SEBI makes the Separation Norm of MD and Chairman Roles Voluntary

Following the recommendations of the Kotak Committee, SEBI had decided to make it mandatory for the listed companies to have their post of Chairman and Managing Director separated from April 1, 2022. However, owing to the “unsatisfactory level of compliance achieved so far” with respect to this governance reform, the compliance has been made voluntary. Additionally, there was continued representation from stakeholders, industry bodies and corporates expressing difficulties and challenges as the reason for non-compliance with the regulatory norm.

On a review of the compliance status by SEBI it was observed that the compliance level stood at 50.4% amongst the top 500 Listed Companies as on September 2019, which progressed by 54% only till December 31, 2021. Thus, barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years.  Expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date was perceived as an unrealistic shot. 

Additionally, the following amendments were introduced by the Board in the meeting:

  1. Amendment to SEBI (Alternative Investment Funds) Regulations, 2012:

The Board approved amendment to SEBI (Alternative Investment Funds) Regulations, 2012, providing flexibility to Category III Alternative Investment Funds (AIFs) to calculate the investment concentration norm based either on investable funds or net asset value of the fund while investing in listed equity of investee company, subject to the conditions as may be specified by the Board.

  1. Alignment of regulatory framework for ‘security cover’, disclosure of credit ratings and due diligence certificate

Amendments were made to the SEBI (Debenture Trustee)
Regulations, 1993, SEBI (Issue and Listing of Non-Convertible Securities)
Regulations, 2021 and SEBI (Listing Obligations and Disclosure Requirements),
2015 w.r.t the term ‘security cover’, disclosure  of credit rating and due diligence certificate.