SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018 wef 9 May 2018

SEBI Listing Obligations and Disclosure Requirements (Amendment) Regulations, 2018 wef 9 May 2018

KOTAK COMMITTEE RECOMMENDATIONS

The Kotak Committee made a set of 81 recommendations to the SEBI on the following issues with an aim to support in improving standards of corporate governance of listed companies in India:

WHEN AMENDED LODR WILL BE EFFECTIVE?

Though the SEBI aims to put into effect these Corporate Governance Amendments from 1 April 2019, it has provided a phased timeline from 1 October 2018 to 1 April 2020 for most of the amendments, so that the companies are able to adjust to new governance requirements as well as overcome any implementation challenges.

Composition and role of the board of directors

Effective Date of Modifications

1 Oct 2018	For all listed entities: • Disclosure of expertise / skills overall of the board*
Apr 1, 2019	For all listed entities:  • Approval by special resolution for non-executive directors on attaining the age of 75  • Person must not be a director in more than eight listed entities  • Disclosure of expertise / skills along with the name of each board member^ For top 500 listed entities:  • At least one independent woman director on the board For top 1,000 listed entities: • Min. six directors on the board; • Quorum higher of 1/3 rd of total board strength or three directors.
Apr 1, 2020	For all listed entities: • Disclosure of expertise / skills along with the name of each board member^  • Person must not be a director in more than seven listed entities For top 500 listed entities: • Separate roles of non-executive Chairperson and MD / CEO For top 1,000 listed entities: • At least one independent woman director on the board For top 2,000 listed entities: • Min. six directors on the board  • Quorum higher of 1/3 of total board

MINIMUM NUMBER OF DIRECTORS ON THE BOARD

Minimum number of directors on the board [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(i)(2)]

The Amendments propose to increase the minimum number of directors on the Board to six as against three under the Companies Act. This will be in phased manner where it will come into effect from 1 April 2019 for top 1,000 listed entities and from 1 April 2020 for top 2,000 listed entities.

GENDER DIVERSITY ON THE BOARD

Gender diversity on the board [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(i)(1)]

The Amendments require at least one independent woman director on the board of the top 500 listed entities by 1 April 2019 and for the top 1000 listed entities by 1 April 2020. The Companies Act and SEBI (LODR) Regulations require at least one woman director to be on the board of listed entities who may be either an independent or a non-independent director.

DISCLOSURE OF EXPERTISE / SKILLS OF DIRECTORS

Disclosure of expertise / Skills of directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(i) (2)]

The Companies Act and SEBI (LODR) Regulations require the disclosure of a brief profile of a director on his/her appointment, including expertise in specific functional areas, without providing any matrix of skills / expertise / competence of the board on a regular basis. The Amendments now require to disclose the following, in a phased manner: • List of core skills / expertise / competencies identified by the board as required in the context of its business(es) and sector(s) for an efficient functioning. It also requires disclosure of those skills / expertise / competencies that its board members actually possess, without disclosing the names of the directors. This is to be made effective from the financial year ending 31 March 2019

APPROVAL FOR NON-EXECUTIVE DIRECTORS ON ATTAINING A CERTAIN AGE

Approval for non-executive directors on attaining a certain age [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(ii)]

The Amendments introduce a requirement to obtain shareholders’ approval under a special resolution by a listed entity for the appointment of a person or continuation of any person as a non-executive director on attaining the age of 75 years for the relevant term. Explanatory statement annexed to the notice for such motion should indicate the justification for appointing such a person. While it is recognized that age itself may not be a determinant of efficiency or capability of a person or the basis for disqualification, a higher level of shareholder endorsement may be required for directors to continue in their position beyond a certain age. The Companies Act has a similar requirement only for the managing director, whole-time director, or managers attaining the age of 70 years.

QUORUM FOR BOARD MEETINGS

Quorum for board meetings [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(iv)]

The Companies Act requires a quorum of one-third of the total strength of the board of directors or two directors, whichever is higher, for every board meeting. SEBI (LODR) Regulations do not prescribe any quorum for meetings of the board of directors. The Amendments require the quorum for every meeting of the board of directors of the listed entity to be 1/3 of its total strength or three directors, whichever is higher, including at least one independent director. The participation of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of such quorum. The above amendment for top 1,000 listed entities shall come into effect from 1 April 2019 and for top 2,000 listed entities shall come into effect from 1 April 2020.

SEPARATION OF THE ROLES OF NON-EXECUTIVE CHAIRPERSON AND MANAGING DIRECTOR / CEO

Separation of the roles of non-executive chairperson and managing director / CEO [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(iii) and Para 3(u)(c)]

The Amendments introduce a requirement to have the chairperson of the board as a non-executive director and not be related to the managing director or the chief executive officer as per Companies Act, 2013. The separation of powers of the chairperson and MD/CEO would enable better and more balanced governance structure by enabling more effective supervision of the management. This amendment shall come into effect from 1 April 2020 for top 500 listed entities. However, this requirement is not applicable to the listed entities, which do not have any identifiable promoters as per the shareholding pattern filed with stock exchanges.

MAXIMUM NUMBER OF DIRECTORSHIPS

Maximum number of directorships [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(e)]

The Amendments restrict maximum directorships to eight listed entities and seven listed entities with effect from 1 April 2019 and 1 April 2020 respectively. Directorship as independent director is restricted to seven listed entities, except where a person who is serving as a whole time director / managing director in any listed entity, shall serve as an independent director in not more than three listed entities. The count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange . References to top 500, top 1,000 and top 2,000 listed entities above shall be determined on the basis of market capitalization, as at the end of an immediate previous financial year.

DISCLOSURE OF BOARD EVALUATION

Disclosure of board evaluation [SEBI Circular: SEBI/HO/CFD/CMD/CIR/P/2018/79, dated May 10, 2018]

The Companies Act and SEBI (LODR) Regulations contain broad provisions on board evaluation, i.e., evaluation of the performance of: (i) The board as a whole, (ii) Individual directors (including Independent Directors and chairperson) and (iii) Various committees of the board. The provisions also specify responsibilities of various persons/committees for the conduct of such evaluation and the disclosure requirements that are a part of the listed entity’s corporate governance obligations. In order to strengthen disclosures on board evaluation, SEBI’s circular specifies that every listed entity may consider the following as a part of its disclosures on board evaluation: i.                Observations of board evaluation carried out for the year ii.              Previous year’s observations and actions taken  iii. Proposed actions based on current year observations

DEFINITION OF INDEPENDENT DIRECTORS

 Eligibility criteria for Independent Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(vi), Para 3(c)(i), Para 3(l)(ii), Para 3(x)(c)(i)(2)]

WEF 1 Oct 2018	For all listed entities: • Definition of ID exclude persons who constitute the “promoter group” • Resolution of board inter-locks • Alternate director cannot continue or be appointed as ID For top 500 listed entities: • Director and Officers Insurance for all the IDs.
WEF 1 April 2019	For all listed entities:  • Evaluation of IDs by the board • Declaration of independence to be submitted by ID and board to assess its veracity • Disclosure of IDs independence in Corporate Governance Report  • Disclosure on resignation of IDs

EVALUATION OF IDS BY THE BOARD

The Amendments have modified the criteria for evaluation of IDs by the board by specifically requiring an evaluation of:

a. Performance of the directors

b. Fulfilment of the independence criteria as specified in the SEBI (LODR) Regulations and their independence from the management.

DECLARATION BY INDEPENDENT DIRECTORS

The Amendments introduce a new requirement for independent directors to submit a declaration stating that they meet the criteria of independence as specified in the amended definition of an “Independent Director”, followed with a confirmation that they are not aware of any circumstance or situation, which exists or may be reasonably anticipated, that could impair or impact their ability to discharge duties with objective independent judgements and without any external influence.

DECLARATION IN THE CORPORATE GOVERNANCE REPORT

Further, in the Corporate Governance Report, the board is required to state their confirmation that independent directors fulfill the conditions specified in SEBI (LODR) Regulations and are independent of the management.

DISCLOSURES ON RESIGNATION OF INDEPENDENT DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(v) and Para 3(x)(c)(i)(2)]

The Amendments introduce a new requirement for the listed entities to disclose to the stock exchanges and also as a part of the Corporate Governance Report, the detailed reasons for resignation of the Independent Directors before the expiry of their tenure along with a confirmation given by such director(s) that there are no other material reasons other than those provided.

DIRECTORS AND OFFICERS INSURANCE FOR INDEPENDENT DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(l)(ii)]

The Amendments introduce a new requirement for top 500 listed entities to undertake Directors and Officers (D and O) Insurance for all their independent directors of such quantum and for such risks as may be determined by its board of directors. Market capitalization would be calculated as on 31 March of the preceding financial year for determining top 500 listed entities. Companies will need to comply with the D and O Insurance requirement with effect from 1 October 2018.

PROHIBITION FOR APPOINTMENT OF ALTERNATE DIRECTORS FOR INDEPENDENT DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(l)(i)]

The Amendments prohibit an alternative director from being appointed or continue as an independent director of a listed entity. This shall take effect from 1 October 2018.

COMMITTEES OF BOARD

Wef 1 April 2019

For all listed entities: • Audit committee review of utilization of loans / advances / investments • Definition of senior management widened and Nomination and Remuneration Committee (NRC) to recommend board on remuneration of senior management • Min. three directors of which at least one ID on the Stakeholders Relationship Committee (SRC) • SRC’s roles and responsibilities widened SRC chairperson to be present in AGM • NRC quorum higher of 1/3 of total strength or two directors • SRC and NRC to meet at least once a year : For top 500 listed entities • Mandatory set-up of Risk Management Committee (RMC) and to specifically cover cyber security • RMC to meet at least once a year

ROLE OF AUDIT COMMITTEE

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(u)(a)]

The Amendments widen the role of audit committee by requiring a review of utilization of loans and / or advances from investment by the holding company in the subsidiary exceeding INR100 crores or 10% of the asset size of the subsidiary, whichever is lower. This requirement is also applicable to loans / advances / investments existing as on 1 April 2019.

The role of the NRC of the board of a listed entity is amended to include recommendations to be made to the board on all the payments made, in whatsoever form, to the senior management.

COMPOSITION AND ROLE OF STAKEHOLDERS RELATIONSHIP COMMITTEE [SEBI (LODR)

(Amendment) Regulations, 2018, Para 3(g) and Para 3(u)(b)(ii)]

The Amendments introduce the requirement to have at least three directors, with at least one independent director, as members of the Stakeholders Relationship Committee (SRC). Also, it requires the SRC to meet at least once in a year.

AMENDED ROLE OF STAKEHOLDERS RELATIONSHIP COMMITTEE (SRC)

1. Resolving the grievances of the security holders of the listed entity including complaints related to transfer/transmission of shares, non-receipt of annual report, non-receipt of declared dividends, issue of new/duplicate certificates, general meetings, etc.

2. Review of measures taken for effective exercise of voting rights by the shareholders

3. Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the Registrar & Share Transfer Agent.

4.Review of the various measures and initiatives taken by the listed entity for reducing the quantum of unclaimed dividends and ensuring timely receipt of dividend warrants / Annual Reports / statutory notices by the shareholders of the company

5.Further, the Chairperson of the SRC will now be required to be present at the AGMs to answer queries of the security holders.

QUORUM FOR NOMINATION AND REMUNERATION COMMITTEE MEETINGS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(f)(a) and Para 3(f)(b)]

The Amendments specify that the quorum for a meeting of the NRC shall be either two members or one third of the members of the committee, whichever is greater, including at least one independent director in attendance.

Further, the NRC is required to meet at least once in a year.

APPLICABILITY AND ROLE OF RISK MANAGEMENT COMMITTEE

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(h)(a) and Para 3(h)(b)]

The Amendments widen the requirements of Risk Management Committee (RMC) to top 500 listed entities by market capitalization determined as at the end of the immediate previous financial year.

 It introduces as a function of the RMC to also specifically cover cyber security, given the increase in the use of cyber and digital technology.

In addition, the Amendments require the RMC to meet at least once in a year

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SECRETARIAL AUDIT FOR MATERIAL UNLISTED SUBSIDIARY

Wef 1 June 2018	For all listed entities: • Secretarial audit to be performed for every listed entity and its material unlisted Indian subsidiary
Wef 1 April 2019	For all listed entities: • Wider ambit of definition of material subsidiary  • Appoint at least one ID on the board of unlisted material subsidiary including foreign subsidiaries

GROUP GOVERNANCE UNIT / COMMITTEE AND POLICY

[SEBI Circular: SEBI/HO/CFD/CMD/CIR/P/2018/79, dated May 10, 2018]

There are currently no provisions under the Companies Act or SEBI (LODR) Regulations with respect to group governance unit/governance committee or a group governance policy. In order to improve monitoring of group entities, SEBI’s circular does not amend the SEBI (LODR) Regulation but rather specifies that where a listed entity has a large number of unlisted subsidiaries:

i.                The listed entity may monitor their governance through a dedicated group governance unit or Governance Committee comprising the members of the board of the listed entity

ii.              A strong and effective group governance policy may be established by the entity iii. However, the decision of setting up of such a unit/committee and having such a group governance policy may be left to the board of the listed entity.

SECRETARIAL AUDIT FOR MATERIAL UNLISTED INDIAN SUBSIDIARY OF LISTED COMPANY

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(k)]

 The Amendments extend the requirement of a secretarial audit to every listed entity and its material unlisted Indian subsidiaries along with the requirement to annex with its annual report, a secretarial audit report given by a practicing company secretary. The SEBI is required to prescribe the form of the secretarial audit report and these Amendments shall take effect from the year ending 31 March 2019.

AMENDMENT REGARDS TO RELATED PARTY TRANSACTIONS (RPT)

Wef 1 Oct 2018	For all listed entities: • Disclosure of RPTs on a consolidated basis to stock exchanges and on website • Related parties allowed to cast a negative vote on RPTs • Threshold specified for Royalty and Brand payments to related parties  • Disclosure of board approved thresholds for material RPTs
Wef 1 April 2019	For all listed entities: • Definition of related party is widened and disclosure required in annual report • Shareholder approval required for payment of remuneration to executive promoter directors / non-executive directors exceeding threshold

APPROVAL OF RPTS AND CASTING A NEGATIVE VOTE BY RPS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(c) and Para 3(i)(d)]

Amendment allows related parties to cast a negative vote, as such voting cannot be considered to be in conflict of interest.

SEBI (LODR) Regulations require all related parties should abstain from voting on a related party transaction.

This amendment shall come into effect from the half-year ending 31 March 2019.

ROYALTY AND BRAND PAYMENTS TO RELATED PARTIES [SEBI (LODR)

(Amendment) Regulations, 2018, Para 3(i)(b)]

The Amendment specifies a threshold of 2% of the annual consolidated turnover of the listed entity as per its last audited financial statements for transactions involving payment made to a related party with respect to brand usage or royalty, either considered individually or taken together with previous transactions during a financial year.

This amendment shall come into effect from the half-year ending 31 March 2019.

REMUNERATION TO EXECUTIVE PROMOTER DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(v)(2)]

The Amendments introduce a new requirement to obtain a shareholder approval by a special resolution for the total remuneration paid to the executive directors who are promoters or members of the promoter group,

if: • The annual remuneration payable to such executive director exceeds INR 5 crores or 2.5% of the net profits of the listed entity, whichever is higher

 • In case there is more than one such director, the aggregate annual remuneration to such directors exceeds 5% of the net profits of the listed entity Shareholders’ approval shall be valid only till the expiry of the term of such director and the calculation of net profit should be as per section 198 of the Companies Act.

REMUNERATION TO NON-EXECUTIVE DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(d)(v)(1)]

 The Amendments introduce a new requirement to obtain shareholder approval by a special resolution every year, in case the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof.

MATERIALITY POLICY

[SEBI (LODR)  (Amendment) Regulations, 2018, Para 3(i)(a)]

Currently, SEBI (LODR) Regulations require listed entities to formulate a policy on materiality of related party transactions and on dealing with related party transactions. 

The Amendments intend that companies also disclose, as a part of their materiality policy, a clear threshold limits duly approved by the board of directors. Such materiality policy is required to be reviewed and updated by the board of directors at least once every three years.

This amendment shall come into effect from the half-year ending 31 March 2019.

DISCLOSURE & TRANSPARENCY

Notification of the SEBI (LODR) (Amendment) Regulations, 2018 From June 2018	For all listed entities: have to  • Searchable format of disclosures to stock exchanges and on website
From 1 Oct 2018	For all listed entities: • Disclosure of credit ratings of all outstanding instruments • Prior intimation to stock exchange of board meeting to discuss bonus issue
From 1 April 2020	For all listed entities: • Disclosure of subsidiary accounts separately on website
Currently applicable, with reporting from the year ending 31 March 2019	For all listed entities: • Timeline for annual report submission to stock exchanges and sending to shareholders aligned  • Sending soft copy of annual report to shareholders with registered email id • Disclosures of Key Changes in Financial Indicators • Disclosure of utilisation of Proceeds of Preferential Issue and Qualified Institutional Placement (QIP)  • Disclosure of no. of other boards or committees on which director is a member or chairperson • Disclosure of CS certificate that no director is a disqualified director • Disclosure of board committee recommendations not accepted by the board

SUBMISSION OF ANNUAL REPORTS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(q) and Para 3(r)(i)]

Timeline for submission of annual report to stock exchange and publishing on website:

·       The SEBI (LODR) Regulations require sending the annual report to shareholders in not less than 21 days before the AGM.

·       LODR requires the listed entity to submit to the stock exchange and publish on the website:

·       A copy of the annual report shall be sent to the shareholders along with the notice of the AGM to be disclosed not later than the day as dispatched to the shareholders;

·       In the event of any changes to the annual report, the revised copy along with details of and explanation for the changes is required to be sent in not later than 48 hours after the AGM.

SUBMISSION OF ANNUAL REPORT IN ELECTRONIC MODE:

FOR SHAREHOLDERS WHO HAVE NOT REGISTERED WITH AN EMAIL ID

·       LODR requires sending hard copies of statement containing the salient features of all the documents, as per Section 136 of the Companies Act read with Companies (Accounts) Rules, 2014, to those shareholders whose email address(es) are not registered.

·       The listed entity to send soft copies of full annual report to all those shareholders who have registered their email address(es), either with the listed entity or with any depository.

DISCLOSURES PERTAINING TO CREDIT RATING

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(t)(ii) and Para 3(x)(c)(ii)]

SEBI (LODR) Regulations require disclosure of revision in credit rating for different instruments from time to time to the stock exchanges as and when changes happen.

All listed entities will need to comply with this amendment with effect from 1 October 2018.

SEARCHABLE FORMATS OF DISCLOSURES [SEBI (LODR)

(Amendment) Regulations, 2018, Para 3(r)(ii)]

The Amendments introduce the requirement for the listed entity to make disclosures:

• To stock exchanges, in XBRL format, in accordance with the guidelines specified by the stock exchanges from time to time;

• To stock exchanges and on the entity’s website in a format that allows users to find relevant information easily through a searching tool.

The above requirement does not override any statutory requirement to make disclosures in formats which may not be searchable, such as copies of scanned documents.

All listed entities will need to comply with this amendment from the date of notification of these amendments, i.e., 9 May 2018.

Currently, there is no specific provision for the same in the Companies Act and SEBI (LODR) Regulations.

DISCLOSURES OF KEY CHANGES IN FINANCIAL INDICATORS [SEBI (LODR)

(Amendment) Regulations, 2018, Para 3(x)(b)]

The Amendments introduce a requirement for all the listed entities to disclose in the Management Discussion and Analysis (MD&A) section of the annual report:

a. Details of significant changes (i.e., change of 25% or more as compared to the immediately previous financial year) in the key financial ratios, along with detailed explanations thereof, including:

1. Debtors turnover

 2. Inventory turnover

3. Interest coverage ratio

4. Current ratio

5. Debt equity ratio

 6. Operating profit margin (%)

7. Net profit margin (%) or, sector-specific equivalent ratios, as applicable

b. Details of any change in Return on Net Worth as compared to the immediately previous financial year along with a detailed explanation thereof .

All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter.

 Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same.

UTILIZATION OF PROCEEDS OF PREFERENTIAL ISSUE AND QUALIFIED INSTITUTIONAL PLACEMENT (QIP)

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(n) and Para 3(x)(c)(iii)]

The Amendments introduce a requirement to disclose details of utilization of funds raised through preferential allotment or QIP as specified under Regulation 32(7A) as a part of the Corporate Governance Report.

All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter.

DISCLOSURE PERTAINING TO DIRECTORS [SEBI (LODR)

(Amendment) Regulations, 2018, Para 3(x)(c)(i)]

The Amendments introduce an additional requirement to disclose separately the names of the listed entities where the person is a director and the category is of directorship. 

All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter.

DISCLOSURES PERTAINING TO DISQUALIFICATION OF DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)]

The Amendments introduce a requirement to disclose a certificate from a company secretary in practice that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as the directors of companies by the board / MCA or any such statutory authority.

Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same.

All listed entities will need to comply with this amendment in the annual report filed for the year ending 31 March 2019 and thereafter.

DISCLOSURES OF SUBSIDIARY ACCOUNTS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(t)(ii)]

The Amendments require that at least 21 days prior to the date of the AGM called to consider accounts of that financial year, separately audited financial statements of each subsidiary of the listed entity should be uploaded under a separate section on the website of the listed entity.

SEBI (LODR) Regulations currently only require a listed entity to maintain a functional website containing certain specified information.

However, this amendment aligns the requirement to the current proviso to Section 136(1) of the Companies Act which requires every company to place separate audited accounts of each of its subsidiary on its website, if any.

PRIOR INTIMATION OF BOARD MEETING TO DISCUSS BONUS ISSUE

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(m)]

Currently, SEBI (LODR) Regulations provides that prior intimation is not required to be given to the stock exchanges about the board meeting, where the declaration of bonus by the listed entity is not as one of the items on the agenda.

The Amendments require the proviso to Regulation 29(f) of SEBI (LODR) Regulations, to be deleted with effect from 1 October 2018, which states that prior intimation is not required to be given to the stock exchange(s) in case the declaration of bonus by the listed entity is not on the agenda of the board meeting.

Due to this , now it is mandatory to intimate to the Stock Exchange about the bonus issue which is on the agenda of the Board.

VIEWS OF COMMITTEES NOT ACCEPTED BY THE BOARD OF DIRECTORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)]

The Amendments extend the requirement to disclose, along with the reasons thereof, where the board had not accepted any recommendation of any committee of the board which is mandatorily required, in the relevant financial year.

All listed entities will need to comply with this amendment in the annual reports filed for the year ending 31 March 2019 and thereafter.

ACCOUNTING AND AUDIT RELATED ISSUES

Wef June 2018

For all listed entities: • Disclosure of total fees paid at consolidated level for all services of auditor and its network firms/entities. • -Disclosure of total fees paid at consolidated level for all services of auditor and its network firms/ entities.

Wef April 2019

For all listed entities: • Auditor to review and report on management estimates of audit qualifications  • Mandatory submission of quarterly / year-to-date consolidated financial statements  • Limited review of last quarter financial results with disclosure of material adjustments pertaining to earlier period • Submission of standalone and consolidated cash flow statements for the half year • Limited review of subsidiary entities by statutory auditor of parent listed entity • Disclosure to stock exchange of detailed reasons for auditor resignation  • Disclosure as a part of AGM notice the auditors’ credentials and proposed audit fees

AUDIT QUALIFICATIONS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(w)]

The Amendments modify the requirement, thereby making it mandatory, in case where audit qualifications are not quantifiable:

• The management shall mandatorily make an estimate, which the auditor shall review and report accordingly

 • Notwithstanding the above, the management may be permitted to not provide estimates on matters, like going concern or sub-judice matters; in which case, the management shall provide the reasons and the auditor shall review the same and report accordingly.

The Amendments aim to strengthen disclosures by bringing an increased focus on quantification of audit qualifications (mandatory), with the exception being only for matters like going-concern or sub-judice matters.

QUARTERLY FINANCIAL DISCLOSURES

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(o)]

 Consolidated financial results The Amendments remove the option given in every financial year to the listed entity to opt for submission of consolidated financial results on a quarterly / year-to-date basis and rather, make it mandatory to submit consolidated financial results on a quarterly / year-to-date basis.

The Companies Act and SEBI (LODR) Regulations mandate the submission of consolidated financial statements by a listed entity every financial year on an annual basis.

LAST QUARTER FINANCIAL RESULTS:

The Amendments relax the requirement of getting the financial results of the last quarter audited before submission and allows limited review of financial results of the last quarter when the listed entity submits them along with the results for the entire financial year.

Further, the Amendments also require the listed entity to disclose by way of a note in the last quarter financial results, the aggregate effect of material adjustments, which pertain to earlier periods, made in the results of that quarter.

AUDIT / LIMITED REVIEW OF QUARTERLY CONSOLIDATED FINANCIAL RESULTS:

The Amendments introduce a requirement for the listed entity to ensure, for the purposes of quarterly consolidated financial results, that at least 80% of each of the consolidated revenue, assets and profits, respectively shall have been subject to audit or in case of unaudited results, subjected to limited review.

CASH FLOW STATEMENTS:

 The Amendments introduce a requirement that the listed entity should submit, by way of a note, a statement of cash flows for the half-year as part of its standalone and consolidated financial results for the half-year.

LIMITED REVIEW OF SUBSIDIARIES

The Amendments introduce a requirement on the part of the statutory auditor of a listed entity to undertake a limited review of the audit of all the entities / companies whose accounts are to be consolidated with the listed entity as per AS 21 in accordance with guidelines issued by SEBI on this matter.

DISCLOSURE OF REASONS FOR RESIGNATION OF AUDITORS

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(v)]

The Amendments require the listed entity to disclose to the stock exchanges as soon as possible but not later than 24 hours from the receipt from the auditors, detailed reasons for resignation of auditors.

DISCLOSURES ON AUDIT AND NON-AUDIT SERVICES RENDERED BY THE AUDITOR

 [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x)(c)(iii)]

The Amendments introduce a new requirement to disclose total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm / network entity of which the statutory auditor is a part.

All listed entities will need to comply with this amendment by disclosing in the Corporate Governance Report section of the annual reports filed for the year ending 31 March 2019 and thereafter.

DISCLOSURE OF CREDENTIALS AND AUDIT FEE OF AUDITORS

 [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(r)(ii)]

The Amendments introduce a new requirement where the statutory auditor(s) is/are proposed to be appointed/reappointed, the listed entity shall make the following disclosures as a part of the explanatory statement to the notice sent to shareholders for an AGM:

a.     Proposed fees payable to the statutory auditor(s) along with terms of appointment.

In case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor along with the rationale for such change.

b.     Basis of recommendation for appointment, including the details in relation to and credentials of, the statutory auditor(s) proposed to be appointed.

SEBI (LODR) Regulations currently imposes an obligation on the listed entity to ensure that the audit is conducted by an independent, competent and qualified auditor.

INVESTOR PARTICIPATION IN MEETINGS OF LISTED ENTITIES

Wef 1 April 2019

For top 100 listed entities as at 31 March every financial year:  • AGM to be held within five months from date of closing the financial year For top 100 listed entities based on market capitalization at the end of immediately preceding financial year:  • One-way live webcast of the proceedings of the AGM

AGM OF LISTED ENTITIES HAS TO BE HELD WITHIN 5 MONTHS FROM THE DATE OF CLOSING OF FINANCIAL YEAR.

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(s)(ii)]

 The Amendments introduce a requirement that reduces the timeline for holding AGM within a period of five months from the date of closing of the financial year.

 This requirement is applicable to top 100 listed entities by market capitalization, determined as on 31 March of every financial year.

The Amendments seek to align the timeline for holding AGM with the global practices and to avoid bunching of AGMs (especially in August/ September), which results in lower shareholder participation.

Currently, the Companies Act requires listed entities in India to hold AGM within six months from the end of the financial year.

There is no specific provision in SEBI (LODR) Regulations on this.

WEBCAST OF PROCEEDINGS OF THE MEETING

[SEBI (LODR) (Amendment) Regulations, 2018, Para 3(s)(ii)]

The Amendments introduce a requirement that the top 100 listed entities shall provide one-way live webcast of the proceedings of the AGM. The top 100 listed entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year.

AMENDMENTS EFFECTIVE FROM 1 OCTOBER 2018 (HALF-YEAR ENDED MARCH 31, 2019)

Listed entities will need to start making decisions from October 1, 2018, in order to ensure compliance for FY 2018-19:

CHAPTER	AREA	KOTAK COMMITTEE RECOMMENDATION
Promoters / Con-trolling Shareholders and RPTs [The Kotak Com-mittee report, chapter V]	Disclosure of Related Party Transactions [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(a), Para 3(i)(e) and Para 3(x)(a)]	The amendments introduce a new requirement for a listed entity to disclose related party transactions on a consolidated basis as per the format specified in the relevant accounting standards for annual results to stock exchanges, and to publish the same on its website. These disclosures need to be made within 30 days from the date of publication of the standalone and consolidated financial results for the half-year by the listed entity.
Promoters / Con-trolling Shareholders and RPTs [The Kotak Committee report, chapter V]	Approval of Related Party Transactions [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i)(c) and Para 3(i)(d)]	The amendments in the clauses pertaining to the approval of related party transac-tion have been made in order to plug the gap in the legal framework, wherein, the Companies Act allows related parties to vote on (but not in favor of) a related party transaction and while currently, SEBI (LODR) Regulations require all related parties should abstain from voting on a related party transaction.
Promoters / Con-trolling Shareholders and RPTs [The Kotak Com-mittee report, chapter V]	Royalty and Brand Payments to Related Parties [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i) (b)]	The amendment specifies a threshold of 2% of the annual consolidated turnover of the listed entity as per its last audited financial statements for transactions involving payment made to a related party with respect to brand usage or royalty, either con-sidered individually or taken together with previous transactions during a financial year.
Promoters / Controlling Shareholders and RPTs [The Kotak Com-mittee report, chapter V]	Materiality Policy [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(i) (a)]	The amendments intend that companies also disclose, as a part of their materiality policy, clear threshold limits duly approved by the board of directors. Such materiality policy is required to be reviewed and updated by the board of directors at least once every three years.

AMENDMENTS CURRENTLY APPLICABLE, WITH REPORTING FOR YEAR ENDED MARCH 31, 2019

The table below summarizes the amendments which are effective for year ending March 31, 2019. This implies that listed entities will need to start making decisions immediately in order to ensure compliance for the FY 2018-19:

CHAPTER	AREA	KOTAK COMMITTEE RECOMMENDATION
Composition and Role of the Board of Directors [The Kotak Committee report, chapter I]	Disclosure of Expertise / Skills of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(i)(2)]	The amendments require disclosure of a list of core skills/ expertise/competencies identified by the board as required in the context of its business(es) and sector(s) for an efficient functioning. It also requires disclosure of those skills/expertise/ competencies that its board members actually possess, without disclosing the names of the directors.
Enhanced Monitoring of Group Entities [The Kotak Committee report, chapter IV]	Secretarial Audit [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(k)]	The amendments extend the requirement of Secretarial Audit to every listed entity and its material unlisted Indian subsidiaries along with the requirement to annex with its annual report, a secretarial audit report given by a practicing company secretary.
Disclosures and Transparency [The Kotak Committee report, chapter VI]	Submission of Annual Reports [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(q) and Para 3(r)(i)]	The amendments require the listed entity to submit to the stock exchange and publish on the website: • A copy of the annual report shall be sent to the shareholders along with the notice of the AGM to be disclosed not later than the day as dispatched to the shareholders. • In the event of any changes to the annual report, the revised copy along with details of, and explanation for the changes are required to be sent in not later than 48 hours after the AGM. The amendments now also clarify that the listed entity to send soft copies of the full annual report to all those shareholders who have registered their email address(es), either with the listed entity or with any depository.
Disclosures and Transparency [The Kotak Committee report, chapter VI]	Disclosures of Key Changes in Financial Indicators [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (b)]	The amendments introduce a requirement to disclose details of utilization of funds raised through preferential allotment or QIP as specified under Regulation 32(7A) as a part of the Corporate Governance Report.
Disclosures and Transparency [The Kotak Committee report, chapter VI]	Disclosure Pertaining to Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(i)]	The amendments introduce an additional requirement to disclose separately the names of the listed entities where the person is a director and the category is of directorship.
Disclosures and Transparency [The Kotak Committee report, chapter VI]	Disclosures Pertaining to Disqualification of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)]	The amendments introduce a requirement to disclose a certificate from a company secretary in practice stating that none of the directors on the board of the company have been debarred or disqualified from being appointed or continuing as the directors of companies by the Board / MCA or any such statutory authority. Currently, there is no specific provision in the Companies Act and SEBI (LODR) Regulations for the same.
Disclosures and Transparency [The Kotak Committee report, chapter VI]	Views of Committees Not Accepted by the Board of Directors [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)]	The amendments extend the requirement to disclose, along with the reasons thereof, where the Board had not accepted any recommendation of any committee of the board which is mandatorily required, in the relevant financial year. However, such disclosure requirement shall only apply where the recommendation of / submission by the committee is required for the approval of the board and shall not apply where prior approval of the relevant committee is required for undertaking any transaction under SEBI (LODR) Regulations.
Accounting and Audit related issues [The Kotak Committee report, chapter VII]	Disclosures on Audit and Non-audit Services Rendered by the Auditor [SEBI (LODR) (Amendment) Regulations, 2018, Para 3(x) (c)(iii)]	The amendments introduce a new requirement to disclose total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the statutory auditor and all entities in the network firm/network entity of which the statutory auditor is a part.

Courtesy- Ernst & Young