The Securities and Exchange Board of India (Sebi) has made the provisions of Clause 49 of the listing agreement more stringent. The regulator has said that for listed companies, if the non-executive chairman is a promoter or is related to promoters or persons occupying management positions at the board level or at one level below the board, at least half of the board should comprise independent directors.
Earlier, Sebi had mandated that a third of the board should be independent directors if the chairman was a non-executive one. For the first time, Sebi has also specified the minimum age of an independent director, at 21.
Sebi said it would modify Clause 49, based on requests and suggestions received. Sebi had earlier issued a master circular about corporate governance in listed companies on October 29, 2004. This circular superceded all the earlier circulars on the subject and dealt with issues such as the composition of the board, audit committee, subsidiary companies, disclosures related to the listed company and its subsidiaries and a report on corporate governance.
In a fresh circular, Sebi on Tuesday amended certain provisions in the master circular and made it clear that disclosures of relationships between directors inter-se both of executive and independent directors will have to be made in specified documents/filings. The stock exchanges have been asked to get details from listed companies based on the revised circular from next month onwards.
Sebi also said that the gap between resignation/removal of an independent director and appointment of another independent director in his place should not exceed 180 days. However, this provision would not apply if a company fulfils the minimum requirement of independent directors on its board.
Sebi said meeting all the above provisions is mandatory for listed companies.
Among the non-mandatory provisions, Sebi said, a company should ensure that an independent director has the requisite qualifications and experience to contribute effectively to the company.
Though Sebi wanted to implement its master circular from January 2005, the implementation took place only from January 2006, a year after. After observations, Sebi decided to further plug the gaps in the system and made the clause more disclosure-based, sources said.