Corporate India gets reprieve on governance norms

Sebi relaxes provisions on RPT; independent and women directors

The Securities and Exchange Board of India (Sebi) on Monday threw a lifeline at India Inc by relaxing some important provisions under the new corporate governance norms.

The market regulator has given companies more time to appoint women directors, technically extended the tenure of independent directors (IDs) and minimised the scrutiny on related-party transactions (RPTs).

The deadline till now for Sebi’s new corporate governance norms was October 1. Listed companies, battling against time to get women as directors, will now have time to do so till April 1, 2015.  According to India Boards, more than half the companies listed on the National Stock Exchange are yet to appoint any women directors.

“Companies will get some breathing space to look for the appropriate women leaders for the board appointments rather than just making this a 'tick-the-box exercise' while in a rush to be compliant,” said Kalpana Unadkat, partner, Khaitan & Co.

Sebi has also said the identification of whether a transaction is an RPT will now be as stated in the new Companies Act or that laid down in the accounting standards. “Earlier, the circular by Sebi had expanded the scope on what could be RPT. Now, it will be confined to the accounting standards or that in the Companies Act,” said Mehul Modi, senior director, Deloitte.

Sebi has also exempted RPT between two government companies. Also, a transaction shall be considered ‘material’ in nature only if it exceeds 10 per cent of the annual consolidated turnover. Earlier, material transaction was that exceeding 10 per cent of a company's standalone turnover.

“Whether RPTs require minority shareholders’ approval in each case remains a question since the SEBI circular is not explicit on the issue,” said Vaneesa Abhishek, a securities lawyer. “In the absence of specific guidance from Sebi on this issue, one would have to rely on the rules under Section 188 of Companies Act, 2013.”

Sebi’s latest circular also allows omnibus approvals for RPT, provided the transaction value doesn’t exceed Rs 1 crore and has a shelf life of not more than a year.

The relaxations come following representations from market participants, including companies and industry associations, expressing difficulties in compliance, Sebi said on Monday.

Sebi has also stated the maximum tenure of IDs shall be in accordance with the Companies Act. In other words, IDs who have already served the maximum tenure of 10 years before the new norms, will get a tenure of another 10 years.