Sebi likely to ease deadline for corp. governance norms

Two weeks ahead of October 1 deadline, Sebi likely to relax certain conditions

Two weeks before the deadline for implementation of new corporate-governance norms, corporate India could expect some relief from the Securities and Exchange Board of India (Sebi). The announcements were expected this week, people familiar with the developments said.

Sebi is likely to extend the compliance deadline for certain select provisions under the amended listing agreement by six months. The new deadline for these is likely to be April 1.

“One major relief is likely to be on the requirement for woman directors. Many companies had expressed their inability to comply with the norms in such a short period, while others were trying to fill in by roping in wives and relatives,” said a source familiar with the development. A senior Sebi official handling the matter did not respond to calls and text messages.

RELIEF ON THE CARDS

• Deadline for provisions governing composition of board might be extended to April 1
• The provision for woman directorship might be relaxed
• Provisions governing e-voting could be reviewed
• Committee to be formed to look into practical issues in e-voting
• But major relief on related-party transactions unlikely

The move is expected to be a relief for the corporate sector, which was running from pillar to post to comply with the new Clauses 49 and 35 B of the listing agreement, amended in April and scheduled to take effect from October 1. While the amended clause 49 had tightened the regime controlling related-party transactions, board independence and representation of women on boards, clause 35B extended compulsory electronic voting (e-voting) facility at shareholder meetings of all listed firms. Earlier, such e-voting was limited to the top 500 firms.

According to Indian Boards, a firm maintaining a database of listed companies’ boards, 730 of the 1,470 companies listed on the National Stock Exchange are yet to appoint woman directors. At least 40 woman directors will have to be added on a daily basis this month if all companies have to comply with the mandatory requirement of one women director ahead of the October 1 deadline.

“Since August, we are seeing between five and 10 woman directors getting appointed on a daily basis. However, I still don’t see the deadline being met, as more than 50 per cent of the companies are yet to comply,” said Prime Database Managing Director Pranav Haldea. He added public-sector undertakings had not seen any action on this front so far.

Further, due to a revised cap on tenures and number of directors, several independent directors had to give up some of their lucrative board positions. According to estimates, corporate India will require 5,000 independent directors over the next few years.

The regulator is also likely to announce the formation of a committee to look into practical difficulties in the implementation of compulsory electronic voting (e-voting) at shareholder meetings. The composition of the panel is not clear.

“The Companies Act provision in this regard has been relaxed. At present, the rules require e-voting three days before the annual general meeting. What happens if the shareholder changes his mind after hearing the chairman’s speech on a particular issue? We have suggested e-voting be conducted after the AGM. This way, one could have control over people who have attended the meeting and already voted,” said a New Delhi-based consultant.

Companies have also expressed concerns over the stringent regime proposed for related-party transactions. As it stands  now, the definition of related-party transactions under clause 49 is far wider than that given in the Companies Act. It also does not provide for exemption clauses, such as “during the normal course of business” and “at arm’s length.” However, sources said major relief on these provisions was unlikely. Sources said, without elaborating on specifics, there could be some steps towards alignment of Sebi norms with the provisions of the Companies Act.  

“Clause 49 and Companies Act differ on two counts. First, these are not aligned for many provisions. Second, for some provisions, Clause 49 is more stringent than the Companies Act. So, companies will face issues in terms of non-alignment and stricter provisions. For the provisions that are not aligned, for instance, there are certain clauses, primarily on related-party transactions and independent directors, that are not in sync with the Companies Act. These will need to be ironed out,” said Lalit Kumar, partner, J Sagar Associates.

But Sebi officials have at public fora repeatedly denied any major relaxation in these provisions. Sebi Chairman U K Sinha recently suggested the firms facing issues with compliance with the Clause 49 provisions should approach Sebi, which would be ready to make accommodations. In recent interactions, Sebi officials have said they might not suspend trading in firms failing to comply but those could be censured or a penalty could be imposed.