial disclosures [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(o)] Consolidated financial results The Amendments remove the option given in every financial year to the listed entity to opt for submission of consolidated financial results on a quarterly / year-to-date basis and rather, make it mandatory to submit consolidated financial results on a quarterly / year-to-date basis. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

34 The Companies Act and SEBI (LODR) Regulations mandate the submission of consolidated financial statements by a listed entity every financial year on an annual basis. of the audit of all the entities / companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by SEBI on this matter. Last quarter financial results: The Amendments relax the requirement of getting the financial results of the last quarter audited before submission and allows limited review of financial results of the last quarter when the listed entity submits them along with the results for the entire financial year. Further, the Amendments also require the listed entity to disclose by way of a note in the last quarter financial results, the aggregate effect of material adjustments, which pertain to earlier periods, made in the results of that quarter. Currently, SEBI (LODR) Regulations require submission of audited financial results in respect of the last quarter along with the results for the entire financial year, with a note stating that the figures of last quarter are the balancing figures between audited figures in respect of the full financial year and the published year-to-date figures up to the third quarter of the current financial year. Audit / limited review of quarterly consolidated financial results: The Amendments introduce a requirement for the listed entity to ensure, for the purposes of quarterly consolidated financial results, that at least 80% of each of the consolidated revenue, assets and profits, respectively shall have been subject to audit or in case of unaudited results, subjected to limited review. Cash flow statements: The Amendments introduce a requirement that the listed entity should submit, by way of a note, a statement of cash flows for the half-year as part of its standalone and consolidated financial results for the half-year. Limited review of subsidiaries The Amendments introduce a requirement on the part of the statutory auditor of a listed entity to undertake a limited review How we see it Companies should start their preparations early to prepare comparative financial information (e.g., quarterly consolidated). SEBI needs to specify whether limited review, of the entities in the group, to be performed by the statutory auditor of the parent listed entity, would extend to even foreign subsidiaries. Also, the above amendment requires considering consolidation criteria as per AS 21 but ICAI to issue guidance on whether it is equally applicable if listed entities are following Ind AS. Further, ICAI to issue guidance on limited review of audit of all components. Accordingly, the parent listed entity will have to ensure timely closure of the financial statements of all its components in order for the statutory auditor of the listed entity to perform a limited review. Disclosure of reasons for resignation of auditors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(v)] The Amendments require the listed entity to disclose to the stock exchanges as soon as possible but not later than 24 hours from the receipt from the auditors, detailed reasons for resignation of auditors. Currently, the Companies Act read with Audit Rules requires reasons for resignation of auditors to be filed with the company and the Registrar. While currently, under SEBI (LODR) Regulations, a change in auditor is a deemed material 34 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

35 event and disclosure is required to be made to the exchanges. However, there is no specific provision for the disclosure of detailed reasons for such change. Disclosures on audit and non-audit services rendered by the auditor [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)] The Amendments introduce a new requirement to disclose total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm / network entity of which the statutory auditor is a part. All listed entities will need to comply with this amendment by disclosing in the Corporate Governance Report section of the annual reports filed for the year ending 31 March 2019 and thereafter. Disclosure of credentials and audit fee of auditors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(r)(ii)] The Amendments introduce a new requirement where the statutory auditor(s) is/are proposed to be appointed/reappointed, the listed entity shall make the following disclosures as a part of the explanatory statement to the notice sent to shareholders for an AGM: a. Proposed fees payable to the statutory auditor(s) along with terms of appointment. In case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change b. Basis of recommendation for appointment, including the details in relation to and credentials of, the statutory auditor(s) proposed to be appointed Currently, the appointment of auditors at an AGM is not considered to be a special business and hence does not require any statement to the shareholders with requisite disclosures as per Section 102(1) of the Companies Act. However, SEBI (LODR) Regulations currently imposes an obligation on the listed entity to ensure that the audit is conducted by an independent, competent and qualified auditor. How we see it The resignation of an auditor before the expiry of the term may be a cause for concern. For the sake of greater transparency, it is important for companies to disclose the reasons for the resignation of its auditor Adequate disclosure of the skill set of the auditors as well as credentials highlighting professional competence and experience of the audit firms / auditors enables shareholder to make informed decisions in appointing auditors SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

36 Investor participation in meetings of listed entities 36 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

37 Timeline indicating when the requirements kick-in pursuant to the amendments in this chapter Time Remaining 4 months 10 months 22 months 9 May Oct Apr Apr 2020 June 2018 Notification of the SEBI (LODR) (Amendment) Regulations, 2018 For top 100 listed entities as at 31 March every financial year: AGM to be held within five months from date of closing the financial year* For top 100 listed entities based on market capitalization at the end of immediately preceding financial year: One-way live webcast of the proceedings of the AGM* * Applicable for the AGMs held after 1 April 2019 (i.e. from the AGM for financial year ended 31 March 2019) It is understood that increased and better participation by constituents enhances good governance. Accordingly, easing investor participation, including through the use of technology, is imperative and responding to questions from the shareholders promotes accountability of boards and management. The Amendments seek to facilitate and ease participation by removing the boundaries of physical meetings and adopting the use of technology. Timeline for annual general meetings of listed entities [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(s)(ii)] The Amendments introduce a requirement that reduces the timeline for holding AGM within a period of five months from the date of closing of the financial year. This requirement is applicable to top 100 listed entities by market capitalization, determined as on 31 March of every financial year. The Amendments seek to align the timeline for holding AGM with the global practices and to avoid bunching of AGMs (especially in August/ September), which results in lower shareholder participation. Currently, the Companies Act requires listed entities in India to hold AGM within six months from the end of the financial year. There is no specific provision in SEBI (LODR) Regulations on this. Webcast of proceedings of the meeting [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(s)(ii)] The Amendments introduce a requirement that the top 100 listed entities shall provide one-way live webcast of the proceedings of the AGM. The top 100 listed entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year. Currently, the Companies Act and SEBI (LODR) Regulations do not mandate webcast of the meeting proceedings. How we see it Reducing the timelines of the AGM in line with global practices will reduce the clash in AGM s for different companies and result in maximum participation by the shareholders. By making a meeting accessible via a webcast will substantially increase its exposure and reach. The internet platform overcomes constraints of physical presence and webcast allows large number of shareholders to remotely participate at the same time. This results in efficient decision making for approval of audited accounts, election of directors, appointment of auditors and various other initiatives, thereby facilitating accomplishment of business goals and strategic objectives. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

38 Recommendations referred to other agencies 38 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

39 SEBI decided to refer several recommendations of the Kotak Committee to various agencies (i.e., government, other regulators, professional bodies, etc.) considering that the matters involved relate to them and are beyond SEBI s regulatory ambit. Such recommendations, inter-alia, include strengthening the role of ICAI, internal financial controls, adoption of Ind AS, treasury stock, governance aspects of PSEs, etc. Group audits [Kotak Committee report, chapter VII(3)] ICAI s Standards of Auditing permit the holding company s auditor (i.e., principal auditor) to place reliance on the audit performed by the auditor of the subsidiaries and provide an audit opinion on the consolidated financial statements based on the audit report provided by the other auditors. In placing reliance, depending upon circumstances, the principal auditor may choose to perform supplemental tests on records or financial statements of the group entity or may even require the other auditor to answer a detailed questionnaire regarding those matters that require information for discharging his duties. Currently, there is no specific provision with respect to group audits under the Companies Act or SEBI (LODR) Regulations. Recommendation and rationale by Kotak Committee: The Kotak Committee recommended that for the listed entities in India, the auditor of the holding company should be made responsible for the audit opinion of all material unlisted subsidiaries. The rationale behind such a recommendation was that several international jurisdictions following International Standards on Auditing (ISA) are governed by the requirements of ISA 600, which do not permit a division of responsibility between auditors of the holding company and its subsidiaries. Therefore, in such cases, the auditor of the holding company is responsible for the direction, supervision and performance of the group audit engagement. Outcome SEBI has referred the recommendation to the ICAI to introduce amendments to the relevant accounting / auditing standards to do above implementations. How we see it This is a step towards aligning with global practices. ICAI may provide further clarity regarding these recommendations in due course. Over a period of time companies may migrate to one audit firm across the group to reduce the time required for audits to be completed and increase efficiencies. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 amends section 143(1) of the Companies Act, 2013 such that the auditor of a holding company will have a right to access the accounts and records of the associates and joint ventures in the group in addition to the accounts and records of the subsidiary company whose accounts are required to be consolidated. This amendment will help auditors to deal with scenarios where the holding company auditor needs to obtain additional comfort / perform additional procedures on financial information of associates and joint ventures for being able to express a true and fair opinion on the consolidated financial statements of the parent. Internal Financial Controls (IFCs) [Kotak Committee report, chapter VII(5)] ICAI s guidance on IFC restricts the reporting requirements for an auditor of the consolidated financial statements, to the IFC at the Indian subsidiaries only. On the other hand, section 143(3)(i) read with section 129(4) of the Companies Act requires an auditor to report on the IFC of the entire Group. Further, while the SEBI (LODR) Regulations have general provisions on IFC, there is no specific provision on the coverage of the same. Recommendation and rationale by Kotak Committee: The Kotak Committee recommended that IFC reporting requirements be made applicable to the entire operations of the group and not just to the Indian operations. However, it recognizes that companies may require adequate transition time and in this regard, recommends that the requirements initially be only applicable to the listed entities with net worth of INR1,000 crore and above. The rationale behind such a recommendation is to align with global practices where IFC reporting requirement applies to the entire group and especially since, as per the Companies Act, India has also adopted IFC reporting requirements for certain companies. Outcome SEBI has referred the recommendation to the ICAI to introduce appropriate amendments in its guidance on IFC. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

40 How we see it Extending the holding company auditor s IFC reporting requirement to the entire group would be as extensive as the requirement of the auditor being responsible for the audit opinion of all subsidiaries. Any amendments in this regard should strike a balance between this exercise becoming onerous on auditors as well as management and achieving effective oversight role. Also, these requirements would be in addition to getting the financial statements audited in order to comply with the local regulations governing foreign subsidiaries. Interplay with Companies (Amendment) Act, 2017 The Companies (Amendment) Act, 2017 amends section 143(3) of the Companies Act, 2013 to clarify that the auditor s report, amongst other matters, will state whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls. This amendment does not extend auditor s reporting requirement to operating effectiveness of business controls. Audit quality Indicators [Kotak Committee report, chapter VII(8)] Currently, there is no specific provision in the Companies Act or SEBI (LODR) Regulations with respect to audit quality indicators. Recommendation and rationale by Kotak Committee: The Kotak Committee recommended that making public, the audit quality indicators such as workforce metrics, skilldevelopment and training of audit team, quality metrics such as audit restatements, trends in audit metrics such as billable hours and audit fines, legal actions and fines against the firm, independence metrics such as client and group concentration, use of technology, etc. The rationale behind such a recommendation is to enable transparency and comparison of the audit quality of different auditors. However, the Kotak Committee also noted that many of the aforesaid indicators are already a part of ICAI s peer review system. Outcome SEBI has referred the recommendation to the ICAI. How we see it Audit quality indicators could potentially help audit committees in discharging these crucial responsibilities by promoting a better understanding of the audit firm s system of quality controls and factors related to the quality of the audit engagement. This can be one of the key decisionmaking factors for the management when appointing new auditors pursuant to the mandatory audit rotation requirements of the Companies Act. Ind AS Adoption [Kotak Committee report, chapter VII(10)] The MCA and SEBI have specified timelines for listed entities (including listed banks, NBFCs and insurance companies) to adopt Ind AS. While listed entities (other than banks, NBFCs and insurance companies) that are currently required to comply with the provisions of Ind AS in preparation of their financial statements and audit, the timelines for the financial services sector is as below: i. Banks are required to prepare Ind AS based financial statements for accounting periods beginning from 1 April 2018 (which is currently deferred by one year pursuant to RBI circular 1 ) ii. Certain NBFCs (depending on net worth and whether listed/ unlisted) are required to prepare Ind AS based financial statements for accounting periods beginning from 1 April 2018 or 1 April 2019, as the case may be iii. Insurance companies are required to prepare Ind AS based financial statements for accounting periods beginning from 1 April Recommendation and rationale by Kotak Committee: The Kotak Committee recommends full implementation of Ind AS as currently scheduled without extension, for all listed entities including banks, NBFCs and insurance companies. The rationale behind such a recommendation is that listed banks, NBFCs and insurance companies are important financial 1 RBI, Statement on Developmental and Regulatory Policies dated April 5, IRDAI, Circular IRDA/F&A/CIR/ACTS/146/06/2017, dated June 28, SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

41 intermediaries, critical to the sanctity of India s financial markets and its growth. Given the principle-based rules of Ind AS and resultant disclosures in financial statements, it is important for all the sectors in India to adopt Ind AS in a timely manner without any further deferral in the respective sectorimplementation roadmaps. Outcome Regulatory bodies like RBI and IRDAI are instrumental deciding the roadmap for banks and insurance companies, respectively while MCA decides the roadmap for NBFCs. Accordingly, since the regulators have a far greater role as compared to MCA and SEBI, the recommendation are referred by SEBI to the respective regulator / authority, as necessary. How we see it The adoption of Ind AS is a welcome change and has played a key role in enhancing the comparability of financial statements of Indian companies with global best practices in financial reporting. It improves the quality of financial reporting by focusing on reflection of the substance of the transaction and requiring enhanced disclosures to explain accounting policy elections, significant accounting estimates and judgements as well as in explaining relevant line items in the financial statements. Strengthening the role of ICAI [Kotak Committee report, chapter VII (12)] The ICAI Act regulates the conduct of chartered accountants in India and provides a mechanism for taking disciplinary action against members who are found in the act of violation of obligations cast on such professionals. Further, CA Act permits ICAI to punish or levy a penalty not exceeding INR5 lakhs on such a member. It does require ICAI to punish or impose penalties on firms. While the Companies Act also has provisions for enhanced monetary penalties on auditors, enforcement of the same is through the MCA and not the ICAI. Recommendation and rationale by the Kotak Committee: The Kotak Committee recommends that ICAI may be given powers to increase the scope of punishment as well as the penalty amount as follows: On the member penalty of up to INR1m; On the audit firm punishment or impose penalties of up to INR50m in case of repeated violations (that is, where the number of violations exceed three). In addition, in relation to the enforcement/disciplinary process of the ICAI, the Kotak Committee recommends: Increased disclosure by ICAI of actions taken against members to increase transparency and act as a deterrent; Separate team/cell for enforcement pertaining to listed entities in order to reduce the turnaround time for disciplinary proceedings; Having a team that analyses reports of proxy advisors on audit related matters of listed entities and take appropriate action, if any, against its members. The rationale behind such a recommendation is the view that reliable financial statements are at the core of corporate governance and the fiduciary role of the auditor is crucial. Therefore, for enhancing governance of listed entities, a need is identified for ICAI to be able to punish or impose penalties on audit firms, in addition to individual members. Outcome ICAI had expressed its view on the above recommendation stating that it was outside the scope of the terms of reference of the Kotak Committee and that ICAI has already taken up most of the aforesaid matters at appropriate levels. Accordingly, SEBI has referred the above recommendations to the appropriate authorities/regulators. Strengthening the independent functioning of QRB [Kotak Committee report, chapter VII (13)] There is no specific provision on Quality Review Board (QRB) under the Companies Act or SEBI (LODR) Regulations. Recommendation and rationale by Kotak Committee: The Kotak Committee recommends: Strengthening QRB s role to meet International Forum of Independent Audit Regulators (IFIAR) s independence criteria and become a member of IFIAR at the earliest. QRB to be provided with requisite financial resources and staff with adequate full-time personnel to be able to effectively carry out its mandate. Steps to be taken for further operational independence of QRB such as providing infrastructural support by the government, etc.; Reasons for disagreement between the ICAI and the QRB to be recorded in writing and communicated to QRB for improving transparency in the functioning. The rationale behind such recommendation is that most major economies in the world have implemented systems of independent oversight for the auditors of listed companies that provide confidence to the shareholders and the stakeholders. The IFIAR is an international body established in 2006 that comprises independent audit regulators from 52 jurisdictions representing Africa, North America, South America, Asia, Oceania, and Europe. IFIAR s mission is to serve the public SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

42 interest and enhance investor protection by improving audit quality globally. In India, the QRB is mandated to conduct such reviews and has now started carrying out reviews of audits performed by various auditors. Therefore, strengthening the role of QRB assumes significance. Outcome ICAI had expressed its view on the above recommendation stating that it was outside the scope of the terms of reference of the Kotak Committee. Further, QRB has already applied for IFIAR membership and the dialogue is on with the IFIAR regarding the same. Accordingly, SEBI has referred the above recommendations to the appropriate authorities/regulators. How we see it Strengthening and streamlining ICAI s and QRB s role would avoid the needless addition to a regulatory level such as setting up NFRA. This was the view of the Standing Committee on Finance, to which we agree, since multiple regulatory bodies overseeing the accounting and auditing profession may result in duplication of work, cross-overs of jurisdictions and unwarranted compliances. MCA s notification of section 132(3) and 132(11) indicates their focus of moving ahead with the Company Law Committee s view of aligning with global practices of setting up an independent regulatory body. E-voting of Proceedings of the Meeting [Kotak Committee report, chapter VIII (2)] Currently, under the Companies Act read with Management and Administration Rules, it is mandatory for a listed entity to provide e-voting facility to the shareholders and such e-voting is permitted up to 5 p.m. one day prior to the AGM. Also, under SEBI (LODR) Regulations, remote e-voting facility is mandatory in respect of all shareholder resolutions and voting results are to be submitted within forty-eight hours of the conclusion of the AGM. Recommendation and rationale by Kotak Committee The Kotak Committee recommended that e-voting should be kept open till midnight (i.e. 11:59 p.m.) on the day of the AGM, however, continuing the current requirement of not permitting modification votes cast through e-voting. The rationale behind such a recommendation is for investors to take into account the discussions during the AGM and vote with complete information, which is currently not possible. Outcome SEBI would refer the above recommendation to the MCA for amendment of Management and Administration Rules. Governance aspects of PSEs [Kotak Committee report, chapter IX] The Kotak Committee acknowledged that PSEs face unique challenges that make their governance more complex than in the private sector, given that (i) most PSEs pursue multiple and diverse objectives in line with their broader social welfare objectives (unlike private enterprises which may focus on value maximization for their shareholders); (ii) PSEs may also have certain structural issues arising due to conflicts of interest that are inherent in cases where the same entity is both the owner and regulator; (iii) protracted decision making in PSEs owing to accountability at multiple levels. Nonetheless, there is a need for moving to enhanced governance standards. Accordingly, the Kotak Committee proposed that government should keep the following key guiding principles in mind for assessment of governance aspects of PSEs: Establish a transparent mandate for PSEs and disclose its objectives and obligations; Ensure independence of the PSEs from the administrative ministry; Consolidate the government stake in listed PSEs under holding entity structure(s). Recommendation and rationale by the Kotak Committee: The committee recommends that the listed PSEs fully comply with the provisions of SEBI (LODR) Regulations and the same be suitably enforced. Additionally, the government should assess and examine the broader issues, inter-alia, concerning ownership structure for the government stake, removal of conflicts and creating a more autonomous environment for PSEs to function in the best interest of all stakeholders. The committee believes that this will significantly enhance the value of the national assets. This should be done in a time-bound manner. The rationale behind such a recommendation is that all listed entities, government or private, should be treated at par on governance standards. Therefore, all listed PSEs should be compliant with the SEBI (LODR) Regulations. In case there is any inconsistency between SEBI (LODR) Regulations and the relevant legislation, if any, under which the respective PSE has been established, appropriate harmonization of the legislation to bring the same in line with the requirement of SEBI (LODR) Regulations should be undertaken. 42 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

43 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

44 Appendix A Amendments effective from 1 October 2018 (half-year ended March 31, 2019) 44 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

45 The table below summarizes the Amendments which are effective for half-year ending March 31, This implies that listed entities will need to start making decisions from October 1, 2018, in order to ensure compliance for FY : Chapter Area Kotak Committee Recommendation Promoters / Con-trolling Shareholders and RPTs [The Kotak Com-mittee report, chapter V] Disclosure of Related Party Transactions [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(a), Para 3(i)(e) and Para 3(x)(a)] The amendments introduce a new requirement for a listed entity to disclose related party transactions on a consolidated basis as per the format specified in the relevant accounting standards for annual results to stock exchanges, and to publish the same on its website. These disclosures need to be made within 30 days from the date of publication of the standalone and consolidated financial results for the half-year by the listed entity. Promoters / Con-trolling Shareholders and RPTs [The Kotak Com-mittee report, chapter V] Approval of Related Party Transactions [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(c) and Para 3(i)(d)] The amendments in the clauses pertaining to the approval of related party transac-tion have been made in order to plug the gap in the legal framework, wherein, the Companies Act allows related parties to vote on (but not in favor of) a related party transaction and while currently, SEBI (LODR) Regulations require all related parties should abstain from voting on a related party transaction. Promoters / Con-trolling Shareholders and RPTs [The Kotak Com-mittee report, chapter V] Royalty and Brand Payments to Related Parties [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i) (b)] The amendment specifies a threshold of 2% of the annual consolidated turnover of the listed entity as per its last audited financial statements for transactions involving payment made to a related party with respect to brand usage or royalty, either con-sidered individually or taken together with previous transactions during a financial year. Promoters / Controlling Shareholders and RPTs [The Kotak Com-mittee report, chapter V] Materiality Policy [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i) (a)] The amendments intend that companies also disclose, as a part of their materiality policy, clear threshold limits duly approved by the board of directors. Such materiality policy is required to be reviewed and updated by the board of directors at least once every three years. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

46 Appendix B Amendments currently applicable, with reporting for year ended March 31, SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

47 The table below summarizes the amendments which are effective for year ending March 31, This implies that listed entities will need to start making decisions immediately in order to ensure compliance for the FY : Chapter Area Kotak Committee Recommendation Composition and Role of the Board of Directors [The Kotak Committee report, chapter I] Disclosure of Expertise / Skills of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(i)(2)] The amendments require disclosure of a list of core skills/ expertise/competencies identified by the board as required in the context of its business(es) and sector(s) for an efficient functioning. It also requires disclosure of those skills/expertise/ competencies that its board members actually possess, without disclosing the names of the directors. Enhanced Monitoring of Group Entities [The Kotak Committee report, chapter IV] Secretarial Audit [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(k)] The amendments extend the requirement of Secretarial Audit to every listed entity and its material unlisted Indian subsidiaries along with the requirement to annex with its annual report, a secretarial audit report given by a practicing company secretary. Disclosures and Transparency [The Kotak Committee report, chapter VI] Submission of Annual Reports [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(q) and Para 3(r)(i)] The amendments require the listed entity to submit to the stock exchange and publish on the website: A copy of the annual report shall be sent to the shareholders along with the notice of the AGM to be disclosed not later than the day as dispatched to the shareholders. In the event of any changes to the annual report, the revised copy along with details of, and explanation for the changes are required to be sent in not later than 48 hours after the AGM. The amendments now also clarify that the listed entity to send soft copies of the full annual report to all those shareholders who have registered their address(es), either with the listed entity or with any depository. Disclosures and Transparency [The Kotak Committee report, chapter VI] Disclosures of Key Changes in Financial Indicators [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (b)] The Amendments introduce a requirement for all the listed entities to disclose in the MD&A section of the annual report: details of significant changes (i.e. change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, along with detailed explanations thereof; and details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof. Disclosures and Transparency [The Kotk Committee report, chapter VI] Utilization of Proceeds of Preferential Issue and Qualified Institutional Placement (QIP) [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(n) and Para 3(x)(c)(iii)] The amendments introduce a requirement to disclose details of utilization of funds raised through preferential allotment or QIP as specified under Regulation 32(7A) as a part of the Corporate Governance Report. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

48 Chapter Area Kotak Committee Recommendation Disclosures and Transparency [The Kotak Committee report, chapter VI] Disclosure Pertaining to Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(i)] The amendments introduce an additional requirement to disclose separately the names of the listed entities where the person is a director and the category is of directorship. Disclosures and Transparency [The Kotak Committee report, chapter VI] Disclosures Pertaining to Disqualification of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)] The amendments introduce a requirement to disclose a certificate from a company secretary in practice stating that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as the directors of companies by the Board / MCA or any such statutory authority. Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same. Disclosures and Transparency [The Kotak Committee report, chapter VI] Views of Committees Not Accepted by the Board of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)] The amendments extend the requirement to disclose, along with the reasons thereof, where the Board had not accepted any recommendation of any committee of the board which is mandatorily required, in the relevant financial year. However, such disclosure requirement shall only apply where the recommendation of / submission by the committee is required for the approval of the board and shall not apply where prior approval of the relevant committee is required for undertaking any transaction under SEBI (LODR) Regulations. Accounting and Audit related issues [The Kotak Committee report, chapter VII] Disclosures on Audit and Nonaudit Services Rendered by the Auditor [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)] The amendments introduce a new requirement to disclose total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm/network entity of which the statutory auditor is a part. 48 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

49

50 Appendix C - Recommendations not notified by SEBI 50 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

51 SEBI s notification of the Amendments on May 9, 2018 and issue of circular on May 10, 2018 does not have a reference to several recommendations made by the Kotak Committee, a list of which have been given below. Refer the Kotak Committee Report for detailed recommendation, rationale and proposed amendments to SEBI (LODR) Regulations. Area Current regulatory provisions Kotak Committee Recommendation Composition and Role of the Board of Directors [The Kotak Committee report, chapter I] Attendance of directors Currently, the Companies Act provides for the automatic vacation of the office of a director if a director is absent from all meetings of the board of directors held during a 12-month period. There is no requirement for minimum attendance of directors in meetings of the board of directors under the SEBI (LODR) Regulations. If a director does not attend at least half of the total number of board meetings over two financial years on a rolling basis, his/her continuance on the board should be ratified by the shareholders at the next annual general meeting. Minimum number of board meetings Currently, both the Companies Act and the SEBI (LODR) Regulations require at least four meetings of the board every year with a maximum gap of one hundred and twenty days between any two meetings. The minimum number of meetings of the board of directors be increased to five every year. At least once a year, aspects which are critical to the medium-term and long-term future of a listed entity, like strategy, succession planning, budgets, risk management, ESG (environment, sustainability and governance) and board evaluation, should be specif-ically discussed by the board. Updating knowledge of the board members Currently, the Companies Act contains general provisions pertaining to the induction of independent directors. SEBI (LODR) Regulations require familiarization of the independent directors relating to certain specified matters and that the board of directors periodically review compliance reports pertaining to all laws applicable to the listed entity as well as steps taken to rectify instances of non-compliances. In order to fill the information gap, it is recommended that the board of directors should be updated on regulatory and compliance changes, at least once every year. NED engagement with the management Currently, the Companies Act and SEBI (LODR) Regulations do not have any provisions requiring the mandatory engagement of the NEDs with the management. In order to fill the information gap, it is recommend-ed that the board of directors should be updated on regulatory and compliance changes, at least once every year. Matrix Reporting Structure The Companies Act states that the board of direc-tors of a company shall be entitled to exercise all such powers and to undertake all such activities as the company is authorized to exercise and under-take. The SEBI (LODR) Regulations also sets forth detailed responsibilities for the board of directors of a listed entity. An interaction should be required between the NEDs and senior management, at least once every year. A confirmation should be provided by the board of a listed entity as a part of the Corporate Governance Report that it has been responsible for the business and overall affairs of the listed entity in the relevant financial year and that the reporting structures of the listed entity, formal and informal, are consistent with these requirements. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

52 Area Current regulatory provisions Kotak Committee Recommendation Institution of Independent Directors [The Kotak Committee report, chapter II] Minimum number of independent directors At present, the Companies Act requires every listed company to have at least one-third of the total number of directors as IDs. SEBI (LODR) Regulations impose stricter obligations that require at least half of the total directors of the board of a listed entity to be IDs if the Chairperson is executive/related to the promoter, and in other cases, at least one-third IDs. Irrespective of whether the Chairperson is executive or not, to improve governance, every listed entity may be required to have at least half of its total number of directors as IDs. Appropriate transition time should be provided such that this is applicable to top 500 listed companies by market capitalization by April 1, 2019, and to the rest of listed companies by April 1, Minimum compensation to independent directors While the Companies Act prescribes a ceiling on the compensation that can be paid to directors, there is no requirement for minimum compensa-tion to be paid, except that the sitting fee paid to IDs cannot be lower than that of other directors. SEBI (LODR) Regulations also do not prescribe any minimum compensation to be paid to IDs. Listed entities may be required to pay certain minimum compensation to IDs as under: Minimum total remuneration of INR5 lakhs per year for top 500 companies by market cap., only in case of the adequacy of profits (subject to approvals under Companies Act); Minimum sitting fees for every board meeting to be INR50,000 for top 100 companies and INR25,000 for next 400 companies by market cap.; Minimum sitting fees for every audit committee meeting to be INR40,000 for top 100 companies and INR20,000 for next 400 companies by market cap.; Minimum sitting fees for every other board committee meeting (which are mandatory under SEBI (LODR) Regulations) to be INR20,000 for top 100 companies and INR10,000 for next 400 companies by market cap. Induction and training of independent directors The Companies Act provides general clauses per-taining to training, induction, etc. of directors. SEBI (LODR) Regulations require familiarization of the IDs relating to certain specified matters. How-ever, specific provisions on Induction, Training, and Periodicity of Continuous Updation are lack-ing. While accepting that IDs will not, and need not, know the business as well as executive directors, the following would be helpful: A formal Induction should be mandatory for every new ID appointed to the board; and Formal Training, whether external/internal, especially with respect to governance aspects, should be required for every ID once every five years, the onus of which shall be on the director. 52 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

53 Area Current regulatory provisions Kotak Committee Recommendation Lead independent director (ID) in companies with nonindependent chairperson Currently, there is no requirement for a Lead ID in Companies Act / SEBI (LODR) Regulations. 1. All listed entities where the Chairperson is not independent to designate an ID as the Lead ID; 2. The Lead ID should be a member of NRC; 3. The Lead ID shall: a. lead exclusive meetings of the IDs and provide feedback to the Chairperson/board of directors after such meetings; b. Serve as liaison between the chairperson of the board and the IDs; c. Preside over meetings of the board at which the chairperson or vice-chairperson is not present, including executive sessions of the IDs; d. Have the authority to call meetings of the IDs; and e. If requested by significant shareholders, ensure that he/she is available for consultation and direct communication. Exclusive meeting of independent directors The Companies Act and the SEBI (LODR) Regula-tions require at least one meeting of the IDs in a year without the presence of other directors. In view of the proposed introduction of the concept of Lead ID, such meetings may be held more than once at the discretion of the IDs. Casual vacancy of office of independent director Currently under Companies Act, if the office of any director appointed by the company in an AGM is vacated before his term of office expires in the normal course, the resulting casual vacancy may be filled for the residual term by the board of di-rectors at a meeting of the board. SEBI (LODR) Regulations provide for filling the vacancy of IDs only in case of resignation and removal and provides that in case of such resigna-tion/removal, such vacancy shall be filled, but not later than the immediate next meeting of the board of directors or three months from the date of such vacancy, whichever is later. Any appointment to fill a casual vacancy of the office of any ID should also be approved by the shareholders at the next AGM. Board committees [The Kotak Committee report, chapter III] Minimum number of commit-tee meetings Currently, SEBI (LODR) Regulations require at least four meetings of the Audit Committee every year. The SEBI (LODR) Regulations does not re-quire a minimum number of meetings for other committees. The minimum number of Audit Committee meetings be increased to five every year. In addition, all other mandatory board committees necessarily meet at least once in a year. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

54 Area Current regulatory provisions Kotak Committee Recommendation Composition of Nomination and Remuneration Commit-tee ( NRC ) Under the Companies Act, the Audit Committee and the NRC are required to have at least half of their members as IDs. On the other hand, under SEBI (LODR) Regulations, while the Audit Committee is required to have 2/3rd of its members as IDs, the NRC is required to have only half of its members as IDs. The requirement of having at least two-thirds of its members as IDs may be required for NRC as well, in line with the requirement for the audit committee. Membership and chairpersonship limit Currently, in determining the maximum number of committees of which a director can be a member / Chairperson, SEBI (LODR) Regulations considers only the Audit Committee and SRC. In determining the maximum number of committees of which a director can be a member / Chairperson, NRC should also be included and thereby treated at par with the Audit Committee and SRC. Information Technology Committee There are no specific provisions in the Companies Act and SEBI (LODR) Regulations on the constitu-tion of an Information Technology Committee. Listed entities may constitute an Information Tech-nology Committee which, in addition to the RMC, will focus on Digital and other Technological aspects. Promoters / Controlling Shareholders and RPT [The Kotak Committee report, chapter V] Sharing of information with controlling promoters / Shareholders with nominee directors The SEBI PIT Regulations provide that any communication or procurement of unpublished price sensitive information is prohibited except in furtherance of legitimate purpose, the performance of duties or discharge of legal obligations. The SEBI (LODR) Regulations provide for equitable treatment of all shareholders. Under the SEBI PIT Regulations and the SEBI (LODR) Regulations, there is no specific provision enabling information sharing by the listed entity with specific shareholders. The regulatory framework should be amended to provide an enabling transparent framework regulating the information rights of certain promoters (including promoters of the promoter) and significant shareholders to reduce subjectivity and provide clarity for ease of business, along with appropriate and adequate checks and balances to prevent any abuse and unlawful exchange of UPSI i.e. to ensure information moves from one known safe container to another. The Committee recommends that this framework be optional at this stage. In addition, this framework will not impact the applicability of the SEBI PIT Regulations other than as specified. Re-classification of promoters / Classification of entities as professionally managed Presently, the Companies Act is silent on reclassification of promoters, while the SEBI (LODR) Regulations permit reclassification of promoters in limited circumstances such as (i) requirement of approval of stock exchanges, (ii) reclassification when a promoter is replaced by a new promoter, (iii) reclassification where a company ceases to have any promoters (i.e. becomes professionally managed) and (iv) general conditions. In addition, in cases where the entity becomes professionally managed, the aggregate shareholding of a person or group along with persons acting in concert (hereinafter referred to as PACs ) should not exceed 1%. Recommendations for re-classification of Promoters / Classification of Entities as Professionally Managed are given for the following two scenarios, upon satisfying certain conditions: a. Where there are multiple promoters/promoter groups and a specific promoter/promoter group wishes to undergo reclassification; b. Where there is only one specific promoter/ promoter group who/ which wishes to be re-classified and the entity wishes to be classified as professionally managed. 54 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

55 Area Current regulatory provisions Kotak Committee Recommendation Disclosures and Transparency [The Kotak Committee report, chapter VI] Disclosures pertaining to holders of depository receipts Currently, there is no specific provision in the Companies Act or SEBI (LODR) Regulations on requiring disclosures of holders of Depository Receipts (ADRs/ GDRs) issued by listed entities. Indian listed entity should obtain details of holders of any global depository receipts (as defined under the Companies Act, which includes ADRs) issued by such entity from the overseas depository at least on a monthly basis. Based on the information shared by the overseas depository, the listed entity shall disclose details of such holders of GDRs who hold more than 1% shareholding of the entity to the stock exchange as a part of the disclosure on the shareholding pattern on a quarterly basis. Harmonization of disclosures Currently, there is no specific provision in the Companies Act or SEBI (LODR) Regulations with respect to harmonized / standardized dissemination of disclosures made by the listed entities across websites of stock exchanges. The stock exchanges shall collectively harmonize the formats of the disclosures made by the listed entities on their respective websites no later than April 1, The stock exchanges shall move to disclosures by listed entities on exchange platforms in XBRL format in latest available taxonomy no later than April 1, Further, a common filing platform may be devised on which a listed entity may submit all filings, which could then be disseminated to all exchanges simultaneously. The exchanges shall introduce such a platform in consultation with SEBI by April 1, The disclosures filed with the exchanges may, as far as possible, be harmonized with the filings made to MCA. Disclosures pertaining to analyst/institutional investor meets Currently, SEBI (LODR) Regulations require the disclosure of schedules for an analyst or institutional investor meetings and presentations made by the listed entity to analysts or institutional investors on its website and to the stock exchange. The disclosure of schedules of analyst / institutional investor meetings may not be required. To clarify, the information to be shared at such meetings has to be strictly in compliance with the SEBI PIT Regulations. Disclosures in valuation reports in schemes of arrangement Currently, there is no specific provision in the Companies Act or SEBI (LODR) Regulations per-taining to disclosures of the basis of the valuation arrived at in valuation reports or requirement of disclosure of assets and liabilities of the relevant entities which are part of, or subject to, the schemes of arrangement. In the interest of full disclosures to the investors: SEBI may consider issuing guidelines for overall improvement in standards of information in the valuation reports that are included as part of schemes of arrangement disclosures. Specific disclosures on assets, liabilities and turnover of the entities involved should be disclosed in the valuation reports on schemes of arrangement. SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

56 Area Current regulatory provisions Kotak Committee Recommendation Disclosures on website Currently, as per Regulation 46 of the SEBI (LODR) Regulations, a listed entity is required to maintain a functional website containing the basic information about itself. Companies shall maintain a separate section for investors on its website and provide all the information mandated under Regulation 46 of SEBI (LODR) Regulations in a separate section, to ensure ease of availability and access of pertinent information in one place to investors and regulators alike. Disclosures on long-term and medium-term strategy Currently, there is no specific provision on disclosure of medium-term and longterm strategy under the Companies Act or SEBI (LODR) Regulations. In order to provide for disclosures pertaining to strategy of the entity, especially the medium-term and long-term strategy (in line with the Committee s recommendation that boards devote more time on strategy), a guidance may be issued by SEBI to listed entities to disclose their medium and long-term strategy in their annual reports under the MD&A section. In addition, entities should articulate a clear set of long-term metrics specific to the company's long-term strategy to allow for appropriate measurement of progress. However, each entity may define its own time frame with respect to medium and long-term since it would vary across entities/sectors. Commodity risk disclosures SEBI (LODR) Regulations require the disclosure of commodity price risk and commodity hedging activities by the listed companies in the corporate governance section of the annual report. The listed companies should disclose their risk management activities during the year, including their commodity hedging positions in a more transparent, detailed and uniform manner for easy understanding and appreciation by the shareholders. For the consistent implementation of the requirements of SEBI (LODR) Regulations regarding disclosure of commodity risks and other hedging activities across listed companies, a detailed reporting format along with the periodicity of the disclosures may be outlined by SEBI which would depict the commodity risks they face, how these are managed and also the policy for hedging commodity risk, etc. followed by the company for the purpose of disclosures in the annual report. Accounting and Audit related issues [The Kotak Committee report, chapter VII] Independent external opinion by auditors Currently, there is no specific provision in the Companies Act or the SEBI (LODR) Regulations enabling an auditor to obtain an independent ex-ternal opinion in relation to the audit / limited review at the cost of the listed entity. SEBI (LODR) Regulations should be amended, providing a clear right to an auditor to independently obtain external opinions from experts. 56 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

57 Area Current regulatory provisions Kotak Committee Recommendation Strengthening monitoring, oversight and enforcement by SEBI Review of audit qualifications Earlier, SEBI (LODR) Regulations had detailed provisions on the review of audit qualifications by the QARC and further reference of the same to the FRRB of ICAI. However, after consultation with SEBI Advisory Committees, ICAI, Stock Ex-changes and Industry Bodies, it was decided by SEBI to discontinue QARC mechanism and in place of the same, require disclosures on the impact of audit qualifications. Any audit qualification needs detailed scrutiny and therefore, the QARC mechanism may be revived or any other similar mechanism may be devised where-in audit qualifications are examined in greater detail. Further, the process to be followed by such commit-tee should be time bound. Strengthening Monitoring, Oversight and Enforcement by SEBI Powers of SEBI with respect to auditors and other statutory third-party fiduciaries for listed entities Under the SEBI Act or Regulations framed thereunder, there is no specific provision which provides specific penal powers in relation to auditors. Section 11 of SEBI Act provides that subject to the provisions of the SEBI Act, it shall be the duty of SEBI to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, through such measures as it thinks fit. SEBI should have clear powers to act against auditors and other third-party fiduciaries with statutory duties under securities law (as defined under SEBI (LODR) Regulations), subject to appropriate safeguards. This power ought to extend to act against the impugned individual(s), as well as against the firm in question with respect to their functions concerning listed entities. This power should be provided in case of gross negligence as well, and not just in case of fraud/connivance. Note: The ICAI has expressed its dissent on the above recommendation as the regulation of chartered accountants is covered under the CA Act and to avoid jurisdictional conflict and other issues. Investor Participation in Meetings of Listed Entities [The Kotak Committee report, chapter VIII] Stewardship Code There is no specific provision for a stewardship code under SEBI (LODR) Regulations. However, for specific institutional investors such as mutual funds, etc., certain stewardship principles such as on voting, conflict of interest, etc. have been adopted under the specific SEBI regulations as may be applicable. IRDAI in March 2017 issued a stewardship code for insurance companies in In-dia. A common stewardship code is introduced in India for the entire financial sector on the lines of best practices globally based on the seven principles of stewardship as outlined above. The Committee also recommends that since SEBI is the capital market regulator and the Code applies to investments in the capital market, the common Stewardship Code may be introduced by SEBI for investments by institu-tional investors in Indian capital markets. Treasury Stock The Companies Act specifically prohibits the crea-tion of treasury stock (i.e. shares in its own name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associated companies). However, there is no requirement for cancelling / extinguishing treasury stock which existed prior to notification of the Companies Act. Further, under SEBI (LODR) Regulations there is no specific provision on treasury stock. In case a listed entity holds its own shares in its name or in the name of any trust either on its behalf or on behalf of any of its subsidiaries or associates (i.e. treasury stock), no voting rights attached to such shares shall be exercisable with effect from April 1, SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

58 Area Current regulatory provisions Kotak Committee Recommendation Resolutions sent to shareholders without board s recommendation While in certain cases the board s recommendation is required for consideration by shareholders (for e.g. declaration of dividend), there is no general rule (either in the Companies Act or in SEBI (LODR) Regulations) that every resolution placed before the shareholders should have been recommended by the board of directors. In the usual course, the resolution placed before the shareholders should be recommended by the board of directors. Placing a resolution before the shareholders without a board recommendation should be used sparingly and on rare occasions; However, in exceptional circumstances, a listed entity may issue a notice of a general meeting, which may include one or more resolutions for consideration by shareholders without such resolution having been recommended by the board. In such cases, an explanatory statement for such a resolution must disclose the board s deliberated views to the shareholders. Leniency Mechanism [The Kotak Committee report, chapter X] Section 24B of the SEBI Act and Section 23O of the SCRA provide powers to the Central Government (based on recommendations by SEBI) to grant immunity both from prosecution and imposition of penalty under the SEBI Act and the SCRA for the alleged violation, subject to certain conditions. In addition, while SEBI currently has a consent mechanism for certain categories of violations, there are no specific provisions in the regulatory framework that empower SEBI to grant leniency (by way of reduction in/waiver of penalty or immunity from prosecution) as well as to protect a whistle-blower who is allegedly in violation of relevant securities laws. A leniency program would improve effective detection of violations and enhance ease of investigation and enforcement, while also acting as a deterrent that could result in an increase in the overall compliance with securities regulations. SEBI may be empowered to grant leniency and offer protection against victimization to whistle-blowers in certain instances determined on a case by case basis. Any such power would have to be accompanied by the rules and regulations in relation to the conditions to be satisfied for getting benefits under the leniency program and protection against victimization, the procedure for the grant of lesser penalty or reduction in liability, the quantum of penalties that are waived when lenient treatment is meted out and protection of the whistle-blower. SEBI may take up the above recommendation with the Ministry of Finance. Capacity building in SEBI for enhancing corporate governance in listed entities [The Kotak Committee report, chapter XI] SEBI s role as a regulator of capital markets assumes particular importance given that it requires diligent detection, monitoring and enforcement action. Thus, the efficacy of the Committee recommendations depends critically upon SEBI s detection and enforcement capabilities. In order to enhance the capacity of SEBI in line with global best practices, SEBI should: a. Enhance the number and skill-sets of its human resources; b. Exploit the power of data science and technology; and c. Strategically work with other agencies, especially for monitoring and enforcement. SEBI may consider examining the above recommendations in greater detail. 58 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

59 Glossary 10 Lakh 1 Million or 1m 1 Crore 10 Million or 10m 100 Crore 1 Billion or 1bn American Depository Receipts Annual General Meeting ADRs AGM AS 21 Consolidated Financial Statements AS 21 Chartered Accountants Act, 1949 Chief Executive Officer Chief Financial Officer Company Secretary Consolidated Financial Statements Electronic voting Environment, Sustainability and Governance Executive Director extensible Business Reporting Language Extraordinary General Meeting Financial Reporting Review Board Financial Year Generally Accepted Accounting Principles Generally Accepted Accounting Principles in India Global Depository Receipts Government of India CA Act CEO CFO CS CFS E-voting ESG ED XBRL EGM FRRB FY GAAP Indian GAAP GDRs GOI / Government Ind AS 110 Consolidation Ind AS 110 Independent Director Indian Accounting Standards notified by MCA as Indian equivalent of IFRS Indian Rupee Information Technology Institute of Chartered Accountants of India Insurance Regulatory and Development Authority of India ID Ind AS INR IT ICAI IRDAI SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

60 Internal Financial Control International Accounting Standards Board International Financial Reporting Standards International Forum of Independent Audit Regulators International Standards on Auditing The Audit of Group Financial Statements Key Managerial Personnel Management Discussion & Analysis Managing Director Minimum Ministry of Corporate Affairs National Advisory Committee on Accounting Standards National Company Law Tribunal National Financial Reporting Authority National Stock Exchange Nomination and Remuneration Committee Non-Banking Financial Company Non-Executive Directors other than Independent Directors Persons acting in concert Public Sector Enterprises Qualified Audit Report Review Committee Qualified Institutional Placement Quality Review Board Registrar of Companies Related Party Transactions Reserve Bank of India Risk Management Committee SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with all its amendments, except SEBI (LODR) (Amendment) Regulations, 2018 SEBI (Prohibition of Insider Trading) Regulations, 2015 SEBI Committee on Corporate Governance chaired by Mr. Uday Kotak Securities and Exchange Board of India Securities and Exchange Board of India Act, 1992 Securities Contracts (Regulation) Act, 1956 IFC IASB IFRS IFIAR ISA 600 KMP MD&A MD Min. MCA NACAS NCLT / Tribunal NFRA NSE NRC NBFC NED PAC PSEs QARC QIP QRB RoC RPT RBI RMC SEBI (LODR) (Amendment) Regulations, 2018 or Amendments SEBI (LODR) Regulations SEBI PIT Regulations Kotak Committee SEBI SEBI Act SCRA 60 SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018

61 Stakeholders Relationship Committee Standalone / Separate Financial Statements The Companies (Accounts) Rules, 2014 The Companies (Audit and Auditors) Rules, 2014 The Companies (Management and Administration) Rules, 2014 The Companies Act, 2013 with all its amendments United States Dollar Unpublished Price Sensitive Information SRC SFS Accounts Rules Audit Rules Management and Administra-tion Rules Companies Act USD UPSI SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations,

62 Notes

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