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Home > India > Corporate/Commercial Law

India: SEBI LODR Regulations An Update

Last Updated: 11 October 2018
Article by Nikhilesh Panchal and Malav Shah
Khaitan & Co

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Based on the report of the Committee on Corporate Governance under the Chairmanship of Mr. Uday Kotak, SEBI notified the
amendments to the SEBI LODR Regulations on 9 May 2018. These amendments are expected to improve the governance
standards in large listed companies.

Most of the amendments are effective from 1 April 2019 but few amendments are effective earlier from 1 October 2018. The
listed companies are expected to be in compliance with them as on the respective dates. This Article summarises the
amendments to the SEBI LODR Regulations and the actions that the listed entities should take for implementing them. There
are around 16 amendments to existing requirements and 31 new requirements in the revised SEBI LODR Regulations.

COMPARATIVE ANALYSIS:

Topic/ Existing Requirements New Requirements Actions to be taken by listed

Regulations
Related Party Related Party as per CA New Proviso added:
defn. [Reg 2(1) 2013 and applicable
(zb)] accounting standards "Provided that any person or entity
belonging to the promoter or
promoter group of the listed entity
and holding 20% or more of
shareholding in the listed entity
shall be deemed to be a related
party"
Related Party The listed entity shall The listed entity shall formulate a
Transaction [Reg formulate a policy on policy on materiality of related party
23(1)] materiality of related party transactions (RPT) and on dealing
transactions and on with related party transactions
dealing with related party including clear threshold limits duly
transactions. approved by the board of directors
and such policy shall be reviewed
by the board of directors at least
once every three years and
updated accordingly
entities
Review the list of related parties and
add person falling in the proviso, if not
already included.
Review and revise the policy on
materiality of RPTs and include
specific threshold limits for
determining materiality.
Separate thresholds for various
categories of RPTs can be
specified.
Obtain approval of the Board in
a board meeting for revised
RPT policy.
Review the RPT policy every
three years.
Related Party New provision A transaction involving payments Ascertain if payment for brand usage
Transaction [Reg with respect to brand usage or or royalty exceeds 2% threshold. If
23(1A)] royalty shall be considered material yes, obtain approval of the
if such transaction(s) during a shareholders for such transaction.
financial year, exceed 2% of the
annual consolidated turnover of the
listed entity as per the last audited
financial statements.
Related Party A related party need to A related party shall not vote to Now, a related party can vote to reject
Transaction [Reg abstain from voting on approve shareholder's resolution. the shareholder's resolution.
23(4)] shareholder's resolution.

Related Party New provision The listed entity shall submit within
Transaction [Reg 30 days from the date of publication Starting from half year ended 31
23(9)] of its standalone and consolidated March 2019, Listed entity to
financial results for the half year, separately disclose RPTs to
disclosures of related party stock exchanges and publish on
transactions on a consolidated its website.
basis, in the format specified in the The RPT disclosure should be
relevant accounting standards for prepared in prescribed format
annual results to the stock along with the financial results
exchanges and publish the same so that the timeline can be
on its website. achieved.
The above is applicable from half
year ended 31 March 2019.
Independent A non – executive director A non – executive director who is or Verify if any ID is a member of
Director [Reg who is or was not a was not a promoter of the listed promoter group. If yes, then such ID
16(1)(b)(ii)] promoter of the listed entity or its holding, subsidiary or cannot continue from 1 October 2018
entity or its holding, associate company or member of
subsidiary or associate the promoter group of the listed
company entity.

[Effective from 1 October 2018]

Independent No criteria added Following new criteria added: Verify if any ID falls into this criteria. If
Director [Reg yes, then such ID cannot continue
16(1)(b)(viii)] (viii) who is not a non-independent from 1 October 2018
director of another company on the
board of which any non-
independent director of the listed
entity is an independent director.
[Effective from 1 October 2018]

Evaluation of ID New criteria of evaluation The evaluation of independent Review the evaluation process of IDs
[Reg 17(10)] specified. directors to include: and include the specified criteria, if
not covered.
a. performance of the directors;
and
b. fulfilment of the independence
criteria as specified in these
regulations and their
independence from the
management.

Independent New provision No person shall be appointed or The alternate director to independent
Director [Reg continue as an alternate director for director, if any, to resign prior to
25(1)] an independent director of a listed October 1, 2018.
entity with effect from October 1,
2018.

Independent New provision Independent Director to provide, at
Director [Reg first board meeting and thereafter
25(8) & (9)] every year, a declaration confirming
his independence. [Similar to
Section 149(7) of CA 2013]
Board to take on record such
declaration and confirmation after
While the submission of such
declaration is already covered under
Section 149(7) of the CA 2013, but,
the Board is now required to
independently assess the truthfulness
of the declaration provided by the ID.

Material "material subsidiary" shall
Subsidiary [Reg mean a subsidiary, whose
16(1)(c)] income or net worth
exceeds 20% of the
consolidated income or
net worth respectively, of
the listed entity and its
subsidiaries in the
immediately preceding
accounting year.
undertaking assessment of the
veracity of the same.
Threshold is reduced to 10% Review the list of subsidiaries and
identify subsidiaries whose income or
"material subsidiary" shall mean a net worth exceeds 10% of the
subsidiary, whose income or net consolidated income or net worth to
worth exceeds 10% of the categorise them as material
consolidated income or net worth subsidiaries.
respectively, of the listed entity and
its subsidiaries in the immediately
preceding accounting year.

Senior Mean officers/personnel
Management of the listed entity who are
[Reg 16(1)(c)] members of its core
management team
excluding board of
directors and normally
this shall comprise all
members of management
one level below the
executive directors,
including all functional
heads.
Mean officers/personnel of the Identify officers/ personnel who will
listed entity who are members of its fall under the revised definition of
core management team excluding Senior Management and update the
board of directors and normally this list of Senior Management maintained
shall comprise all members of by the listed company.
management one level below the
chief executive officer/managing
director/ whole time
director/manager (including chief
executive officer/manager, in case
they are not part of the board) and
shall specifically include company
secretary and chief financial officer.

Board Need to have one woman Top 500 listed entities should have Determine if company is amongst the
Composition director (can be either atleast one independent woman top 500 listed entities. If yes, appoint
[Reg 17(1)(a)] independent or non- director by April 1, 2019. a women ID before 1 April 2019.
independent). Initiate selection and appointment
Top 1000 listed entities should have process of woman ID well in advance
atleast one independent woman to achieve the timeline.
director by April 1, 2020

Board New provision The board of top 1000 listed
Composition entities (with effect from April 1,
[Reg 17(1)(c)] 2019) and the top 2000 listed
entities (with effect from April 1,
2020) shall comprise of not less
than six directors.
Determine if company is amongst the
top 1000 listed entities. If there are
less than six directors, then appoint
new directors.

Board New provision Special resolution required for Verify if any NED has attained age of
Composition appointing or continuing 75 years. If yes, then arrange to pass
[Reg 17(1A)] directorship of a non-executive a special resolution for continuing
director who has attained the age directorship of NED either in general
of 75 years. meeting or by postal ballot before 1
April 2019.
Explanatory statement shall provide
the justification for appointing such
a person.
Board New provision With effect from April 1, 2020, the Determine if company is amongst the
Composition top 500 listed entities shall ensure top 500 listed entities. If yes, the
[Reg 17(1B)] that the Chairperson shall: Board of directors to appoint a
chairman amongst themselves who
a. be a non-executive director; satisfies these conditions.
b. not be related to the
Managing Director or the
Chief Executive Officer as per
the definition of the term
"relative" defined under the
Companies Act, 2013:

Quorum [Reg New provision For top 1000 listed entities (from 1 Determine if company is amongst the
17(2A)] April 2019) top 1000 listed entities. If yes, the
company to ensure compliance with
For top 2000 listed entities (from 1 new quorum requirement in all board
April 2020) meetings held from 1 April 2019.

Quorum for every Board meeting

shall be 1/3 total strength or three
 directors, whichever is higher,
including at least one independent
director
Remuneration of New provision If remuneration of a single NED Arrange to pass a special resolution
NED [Reg 17(6) exceeds 50% of the total annual in the general meeting or by postal
(ca)] remuneration payable to all non- ballot if the remuneration of a single
executive directors, then approval NED exceeds 50% of total
of shareholders by special remuneration of all NEDs.
resolution required every year.

Remuneration of New provision The fees or compensation payable
ED [Reg 17(6)(e)] to executive directors (who are
promoters or members of the
promoter group) shall require the
approval of the shareholders by
special resolution in general
meeting, if:
Arrange to pass a special resolution
of the shareholders in general
meeting or by postal ballot, if the
remuneration of EDs (who are
promoters or members of promoter
group) exceed these thresholds.

i. the annual remuneration

payable to such executive
director exceeds INR 5 crore
or 2.5 per cent of the net
profits of the listed entity,
whichever is higher; or
ii. where there is more than one
such director, the aggregate
annual remuneration to such
directors exceeds 5 per cent
of the net profits of the listed
entity.

The approval of the shareholders

will be valid only till the expiry of the
term of such director.
Recommendation New provision Explanatory Statement should set
of Board [Reg forth the recommendation of Board
17(11)] to the shareholders on each special
business.
Customarily, the explanatory
statement contained the
recommendation of the board but now
it is statutorily prescribed.

Maximum Verify the list of directorships of all

number of Independent Director in maximum 8 listed directors and ascertain their
Directorships Director in entities w.e.f. 1 April 2019 directorships are within these
[Reg 17A] maximum 7 listed thresholds. If no, the relevant director
Director in maximum 7 listed
entities would be required to resign from
entities w.e.f. 1 April 2020
A Whole time listed companies, in excess of the
Independent Director in threshold.
director can be
maximum 7 listed entities.
independent director
is maximum 3 listed Include alternate directorships
entities also.
No limit prescribed A Whole time director can be
for other directors independent director is
maximum 3 listed entities.
[Reg 25(1)]
For this sub-regulation, only those
listed entities whose equity share
are listed will be counted.

CA 2013 – 20 companies (max 10

public companies)

Role of Audit New provision Audit committee to review Revise the terms of reference of audit
Committee [Sch utilisation of loans and/or advances committee to include these matters.
II, Part C] from investment by holding
company in subsidiary company Audit committee to review these
exceeding INR 100 crores or 10% matters in their meeting regularly.
of asset size of subsidiary,
whichever is low.

Quorum of NRC New provision Quorum shall be either 2 members Going forward, ensure the fulfilment
meeting [Reg or 1/3rd (whichever is greater) of this quorum requirement.
19(2A)] including 1 independent director.

NRC meeting New provision Meeting of NRC to be held atleast Usually, all listed companies hold
[Reg 19(3A)] once in a year atleast 1 NRC meeting in a year,
however now it is statutorily
prescribed.
Role of NRC [Sch New provision NRC to recommend to Board, all The terms of reference of NRC
II, Part D(A)] remuneration in whatever form, should be revised accordingly.
payable to senior management.
Stakeholders
Relationship SRC to look in to SRC to look in to various SRC members to consider the
Committee [Reg mechanism of aspects of interest of interest of shareholders and
20] redressal of shareholders and other security holders going forward.
grievances of security holders
The composition of SRC to be
shareholders and
Atleast 3 directors, with aligned with the new
other security
atleast 1 independent requirement.
holders
director, to be members of
Ensure presence of
Board to decide SRC.
Chairperson of SRC at annual
number of members
Chairperson of SRC to general meeting to answer
of SRC
remain present in annual queries.
general meeting to answer
Usually, all listed companies
queries of security holders.
hold atleast 1 SRC meeting in a
SRC to meet at least once in year, however now it is
a year. statutorily prescribed.

Role of SRC [Sch Following additional role of SRC:

II, Part D(B)] New provision The terms of reference of SRC
should be revised accordingly.
Review of measures taken for
effective exercise of voting SRC to undertake these
rights by shareholders. additional activities.
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.
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

Risk Applicable to top 100

Management listed companies Applicable to top 500 listed Determine if company is
Committee [Reg entities. amongst the top 500 listed
21(3A)] entities. If yes, the company to
Functions of RMC to
set up RMC (if not done earlier)
mandatorily cover cyber
and ensure compliance with
security.
RMC requirement.
RMC to meet at least once in
Role and responsibility of RMC
a year.
to be revised to cover cyber
security.
Hold at least one meeting of
RMC every year.

Unlisted Material At least one independent
Subsidiary [Reg director of the listed entity
24(1)] to be a director of an
unlisted material
This requirement shall also apply to
an unlisted material subsidiary
incorporated outside India.
For this provision, 'material
The listed entity to initiate the
discussion for selecting the ID,
who is willing to be appointed as
 subsidiary, incorporated in subsidiary' shall mean a subsidiary,
India. whose income or net worth
exceeds 20% of the consolidated
income or net worth respectively, of
the listed entity and its subsidiaries
in the immediately preceding
accounting year
director of material overseas
subsidiary.
Additionally, verify the legal
requirements of the countries,
where the material overseas
subsidiary is located, with
respect to appointment of
directors.

Unlisted Material Exp: the term "significant
Subsidiary [Reg transaction or
24(4)] arrangement" shall mean
any 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 material
subsidiary for the
immediately preceding
accounting year
Secretarial Audit New provision
[Reg 24(A)]
The word 'material' is deleted.
A material unlisted subsidiaries
incorporated in India shall
undertake secretarial audit and
shall annex with its annual report, a
secretarial audit report, given by a
company secretary in practice with
effect from the year ended March
31, 2019
This seems to bring in line with term
'unlisted subsidiary' used in
Regulation 24(4). While ascertaining
'significant transaction', the listed
entity should consider RPTs with all
unlisted subsidiaries and not just
material subsidiaries.
Beginning from the year ended
31 March 2019, the listed entity
to ensure that the secretarial
audit of material unlisted
subsidiaries is conducted and
the secretarial audit report is
annexed to its report.
Listed entity to identify and
engage practising company
secretary for conducting
secretarial audit.

D&O Insurance New provision Top 500 listed companies to have a Determine if company is amongst the
[Reg 25(10)] D&O Insurance for all independent top 500 listed entities. If yes, then
directors w.e.f. 1 October 2018. procure a D&O Insurance for all IDs
(if not already procured).

Prior Intimation If Bonus is not part of This provision is deleted. Prior Give prior intimation of 2 working
for Bonus [Reg agenda of board meeting, intimation mandatory for days of the board meeting for
29(f)] then prior intimation not declaration of Bonus. declaration of bonus.
required.

The exemption is not available for

'declaration of bonus' which is not
included in the agenda of the board
meeting.

Use of funds New provision The listed entity shall disclose the
[Reg 32(7A)] utilisation of funds raised through
preferential allotment or QIP in its
Annual Report every year until such
funds are fully utilised.
Include the disclosure on utilisation of
funds raised through preferential
allotment or QIP in the Annual Report
every year.

This is not applicable for public

Financial Results Submission of
[Reg 33(3)(b)] consolidated quarterly
financial results was
optional
issue or rights issue.
Submission of consolidated
quarterly financial results is now
mandatory.
Plan in advance for preparing and
submission of consolidated quarterly
financial results within 45 days of end
of the quarter.

Financial Results Listed entity is required to Listed entity will now be required to Decide about the financial results
[Reg 33(3)(e)] submit audited financial submit audited or limited reviewed (audited or limited reviewed) of last
 results in respect of last
quarter along with results along with results of entire financial
of entire financial year. year.
Financial Results New provision
[Reg 33(3)(g), (h)
& (f)]
financial results of last quarter quarter to ne submitted to stock
exchange so that the listed entity it
can accordingly inform the auditors
well in advance.
As part of standalone and Prepare a cash flow statement
consolidated financial results every half year
for half year, the statement of
Plan the audit schedule such
cash flow for half year to be
that its auditors are able to
submitted.
complete the audit or limited
For quarterly audited review of 80% of the
consolidated financial results, consolidated revenue, assets,
at least 80% of each of and profits for preparation of its
consolidated revenue, assets quarterly consolidated financial
and profits should have been results.
audited or subjected to limited
Prepare a note on effect of
review (in case of unaudited
material adjustments made in
results).
the results of last quarter which
Disclose in the results for last pertain to earlier periods.
quarter, the aggregate effect
of material adjustments made
in the results of that quarter
which pertain to earlier
periods.

Financial Results New provision The auditor of listed entity to
[Reg 33(8)] undertake limited review of the
audit of all entities/companies
whose accounts are consolidated
with the listed entity.
Annual Report Annual report to be Annual report to be submitted to
[Reg 34(1)] submitted to stock stock exchange and published on
exchange within 21 days its website earlier or on the day of
from the AGM commencement of dispatch to the
shareholder.
In case of change in annual report,
the revised annual report (along
with details of and explanation for
changes) shall be sent within 48
hours after the AGM.
Discuss with auditors and mandate
them to conduct limited review of the
audit of subsidiaries and other
companies.
Make suitable arrangements to
ensure that the annual report is
published on website and submitted
to stock exchanges prior to or on the
day of dispatch of annual report to the
shareholder.

Applicable to Annual Report for

March 31, 2019 and thereafter.

Annual Report New provision Related Party Disclosure to cover
[Sch V, Part A] disclosures on transaction with
promoter/promoter group person
holding 10% or more shareholding.
Henceforth, the Related Party
Disclosure in the annual report should
include details of transactions with
promoter/promoter group holding
10% or more shareholding in listed
entity.

Management New provision MDA to cover details of significant Cover details of significant changes in
Discussion and changes (25% or more) in key the MDA of the next annual report.
Analysis [Sch V, financial ratios along with details
Part B] explanations.
Corporate New provision Disclosures to cover: Include these additional disclosures in
Governance the Corporate Governance Report of
Report [Sch V, Names of other listed entities the next annual report.
Part C] in which person is director
and category of directorship
A chart or matrix of
skills/expertise/competence of
board of directors
Confirmation from Board that
independent director fulfils
criteria
 Detailed reasons of
resignation of independent
director
Credit ratings and revisions
Details of utilisation of funds
raised through preferential
allotment or QIP
Certificate of PCS confirming
director are not debarred or
disqualified by SEBI/MCA or
any statutory authority

Recommendations of committee
not accepted by board, which is
mandatory.

Documents & New provision

Information to Disclosure to be made in
Shareholders XBRL format and format
[Reg 36(4)] allowing users to find
information through a
searchable tool.
Explanatory statement for
appointment of auditors to
include the proposed fees
payable to auditor along with
terms of appointment and in
case of new auditor, any
material change in the fee
payable to such auditor
compared to outgoing auditor
along with rationale
Basis of recommendation
including details and
credentials of auditor
File all disclosures in XBRL
format and in .pdf format with
searchable tool. Search options
should not be blocked.
Appointment/ re-appointment of
statutory auditor is an ordinary
business and does not require
an explanatory statement under
the CA 2013. However, an
explanatory statement will have
to be provided in the notice
giving details of proposed fees,
terms of appointment, etc. This
implies that the fees of the
auditors will have to be fixed in
advance before their
appointment in the AGM instead
of being fixed by the board at
the end of the financial year.

Meeting of New provision Top 100 listed companies:

Shareholders Top 100 listed companies to
and voting [Reg plan the schedule and complete
44(5) & (6) to hold AGM within 5 months all activities so that it can hold
from the closing of financial their AGM within 5 months.
year
Also arrange for one way live
Provide one-way live webcast webcast of the AGM
of proceedings of AGM

Website [Reg New provision Listed company to disseminate Make suitable arrangements for
46(2)] following additional information on disclosing this information on its
its website: website.

All credit ratings and revision

in ratings
Separate audited financial
statements of each subsidiary
atleast 21 days prior to the
AGM

Disclosures [Sch New provision Additional disclosures: Make these additional disclosures
III, Part A (A)] going forward.

Resignation of auditor along

with detailed reasons within
24 hours of receipt of
resignation.
 In case of resignation of
independent director, disclose

Detailed reasons of
resignation
Confirmation that there is no
other material reason.

CONCLUSION:

It will be observed that the management of the listed companies will have to plan and schedule all the activities well in advance
so that they come out compliant as on the effective dates of the different provisions of the new SEBI LODR Regulations.

It is expected that in the long term, these amendments will improve transparency and cultivate the spirit of governance
amongst the management of the listed companies. The governance standards are enhanced by increasing disclosures,
shareholder approval requirements and involvement of Independent Directors. However, it remains to be seen to what extent
these objectives are achieved in future.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the
author(s). For any further queries or follow up please contact Khaitan & Co at legalalerts@khaitanco.com

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