The Securities and Exchange Board of India (SEBI) released a consultation paper on ‘Strengthening Corporate Governance at Listed Entities by Empowering Shareholders’. It addresses issues in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Key observations in the consultation paper include:
▪ Disclosure of agreements to stock exchange: As per the 2015 Regulations, a listed entity is required to disclose agreements that are binding and not in the normal course of business. These include shareholder agreements, joint venture agreements, or agreements with media companies. SEBI has noted instances where promoters enter into undisclosed agreements that impact the management of a company or place restrictions on it. SEBI proposes that listed entities must disclose agreements whose purpose and effect is to: (i) impact the management or control of the listed entity, (ii) impose any restriction on the listed entity, or (iii) create a liability upon the listed entity. Such agreements must be approved by the shareholders of a listed entity.
▪ Period of special rights to shareholders: Companies offer special rights such as veto, disinvestment, and information rights to their preIPO (initial public offering) investors. Such rights continue even after significant dilution of holding, which allows these investors to enjoy rights in perpetuity. SEBI proposes that special rights be subject to shareholder approval every five years.
▪ Sale, disposal or lease of assets: Presently, the Board of a company may sell, lease or dispose of a significant portion of a company assets subject to the consent of shareholders. These are regulated under provisions of the Companies Act, 2013 or business transfer agreements. Certain sales may be executed outside these provisions. SEBI has noted that for such sales, there is no explicit framework to protect minority shareholders. It proposes that these sales be regulated, and their object and rationale be mandatorily disclosed.
▪ Board Permanency: Presently, the tenure of directors is regulated and some of them are not subject to periodic retirement. SEBI proposes that directors will require shareholder approval every five years from March 31, 2024 onwards. Court/tribunal appointed directors are exempt
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