SEBI suggests big changes in Appointment of MD's

SEBI suggests big changes in appointed of MDs

The market regulator has invited suggestions and opinions in a bid to improve corporate governance

The Securities and Exchange Board of India (SEBI) has suggested sweeping changes in reappointing managing or whole-time directors of listed companies who have already been rejected by the shareholders.

The market regulator's proposal is part of its continued bid to improve corporate governance.

The proposal which presently is at a concept stage has invited debate and suggestions before being finalized and incorporated in the amended regulations.

The SEBI proposal includes listing in details the reasons behind reappointment of a rejected director, disclosure to the exchanges and seeking shareholders' approval within three months.

Such directors cannot continue in the office if they have been rejected by the shareholders twice and can seek reappointment again after a cooling-off period of two years only.

These and other details are listed in a discussion paper that the SEBI has floated to invite suggestions and opinions from various stakeholders.

Listed companies are supposed to follow the Companies Act 2013 while appointing their directors. SEBI's Listing Regulations, which it intends to amend, provided additional conditions.

SEBI has taken into consideration a hypothetical situation under which shareholders might initially approve regularisation but vote against it.

To deal with such a situation, SEBI has suggested that the nomination and remuneration committee must give a detailed recommendation on such proposals; Boards must consider and approve the proposal after listing reasons for reappointment despite rejection by the shareholders; once approved, it must be sent to the stock exchange within 24 hours of such a decision being taken and seek shareholders' approval within three months or in the immediate next general meeting.

In case the appointment of the person has been rejected twice, such a person is debarred from continuing as a director of that company for two years. During this period, reappointment cannot be proposed.

The existing law permits a company's board to appoint a person as an additional director at any time during the year. However, such an appointment needs to be regularised by the shareholders at the general meeting. If not done so, the appointment will cease.

Likewise, separate approval is required while appointing a person as a whole-time or managing director. It is mandatory to provide related information like the terms and conditions along with remuneration details to the shareholders.

SEBI has fixed a deadline of 12 February 2021 for receiving opinions/suggestions of the stakeholders before amending the listing regulations based on the outcome of the consultation process it has initiated.