Also unveils long term policy for mutual funds
The Securities and Exchange Board of India (Sebi) board on Thursday, 13 February 2014, approved proposals to amend the Listing Agreement with respect to corporate governance norms for listed companies. Among the proposals approved by the Sebi, it has been decided to exclude nominee director from the definition of Independent Director in a company board. Sebi has also approved compulsory whistle blower mechanism and expanded the role of Audit Committee in a company.
The stock market regulator has banned issue of stock options by a company to Independent Directors. Sebi also ruled that separate meeting of Independent Directors should be held. Each company will also now have to set up a Stakeholders Relationship Committee. Sebi has also enhanced disclosure of remuneration policies in a company. Sebi also said there should be mechanism for performance evaluation of Independent Directors and the Board of Directors of a company.
The Sebi also mandated prior approval of Audit Committee for all material Related Party Transactions (RPTs) in a company. Sebi has also mandated approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting. The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards. Sebi has said that there should be at least one woman director on the board of each company.
It has been decided that the maximum number of boards an independent director can serve on listed companies be restricted to 7, Sebi said in a press release. This limit should be capped 3 in case the person is serving as a whole time director in a listed company, Sebi said.
Sebi has also decided to restrict the total tenure of an Independent Director to 2 terms of 5 years. However, if a person who has already served as an Independent Director for 5 years or more in a listed company as on the date on which the amendment to Listing Agreement becomes effective, he shall be eligible for appointment for one more term of 5 years only, Sebi said.
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The Sebi board also approved the proposal to put in place principles of Corporate Governance, policy on dealing with RPTs, divestment of material subsidiaries, disclosure of letter of appointment of Independent Directors and the letter of resignation of all directors, risk management, providing training to Independent Directors, E-voting facility by top 500 companies by market capitalization for all shareholder resolutions and boards of companies to satisfy themselves that plans are in place for orderly succession for appointments to the board and senior management.
These amendments to corporate governance norms, inter-alia, propose to align the provisions of Listing Agreement with the provisions of the newly enacted Companies Act, 2013 and also provide additional requirements to strengthen the corporate governance framework for listed companies in India, Sebi said. The amendments shall be made applicable to all listed companies with effect from 1 October 2014, the stock market regulator said.
The Sebi board has approved a long term policy for mutual funds. The long term policy includes all aspects including enhancing the reach and promoting financial inclusion, tax treatment, obligation of various stakeholders, etc. to deal with the public policy objectives of achieving sustainable growth of the mutual fund industry and mobilisation of household savings for the growth of the economy, Sebi said.
Sebi said that a long term product such as Mutual Fund Linked Retirement Plan (MFLRP) with additional tax incentive of Rs 50000 under 80C of Income Tax Act may be introduced. Alternatively, the limit of section 80C of the Income Tax Act, 1961, may be enhanced from Rs 1 lakh to Rs 2 lakh so as to make mutual funds products (ELSS, MFLRP etc.) as priority for investors among the different investment avenues. RGESS may also be brought under this enhanced limit, Sebi said.
Similar to merger/consolidation of companies, the merger/consolidation of equity mutual funds schemes also may not be treated as transfer and therefore, may be exempted from capital gain taxation, Sebi said.
Sebi has decided to increase Capital Adequacy i.e. minimum networth of an Asset Management Company (AMC) to Rs 50 crore. Sebi also said that the concept of seed capital be introduced i.e. 1% of the amount raised (subject to a maximum of Rs.50 lacs) to be invested by AMCs in all the open ended schemes during its life time. Sebi also said that EPFOs should be allowed to invest upto 15% of their corpus in equities and mutual funds. Further, the members of EPFOs who are earning more than Rs 6500 per month be offered an option for a part of their corpus to be invested in a mutual fund product of their choice, Sebi said.
Presently, Navratna and Miniratna Central Public Sector Enterprises (CPSEs) are permitted to invest in public sector mutual funds regulated by Sebi. It has been recommended that all CPSEs be allowed to choose from any of the Sebi registered mutual funds for investing their surplus funds, Sebi said.
In order to enhance transparency and improve the quality of the disclosures, it has been decided that AUM from different categories of schemes such as equity schemes, debt schemes, etc., AUM from B-15 cities, contribution of sponsor and its associates in AUM of schemes of their mutual fund, AUM garnered through sponsor group/non-sponsor group distributors etc. are to be disclosed on monthly basis on respective website of AMCs and on consolidated basis on website of AMFI, Sebi said.
In order to improve transparency as well as encourage mutual funds to diligently participate in corporate governance of the investee companies and exercise their voting rights in the best interest of the unit holders, voting data along with rationale supporting their decision (for, against or abstain) be disclosed on quarterly basis on their website, Sebi said. This is to be certified by auditor annually and reviewed by board of AMC and Trustees.
Towards achieving the goal of financial inclusion, a gradual approach to be taken such that initially the banked population of the country may be targeted with respect to mutual funds investing, Sebi said. Sebi will work towards achieving the goal that the basics of capital markets and financial planning may be introduced as core curriculum in schools and colleges.
In order to develop and enhance the distribution network, PSU banks may be encouraged to distribute schemes of all mutual funds, Sebi said. Online investment facility need to be enhanced to tap the internet savvy users to invest in mutual funds, Sebi said.
The proposals relating to tax incentives, allowing EPFO to invest in equities/mutual funds and allowing all CPSEs to invest their surplus fund in mutual funds will be sent to the government for its decision, Sebi said.
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