Changes in Company Law and FEMA effective from 1st April 2019

Company law and FEMA

SEBI (LODR) Regulations

SEBI has come up with amendment vide SEBI (Listing Obligations and Disclosures Requirements) (Sixth Amendment) Regulations, 2018 on November 16, 2018. SEBI has provided a phased timeline from October 1, 2018 to April 1, 2020 for most of the amendments, in this write up we have discussed certain key amendments which shall become effective from April 1, 2019:

1. Change in the criteria for determining material subsidiary

The amendment provides that the unlisted material subsidiaries referred to under sub-regulation 1 of regulation 24 shall include the companies "whether incorporated in India or not". Accordingly, foreign subsidiary companies shall also be included within the ambit of material subsidiaries. Prior to the amendment, regulation 24 of Listing Regulations provided the material subsidiaries to include only those subsidiary companies which were incorporated in India.

2. Disclosure of related party transactions on consolidation basis

Regulation 23 of SEBI (LODR) (Amendment) Regulations, 2018 requires disclosure of related party transactions by listed entities on a consolidated basis to the stock exchange and should also be published in the website of the Company within a period of 30 days from the date of publication of its standalone and consolidated financial results

3. Secretarial Audit report by all listed entity and its material unlisted subsidiaries

Regulation 24A of the amended regulation requires annexing of Secretarial Audit report for F.Y. 2018-19 by all listed entity and its material unlisted subsidiaries incorporated in India.

4. Appointment of Independent Women Director

Those Companies falling in the list of top 500 listed entities based on market capitalization as on March 31, 2019 will be required to appoint a woman Independent Director w.e.f. April 1, 2019

5. Maximum no. of directorship

w..e.f April 1, 2019, maximum number of directorships that can be held at any point of time in equity listed entities is 8.

6. Change in minimum number of directors in board for top 1000 listed Cos –

As per Regulation 17 (1) (a) of the Amended Regulations, w.e.f April 1, 2019, the board of directors of the top 1000 listed entities should comprise of not less than six directors. Therefore, the Companies in which minimum number of director are less than 6 shall have to appoint additional directors, subject to shareholders' approval, whose appointment should be regularized at the ensuing AGM.

7. Revised quorum for Board meeting for top 1000 listed Cos.

W.e.f Apr 01, 2019, the revised quorum requirement for Board Meeting for top 1000 listed companies shall be one-third of its total strength or three directors whichever is higher, including atlest one Independent Director

8. Change in definition of Independent director

The definition of Independent director shall now exclude the following categories of person as well: (a) those persons who are members of the promoter group of a listed entity; (b) person who neither himself nor whose relative is a CEO/ MD/ WTD / Manager, CS & CFO, of any non- profit organisation which receives 25% or more of its receipts or corpus from the listed entity, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2 % or more of the total voting power of the listed entity; (c) persons who are non-independent directors of another company on the board of which any non-independent director of the listed entity is an independent director

9. Shareholders' approval by Special Resolution required in certain cases

Where remuneration of a Non-executive director exceeds 50% of total remuneration payable

The approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration payable to a single non-executive director (NED) exceeds fifty per cent of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof.

where the company is certain that the remuneration payable to its NED shall exceeds the limit, there the company should obtain approval before April 1, 2019, i.e. before the commencement of the amendment

Compensation payable to executive directors who are promoters or members of the promoter group

Reg. 17 (6)(e) requires listed entities to obtain approval of shareholders by special resolution for the fees or compensation payable to executive directors who are promoters or members of promoter group in case in excess of thresholds: (a) where listed entity has 1 executive director who is a promoter or member of promoter group: Rupees 5 crore or 2.5 % of the net profits of the listed entity; (b) where listed entity has more than 1 executive directors who are promoters or members of promoter group: 5 % of the net profits of the listed entity

Appointment/continuation of Non-executive Director above 75 yrs

Effective from April 01, 2019, no listed entity should appoint a person or continue the directorship of any person as a NED who has attained the age of 75 years unless a special resolution is passed to that effect- [ Regulation 17 (1A) of the Amendment Regulations]

SEBI (Prohibition of Insider Trading) Regulations, 2015

On December 31, 2018, SEBI notified the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2018, which are effective from April 01, 2019. The Key changes in the Regulations deals with the following:

1. Amendment in definition of Unpublished price sensitive information

In order to remove ambiguity, the 'material events in accordance with listing agreement' has been deleted as it was noted that the material events may or may not be price sensitive information.

2. Policy for determination 'legitimate purpose

As per the regulation, No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purpose, performance of duties or discharge of legal obligations. The term legitimate purpose is not defined under the regulation and gives various meaning of interpretation. Therefore, SEBI has mandated the board of directors of the listed company or intermediaries to define their own policy or definition relating to legitimate purposes which means listed company have freedom to decided what may or may but be legitimate purposes of its business-related need but the director would be required to justify.

3. Creation of database of persons with whom UPSI is shared

There was no provision for creating a data base of person with whom UPSI is shared. Now, listed entities are required to maintain an electronic record containing name of person whom UPSI is shares and the nature of UPSI. Along with that, the listed entity serve a notice or sign NDA with the concerned person.

4. Code of conduct for intermediaries

The regulations currently required a common code of conduct applicable for all the listed entities, intermediaries and other person who are required to handle UPSI during the course of business operations.

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