“HIGHLIGHTS OF KOTAK COMMITTEE RECOMMENDATIONS FOR … · 2019-03-01 · 2(1) (zb)– Definition...

“HIGHLIGHTS OF KOTAK COMMITTEE RECOMMENDATIONS

FOR LISTED COMPANIES”

CS ALKA KHETAWAT

SKP SECURITIES LTD.

COMPANY SECRETARY & COMPLIANCE OFFICER

KOTAK COMMITTTEE ON CORPORATE GEOVERNANCE

• The Committee was formed on June 2, 2017

• Chaired by Mr. Uday Kotak, Executive Vice Chairman & MD, Kotak Mahindra Bank Ltd.

• Aimed at improving the standard of Corporate Governance on the following issues-

Composition and role of the Board of directors

The institution of Independent Directors

Board committees

Enhanced monitoring of group entities

Promoters/controlling shareholders

Related party transactions

Disclosures and transparency

Accounting and audit related issues

• Public comments were invited by November 4, 2017

• SEBI introduced changes vide the LODR(Amendment)Regulations, 2018 dt. May

9,2018 & vide SEBI circular dt. May 10,2018

• The provisions of the LODR (Amendment) Regulations, 2018 are applicable

w.e.f-

October1,2018

April1,2019

April1,2020

KOTAK COMMITTTEE ON CORPORATE GEOVERNANCE

Regulation Amendment Actionable

2(1)(zb)–Definition of related party

Applicability –1st April, 2019

Amendment made to

definition of related party

to include any person or

entity belonging to the

promoter or promoter

group of the listed entity

and holding 20% or more

of shareholding in the

listed entity shall be

deemed to be a related

party

SEBI has referred to

shareholding i.e. equity

and/or preference holding

Listed entities to evaluate

if any person belonging to

promoter or promoter

group holds 20% or more

of the equity or preference

share capital


16(1)(b)(ii)&(vii)–Definition of ID

Applicability –1st October, 2018

Amendment made to the

definition of Independent director

to regard such persons ineligible

who are -

members of the promoter or

promoter group of the listed

entity or;

who is not a non-independent

director of another company on

the board of which any non-

independent director of the listed

entity is an independent director

Eg: If Mr. A is an ExecutiveDirector on Company X (being alisted company) and is also anIndependent Director on theBoard of Company Y, then nonon-independent director ofCompany Y can be anIndependent Director on theBoard of Company X

Listed entities to evaluate

if any of the existing

Independent Directors

(IDs) are ineligible to

continue as IDs

Declaration from IDs will

be changed in line with

the amendment


16(1)(c)–Definition ofmaterial subsidiary


Amendment made to

definition of material

subsidiary by reducing

the threshold from

twenty percent to ten

percent.

Definitions: MS shall mean

a subsidiary, whose income

or net worth exceeds 20%

of the consolidated income

or net worth in the

immediate preceding

accounting year

Companies need to revise

the policy for determining

material subsidiary


16(1)(d)-Definition of senior management

Applicability-April 1, 2019

Amendment made to definition

of senior management to

include one level below chief

executive officer / managing

director / whole time director /

manager (including chief

executive officer / manager, in

case they are not part of the

board) and shall specifically

include company secretary and

chief financial officer.

Listed entity shall revisit

the list of senior

management to assess

the additions to the list.

NRC shall recommend

remuneration of senior

management to the

Board.

Senior management shall

abide by code of conduct

and affirm compliance

with the code of conduct

on an annual basis.


17(1)(a)–Composition of the Board

Requirement of having at

least 1 Independent woman

Director on the Board

Top 500 Co’s – 1st April, 2019


(as per Market Cap, end of

previous FY)

Where there is absolute

certainty of being in top

500 listed entities, listed

entities can appoint in the

current FY to be compliant

of requirements as on April

1, 2019

17(1)(c)–Minimum number of directors

Requirement of having

minimum 6 directors on the

Board

Top 1000 Co’s - 1st April, 2019

Top 2000 Co’s - 1st April, 2020

(as per Market Cap)

Most of the listed entities

shall already be in

compliance of this

requirement


17(1A)–Appointment/continuation of NEDs


Requirement of special resolution

for appointing/continuing the

directorship of any person as a

non-executive director who has

attained the age of seventy five

years. The explanatory statement

annexed to the notice for such

motion shall indicate the

justification for appointing such a

person

In case the NEDs of such listed

entities are individuals who

have already attained the

age of seventy five years or

will be attaining the age

before April 1, 2019, such

listed entities will have to

seek approval of

shareholders by special

resolution in the current FY

itself

17(1B)–Chairperson of theBoard


Top 500 companies shall ensure

that the Chairperson of the Board

shall –

Be a non-executive Director

Not be related to the MD or the

CEO

*Provisions N.A. which do not have

any identifiable promoters as per

SHP

Promoter driven listed

entities falling in top 500

listed entities will have to

ensure compliance of same

by separation of role of

NED Chairman and MD/CEO

and ensure both are not

related to each other


17(2A)–Quorum forBM

Prescribing the quorum

requirement for every meeting of

Board being one-third of its total

strength or three directors,

whichever is higher, including at

least one independent director

Applicability –



Corporate Governance policy/

Code, if any, to be amended to

align with Amendment

Regulations

*VC or AV to be counted for the

purpose of quorum

17(6)(ca)–Remunerationpayable to asingle NED


Requirement to obtain approval of

shareholders by special resolution

every year, in which the annual

remuneration payable to a single

non-executive director exceeds

fifty per cent of the total annual

remuneration payable to all non-

executive directors, giving details

of the remuneration thereof

If a company is sure on hitting

the threshold, then the resolution

can be passed in the AGM to be

held in 2018 itself


17(6)(e)–Remunerationpayable to EDsbelonging to P/PGbeyond thresholds


Requirement 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 i f :

Annual remuneration payable to

such EDs exceeds Rs 5 Cr or 2.5 %

of Net Profit, which ever is higher

Where there is more than one

director, the aggregate annual

remuneration to such directors

exceeds 5% of net profit of company

The approval shall be valid only till

the expiry of the term of director

If a company is sure on

hitting the threshold, then the

resolution can be passed in

the AGM to be held in 2018

itself


17(10)–Performance evaluation of IDs


Performance evaluation of ID to be

done by the entire Board, which

shall include

performance of the directors;

fulfillment of independence

criteria as specified in these

regulations and their

independence from

management

The directors who are subject to

evaluation shall not participate

No immediate

actionable


17A–Maximum numberof directorships

A person shall not be a director

in more than 8 listed entities

wef 1st April, 2019

A person shall not be a director

in more than 7 listed entities

wef 1st April, 2020

A person shall not serve as an

ID in more than 7 listed

entities

Any person who is serving as

w WTD/MD in listed entity

shall not serve as ID in more

than 3 listed entities

Based on the annual

disclosures provided by

directors of listed entities in

the current FY, listed entities

to evaluate excess

directorship held by its

director and be compliant of

the requirement by

aforesaid dates


19(2A)–Inserting quorum requirements for NRC


quorum requirement for

every meeting of NRC

being one-third of its

total strength or two

members, whichever is

greater, including at least

one independent director

in attendance

No immediate actionable.

TOR of the NRC to be

amended before the

effective date

19(3A)–Inserting no. of meetings for NRC


Prescription for NRC to

meeting at least once a

year

No immediate actionable

TOR of the NRC to be

amended, if it provides

otherwise

Regulation Amendment Actionables

20(1)–Revised role of SRC


Stakeholders Relationship

Committee (SRC) to specifically

look into the various aspects of

interest of shareholders,

debenture holders and other

security holders

TOR –

Review of measures taken

for effective exercise of

Voting rights by

shareholders

Review of adherence to

standards adopted by

entity i.e. of services by

RTAs

Review of measures taken

for reducing quantum of

unclaimed dividends and

ensuring timely receipt of

warrants/ reports / notices

etc. by the shareholders


TOR & composition of the SRC

to be amended


20(2A)–Composition of SRC


Prescription for

constitution of the SRC

comprising of at least 3

directors, one of whom is

to be an ID


TOR & composition of the

SRC to be amended

20(3)–Chairman of SRC at AGM


Prescription of chairman

of the SRC to be available

at the AGM to address

queries of shareholders


20(3A)–Number of meetings of SRC


Prescription for SRC to

meet atleast once in a

year


TOR of the SRC to be

amended

Regulation Amendment Actionables

21(3A)–Revised role of the RMC


RMC shall meet at least once

in a year

Role of the RMC widened to

cover cyber security

function

TOR of the RMCto be amended

Constitution of RMC

Applicability –Top 500 Co’s –1st April, 2019

Requirement of top 500

listed entities as per market

capitalization as at the end

of the immediately

preceding FY to constitute

the RMC, instead of top 100

RMC to be constituted, if

applicable


23(1)–RPT Policy


The policy on materiality

of RPT and on dealing

with RPT to include clear

threshold limits duly

approved by the Board

and such policy shall be

reviewed by the Board at

least once every three

years and updated

accordingly

Listed entities shall ensure Board

has approved threshold limits

Review of RPT policy requirement

also to be complied by listed

entity


23(1A)–RPT thresholds incase of brandusage/royalty


A transaction involving payment

made to a related party with

respect to brand usage or

royalty shall be considered

material if transactions entered

into individually or taken

together with previous

transactions during a financial

year, exceed two percent of the

annual consolidated turnover of the

listed entity as per the last

audited financial statements of

the company

Companies to evaluate if it

makes payment for brand

usage / royalty to a related

party. If yes, then whether

such transactions to be

entered into individually or

taken together with

previous transactions during

a financial year, exceed two

percent of the annual

consolidated turnover as per

last audited financial

statements


23(4)–RPs may vote against the RPT


In case of voting for Material

RPTs, related parties need not

abstain from voting and can cast

vote against / not in favour of

the transaction

Listed entities need to

ensure the same in case of

all resolutions put to vote

in relation to Material RPTs.

Regulation23(9)–Related Party Transactions


Disclosures of RPT on a

consolidated basis to be

submitted on half-yearly basis

within 30 days from the date of

publication of its standalone and

consolidated financial results for

the half year. Publish the same

on the website too



24(1)–ID on the board of unlisted material subsidiary incorporated outside India


At least one independent

director on the board of

directors of the listed entity

shall be a director on the

board of directors of an

unlisted material subsidiary,

whether incorporated in

India or not

*Material Subsidiary shall

mean a subsidiary, whose

income or net worth exceeds

20% of the consolidated

income or net worth in the

immediate preceding

accounting year

Listed entity to identify foreign

subsidiaries that qualify as

material subsidiaries and

accordingly, induct independent

director on its Board before the

effectivedate


24A–Insertion ofSecretarial Audit


Requirement of annexing

secretarial audit report, given a

company secretary in practice, in

such form as may be prescribed,

with the annual report prepared

for FY 2018-19 by all listed

entity and its material unlisted

subsidiaries incorporatedin India

*Recognitions to PCS under SEBI

LODR Regulations – Compulsory

Secretarial Audit and Annual

Secretarial Compliance for listed

entities and their material

subsidiaries – Feb 8, 2019

Listed entities on which

secretarial audit applies

pursuant to Regulation

24A should appoint

secretarial auditor soonest

to ensure conducting audit

during the year


25(1)–Obligations w.r.t IDs

Applicability –1st October, 2018

No person shall be appointed

or continue as an alternate

directors for IDs

If any alternate director has

been appointed he cannot

continue with such

appointment post October 1,

2018

25(8)&(9)–Declaration by ID and verification by Board


Declaration by ID at the first

meeting as director/first

meeting of FY/whenever there

is a change that he meets

criteria of independence and

that he is not aware of any

circumstances/situations, that

could impair or impact his

ability to discharge his duties

with an objective independent

judgment and without any

external influence and the

same shall be undertaken by

the BOD after due assessment

of the veracity of the same

Listed entities to ensure

obtaining the same


Regulation25(10) –Obligations w.r.t IDs

Applicability–Top 500 Co’s –1st October, 2018

Obtaining Directors and Officers

insurance (‘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

Top 500 listed entities based on

market capitalization as on

March 31, 2018 shall ensure

obtaining D and O insurance

before October 1, 2018

If the same is already in place,

whether the quantum is

appropriate or limited reviewed

and all risks are covered or not

should be determined


33(3)(g)–Financial Results

1st April, 2019

Mandatory requirement to submit

cash flow statement as part of its

standalone and consolidated

financial results for the half year


compliance for the results

submitted after April 1,

2019

33(3)(h)–Financial Results

1st April, 2019

For the purpose of quarterly

consolidated financial results, at

least eighty percent of each of the

consolidated revenue, assets and

profits, respectively shall have

been subject to audit / limited

review




2019


33(3)(i)–Financial Results

1st April, 2019

Disclosure in the results for

the last quarter in the

financial year, by way of a

note, the aggregate effect of

material adjustments made

in the results of that quarter

which pertain to earlier

periods




2019

34(4)–Annual Report

1st April, 2019

Company shall submit to

exchange and publish on

website, a copy of AR sent

to shareholders along with

AGM not later than the day

of commencement of

dispatch to shareholders

In case of changes, revised

copy along with explanation

to be sent within 48 hours

of AGM

No immediate actionable,

applicable for the AR for the

FY ended March 31, 2019


36(1)–AR in soft copy


Listed entities shall send soft

copies of annual report to all

those shareholder(s) who have

registered their email

address(es) either with the

listed entity or with any

depository

No immediate actionable,

applicable to the AR for the

FY ended March 31, 2019

36(4)–Documents andInformation toshareholders

The disclosures made by the

listed entity with immediate

effect from date of notification

of Amendment Regulations shall

be XBRL / readable / searchable

format

To be complied with

immediate effect


36(5)–Documents and Information

Notice sent to shareholders for

appointment / re-appointment of

statutory auditors shall include

disclosure in the explanatory statement

in relation to proposed fees and

credentials of the auditors

No immediate

actionable, applicable

to the AR for the FY

ended March 31, 2019


44(5)&(6)–

Votingbyshareholders

1st April, 2019

The top 100 listed entities by market

capitalization shall hold their annual

general meetings within a period of

five months from the date of closing of

the financial year and shall provide

one-way live webcast of the

proceedings of the AGM



46(2)(r)–Website

1st October,2018

All disclosures on a separate section

The details of all credit ratings obtained by the

entity for all its outstanding instruments, should

be updated immediately as and when there is

any revision in any of the ratings

No immediate

actionable

46(2)(s)–Website disclosures

1st April, 2019

Separate audited financial statements of each

subsidiary of the listed entity in respect of a

relevant financial year is required to be

uploaded at least 21 days prior to the date

of the annual general meeting

No immediate

actionable


Schedule II, Part C,Clause A–

Role of the AC


The role of Audit Committee has

been enhanced it should also

review the utilization of loans

and / or advances from /

investment by the holding

company in the subsidiary

exceeding Rs 100 crore or 10 %

of the asset size of subsidiary,

whichever is lower including

existing loans / advances /

investments existing as on the

date of coming into force of this

provision

Companies should ensure

aligning the same with the

current ToR of the Committee

before April 1, 2019

Schedule II, Part D,Clause A–

Role of the NRC


The role of Nomination and

Remuneration Committee has

been enhanced, as it is now

required to recommend to the

board, all remuneration, in

whatever form, payable to

senior management

Companies should ensure

aligning the same with the

current ToR of the

Committee before April 1,

2019


Schedule III, Part A,Clause A–(7B)

Material events


In case of resignation of the

Independent Director, the

detailed reason for such

resignation is required to be

disclosed to the stock

exchanges, within seven days

of the resignation, including a

confirmation from the ID that

there is no other material

reasons other than those

provided.


Schedule III, Part A, Clause A– (7A)

Material events


In case of resignation of the

auditor, detailed reasons for

resignation as given by the

auditor, to be disclosed by

the listed entities to the

stock exchanges as soon as

possible but not later than

twenty-four hours of receipt

of such reasons from the

auditor.



Schedule V, PartA–

Related partydisclosures


Disclosures of transactions of the listed entity

with any person or entity belonging to the

promoter/promoter group which hold(s)

10% or more shareholding in the listed

entity, in the format prescribed in the

relevant accounting standards for annual

results is required to bemade

Companies

are required to

update the system

prevailing in the

company to capture

such transactions

along with the

updated list of

related parties, for

reporting the same

Schedule V, Part B-

MD&A

Applicability-1st April, 2019

MDAR should now include details of significant

changes (i.e. change of 25% or more as

compared to the immediately previous

financial year) in key financial ratios, along

with detailed explanations therefor, including

Debtor / Inventory Turnover

Current / Debt Equity Ratio

Operating Profit Margin / Net Profit Margin

No immediate

actionable


ScheduleV,Part C-

CG Report

Applicability –For the AR forthe FY ended31st March,2019

The following changes have been done in the

details required to be provided in the CGReport -

The names of the listed entities where the person

is a director and the category of directorship is

required to be disclosed

A chart or a matrix setting out the

skills/expertise/competence of the board of

directors

With effect from FY ended March 31, 2020, the

names of directors who have such skills /

expertise / competence

Companies should obtain

the disclosures from the

director in the present FY,

as the same is required

to be disclosed in the

Annual Report for FY 18-

19

Schedule V, Part C- CG Report

For the AR for the FY ended 31st March, 2019

Detailed reasons for the resignation of an

independent director who resigns before the

expiry of his tenure along with a confirmation by

such director that there are no other material

reasons other than those provided



Schedule V,

Part C -

Clause 9(q),

10(h)(i)(j)

CG Report

For the AR

for the FY

ended 31ST

March, 2019

List of all credit ratings obtained by the entity along with any

revisions thereto during the relevant financial year, for all debt

instruments of such entity or any fixed deposit programme or any

scheme or proposal of the listed entity involving mobilization of

funds, whether in India or abroad, is required to be disclosed

Details of utilization of funds raised through preferential allotment or

QIPs undertaken in the relevant financial year, until such funds are

fully utilized

Certificate from a PCS that none of the directors on the board of the

company have been debarred or disqualified from being appointed or

continuing as directors of companies by the Board/Ministry of

Corporate Affairs or any such statutoryauthority

Non-acceptance of any recommendation of any committee of the board

which is mandatorily required, is required to be disclosed along with

the reason of non-acceptance

Disclosure of the 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

No immediate

actionable

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