Understanding Corporate Governance Regulations for Listed Entities

Applicability of Corporate Governance Regulations (Reg. 15)

The provisions on corporate governance are applicable to listed entities that have listed their specified securities on recognized stock exchanges, including the main board, the SME Exchange, or the Innovators Growth Platform. However, Regulations 17 to 27 and Schedule V do not apply to:

Listed entities with paid-up equity share capital not exceeding ₹10 crore and net worth not exceeding ₹25 crore as of the last day of the previous financial year.
Listed entities that have their specified securities listed on the SME Exchange.

If a listed entity becomes subject to these provisions later, it must ensure compliance within six months of the relevant date. For other listed entities that are not companies but are subject to different statutes, the corporate governance provisions in Regulations 17 to 27, along with sub-regulation (2)(b) to (i) of Regulation 46 and paragraphs C, D, and E of Schedule V, will apply as long as they do not conflict with their governing laws or directives issued by relevant authorities.

Definitions (Reg. 16)

Control: As defined under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
Material Subsidiary: A subsidiary whose income or net worth exceeds 10% of the consolidated income or net worth of the listed entity and its subsidiaries in the preceding accounting year.
Senior Management: Officers of the listed entity who are part of the core management team, excluding the board of directors. This typically includes all members one level below the CEO/MD/WTD/manager and specifically includes the Company Secretary and the Chief Financial Officer.

Board of Directors (Reg. 17)

Composition of the Board

The board must have an optimal mix of executive and non-executive directors, including at least one woman director.
A minimum of 50% of the board must consist of non-executive directors.
If the chairperson is a non-executive director (NED), at least one-third of the board must comprise independent directors (IDs).
If the chairperson is not an NED, at least half of the board must include IDs.
For companies with outstanding SR (Special Resolution) equity shares, at least 50% of the board must be independent directors.
A special resolution and explanatory statement are required for any non-executive director over the age of 75.

Conduct of the Board

The board must hold at least four meetings each year, with no more than a 120-day gap between meetings.
The board is required to periodically review compliance reports.
It must establish a code of conduct for all board members.

Board Evaluation

The top 2000 listed entities as of April 1, 2020, must comprise no fewer than six directors.
The top 1000 listed entities must include at least one independent woman director by April 1, 2020.
For the top 500 listed entities, the chairperson must be a non-executive director as of April 1, 2022, and must not be related to the MD or CEO as per the “relative” definition in the Companies Act, 2013.

Maximum Number of Directorships (Reg. 17A)

A person may not serve as a director in more than seven listed entities, effective April 1, 2020.
An independent director may not serve on the boards of more than seven listed entities.
A whole-time director or managing director may hold independent directorship in no more than three listed entities.

Committees (Reg. 18-21)

Specific regulations and requirements outline the establishment and operation of various board committees.

Vigil Mechanism (Reg. 22)

Listed entities must establish a vigil mechanism (whistleblower policy) that allows directors and employees to report legitimate concerns and provides safeguards against victimization, ensuring direct access to the audit committee chairperson in exceptional situations.

Related Party Transactions (Reg. 23)

Policy and Approval

A list of material related party transactions (RPTs) must be formulated and approved by the board, reviewed every three years.
A material transaction is defined as one exceeding 10% of consolidated turnover when considered individually or with previous transactions in a financial year.
Approval from the audit committee is required for all RPTs, with independent directors approving omnibus approvals under specific criteria.

Approval Conditions

The audit committee can provide omnibus approval for repetitive transactions, ensuring its necessity and interest in the company.
Omnibus approval remains valid for up to one year and should be reviewed quarterly.

Disclosures

All material RPTs require shareholder approval through a resolution, with related parties prohibited from voting on such resolutions.
Specific transactions between government companies are exempt.
The listed entity must disclose all RPTs to the stock exchange within 30 days of financial results publication.

Corporate Governance with Respect to Subsidiaries (Reg. 24)

At least one independent director from the parent entity's board must be on the board of any unlisted material subsidiary.
An unlisted material subsidiary is defined as one whose income or net worth exceeds 20% of the consolidated income or net worth of the parent company and its subsidiaries.
Financial statements of the unlisted subsidiary, along with significant transactions, must be reviewed at the parent company’s board meetings.

Secretarial Audit (Reg. 24A)

Every listed entity and its material unlisted subsidiaries incorporated in India must conduct a secretarial audit, with the report submitted alongside the annual report.
A secretarial compliance report must also be submitted to stock exchanges within 60 days of the fiscal year's end.

Obligations for Independent Directors (Reg. 25)

Alternate directors cannot be appointed for independent directors.
Independent directors must hold at least one meeting per fiscal year without non-independent directors present.
Their appointment or removal requires special resolutions from shareholders.
Directors resigning from the board may not become executive directors for one year post-termination.

Compliance Requirements for Directors & Senior Management (Reg. 26)

Directors should not exceed ten committee memberships and can chair a maximum of five committees across all listed entities.
All directors and senior management must affirm compliance with the code of conduct annually.

Other Corporate Governance Requirements (Reg. 27)

Listed entities must submit quarterly compliance reports on corporate governance within 21 days of quarter-end.

In-Principle Approval from Recognized Stock Exchange (Reg. 28)

Before issuing securities, listed entities must acquire in-principle approvals as specified.

Early Disclosures (Reg. 29)

Early notification requirements exist for events including buybacks, dividends, and financial results.

Disclosure of Events (Reg. 30)

Material events must be disclosed to stock exchanges, with a delineated policy for materiality established by the board.

Holding of Specified Securities and Shareholding Pattern (Reg. 31)

Detailed reports of shareholding patterns must be submitted to stock exchanges at specified times.

Reclassification of Shareholders (Reg. 31A)

There are structured timelines for submitting applications regarding reclassification, and necessary approvals and notifications must be adhered to.

Quarterly Statements of Variations (Reg. 32)

Quarterly statements regarding the use of proceeds from various issues are mandatory.

Financial Results Submission (Reg. 33)

Financial results must be submitted for board approval and disclosed within specified timelines.

Annual Report and Information Memorandum (Reg. 34 & 35)

Annual reports and related documents should be dispatched and published as outlined, including necessary financial statements.

Shareholder Communication (Reg. 36)

Specific protocols dictate the method and timeline for sending annual reports and related information to shareholders.

Draft Schemes of Arrangement (Reg. 37)

Procedures for submitting draft schemes of arrangement to stock exchanges are delineated.

Minimum Public Shareholding Compliance (Reg. 38)

Listed entities must comply with minimum public shareholding requirements as specified.

Issuance of Security Certificates (Reg. 39)

Guidelines for the timely issuance of security certificates are provided.

Transfer and Transmission of Securities (Reg. 40)

Regulations stipulate the processing timeframe for security transfers and transmissions.

Additional Provisions (Reg. 41 & 41A)

Detailed guidelines concerning fully paid and SR equity shares are specified.

Record Date Notifications (Reg. 42)

Advance notifications concerning record dates for various corporate actions must comply with stipulated timelines.

Dividend Policies (Reg. 43 & 43A)

Guidelines regarding dividend declarations and policies must be adhered to by top listed entities.

Shareholder Meetings and Voting (Reg. 44)

Remote e-voting provisions and detailed voting processes are required for shareholder meetings.

Changing the Entity's Name (Reg. 45)

Protocols for changing a listed entity's name are outlined, including compliance requirements.

Website Maintenance (Reg. 46)

Mandatory website disclosures regarding the listed entity’s operations and contacts are stipulated.

Advertising and Accounting Standards Compliance (Reg. 47 & 48)

Requirements for publicizing financial results and compliance with accounting standards are laid out.