The Securities and Exchange Board of India (Sebi) on Tuesday proposed changes to governance norms for listed entities that give more rights to shareholders while increasing corporate disclosures on agreements binding them.
For example, any agreement that impacts the management or control of a listed entity or create a liability for it must be disclosed, Sebi said in a consultation paper.
The regulator said it has observed non-disclosure of agreements outside the normal course of business that could impact management/control or create a liability on the business.
In such cases, while the listed entity was not a party to the agreement, the same could have a material impact on business.
It added that shareholder agreements are not part of the Articles of Association (AoA) but binding and placing restrictions are generally not placed before shareholders for approval. This denies them an opportunity to examine such agreements.
The regulator also proposes to mandate listed entities to make such disclosures in their annual reports from the coming financial year, and any agreement between shareholders and third parties, to which the entity is not a party, shall be disclosed to the company within two days. The firm shall, in turn, disclose the same to exchanges. It proposes to include existing and subsisting agreements.
At the same time, it also proposes to give the board a say in reviewing whether such agreements lie in the interest of the company, and the option to reject the same.
The markets regulator has also sought comments on reviewing special rights accorded to shareholders. It says special rights and privileges enjoyed by certain shareholders need to be agreed upon by other shareholders.
While such special rights must be reviewed post-listing, it observed that public institutional shareholders of recently-listed firms, especially new-age startups, have been continuously objecting to special privileges accorded to promoters or founders. Therefore, it says any special rights granted must be put up for review every five years before shareholders.
Among other proposals, the regulator seeks to address permanency in board positions, calling for periodic review. This pertains to directors to whom the ‘retirement by rotation’ clause is not applicable.
It proposes that from April 1, 2024, listed entities shall ensure directorship of all members is subject to shareholder review every five years.
For protecting the interest of minority shareholders in the case of disposal or lease of the whole company or all assets, it proposes to amend clauses in the LODR norms to ensure disclosure of details of such transactions to all shareholders. The regulator has sought comments on the above proposals till March 7.