The new rules, which would be effective from October 1, require companies to get shareholders' approval for related party transactions, establish whistle blower mechanism, elaborate disclosures on pay packages and have at least a woman director on their boards.
Sebi's norms issued today are aligned with the new Companies Act and is aimed to encourage companies to "adopt best practices on corporate governance".
The capital market regulator has amended clauses -- 35B and 49 -- of the listing agreement. Now, under changed 35B norms, listed companies are required to provide the option of facility of e-voting to shareholders on all resolutions proposed to be passed at general meetings.
Under clause 49, pertaining to corporate governance, listed entities have to get shareholders' nod for related party transactions. It would be effective prospectively from October 1 onwards.
"All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 shall be placed for approval of the shareholders in the first general meeting subsequent to October 1, 2014," Sebi said in the circular today.
Besides the market watchdog has come out with norms to ensure "equitable treatment of all shareholders including minority and foreign shareholders".
Apart from providing adequate and timely information to all shareholders, listed companies should also facilitate the exercise of voting rights by foreign shareholders.
"The company should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices," the circular said.
The new norms, which have been finalised after detailed consultations over draft regulations released in January 2013, excludes 'nominee directors' from the definition of independent directors.
Besides, there would be expanded role of audit committee and enhanced disclosure of remuneration policies.
Separate meetings of independent directors, and constitution of 'stakeholders relationship committee' are also a part of the proposals.
The watchdog has decided that the maximum number of boards an independent director can serve on listed companies be restricted to 7, while the directorship would be capped at three if the person is serving as a whole time director in any listed company.
The board of Securities and Exchange Board of India (Sebi) had approved the new set of norms during its meeting held in February.
The monitoring cell formed by the stock exchanges would monitor the compliance with the provisions of the Clause 49 on corporate governance for all listed companies.
"The cell shall ascertain the adequacy and accuracy of disclosures in the quarterly compliance reports received from the companies and shall submit a consolidated compliance report to Sebi within 60 days from the end of each quarter," the regulator noted.
Sebi asked listed companies to set up a nomination and remuneration committee which comprises of at least three directors, all of whom should be non-executive directors and at least half should be independent. It also said that chairman of the committee should be an independent director.
It further said that all fees/compensation, if any paid to non-executive directors, including independent directors, shall be fixed by the board of directors and shall require previous approval of shareholders in general meeting."
Also, Sebi said that a company's board would have an optimum combination of executive as well as non-executive directors, with at least one woman director and not less than 50 per cent of the members comprising non-executive directors.
In case the chairman of the board is a non-executive director, Sebi said that at least one-third of the board should comprise independent directors and if the company does not have a regular non-executive chairman, at least half of the board should comprise independent directors.
The new norms also restrict the total tenure of an independent director to two terms of five years. If a person has already served as an independent director for five years or more in a listed company till the date new norms come into effect, he would be eligible for appointment for one more term of five years only.
Sebi has made stricter disclosure norms and asked board members and key executives to disclose the board whether directly, indirectly or on behalf of third parties have a material interest in any transaction or matter directly affecting the company.
Also, the regulator said that board of a listed company is required to meet at least four times a year, with a maximum time gap of 120 days between any two meetings.