Corporate governance is the buzzword in corporate world these days. Having seen multiple financial and corporate frauds recently, India is certainly in need of a much better institutional system of corporate governance. Let us examine as to what steps the Securities and Exchange Board of India (SEBI) has taken in this direction.


The Institute of Company Secretaries of India has defined corporate governance as:

Corporate governance is the application of best management practices, compliance of laws in true letter and spirit and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of all stakeholders.[1]

Simplistically explained, corporate governance is nothing but a set of rules which the companies should comply with in order to maintain an effective management and for the protection of minority shareholders.

Reality check

In public opinion and experts’ view, corporate governance had been reduced to a mere adornment on parchment in India.  Despite multiple legal provisions in place, corporate scams to the tune of billions of dollars continue to rock the country on an alarming and continuous basis.

In order to effect a change and tighten corporate governance norms, SEBI constituted a committee under the stewardship of one of the most renowned Indian bankers, Mr Uday Kotak in June 2017 by SEBI. The Kotak Committee after due deliberation and consultation with experts submitted its report in October 2017. The report contains recommendations for revamping the extant corporate governance regime in India with respect to listed companies.

Recently, SEBI considered these recommendations and has given its approval for some recommendations without any modification and some with modification. This article seeks to explore the key recommendations approved by SEBI and its implications on the corporate governance regime in India.

Key recommendations approved by SEBI

The following recommendations were accepted without any modifications by the SEBI:

(a) Disclosure requirements

The disclosure requirements of listed companies have been expanded. A listed company will now be required to make the following disclosures:

(i) Listed companies are now mandatorily required to disclose the utilisation of funds raised from preferential allotment and qualified institutional placement in their annual report.

(ii) Annual report should contain the disclosure of all the fees paid to statutory auditors. Additionally, the notice of annual general meeting (AGM)/extraordinary general meeting (EGM) being sent to the shareholders should contain disclosures pertaining to the proposed fee being paid to auditors and the basis of their appointment. If auditors are changed, then their reasons for resignation should be disclosed to the stock exchanges.

(iii) The expertise/skills of directors and Board members need to be disclosed.

(iv) A disclosure of related party transactions (RPT) on a consolidated basis in the prescribed format is mandated to be disclosed within 30 days of publication of consolidated half-yearly financial results to the stock exchanges. This is also required to be published on the listed entity’s website.

(v) Listed entities are also required to disclose in the annual report any transactions of the listed entity with any promoter or promoter group which holds more than 10% of the shareholding.

(vi) Consolidated quarterly results need to be mandatorily disclosed from the Financial Year 2019-2020.

(b) Appointment of independent Directors

No person who is a part of the promoter group can be appointed as an independent Director. Furthermore, in order to avoid “Board interlocks” persons who are non-independent Directors in some other entity in which a non-independent Director of the listed entity is an independent director will not be eligible to be appointed as an independent Director in the listed entity. Independent Directors need to submit a declaration stating that they fulfil the eligibility criteria as provided under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(c) Enhanced role of certain Board Committees

The role of certain Board Committees has been expanded. The Audit Committee is additionally charged with the responsibility for the utilisation of loans advanced by the holding companies to subsidiary companies in excess of Rs 100 crores or 10 per cent of the asset size of the subsidiaries.

Similarly, the Nomination and Remuneration Committee is now required to recommend payments of the senior management and the Risk Management Committee has also been made responsible for assessing cybersecurity threats.

(d) Reduction in directorships

The maximum listed companies in which one can hold directorships has now been reduced to eight (independent directorship being capped to maximum seven listed entities), with effect from 1-4-2019 and further reduced to seven listed entities from 1-4-2020.

(e) Material subsidiaries and secretarial audit

The meaning of material subsidiaries has been expanded to include subsidiaries which are worth 10% of the consolidated income or the net worth of the listed company. Offshore material subsidiaries are required to have at least one independent Director. Secretarial audit has also been made compulsory for listed companies and their unlisted Indian material subsidiaries from 1-4-2018.

The following recommendations were adopted by SEBI with certain modifications:

(a) Separation of key positions

The Kotak Committee had recommended that all listed companies with more than 40% public shareholding are required to have different persons appointed as Chairman and Managing Director/Chief Executive Officer by 1-4-2020. SEBI modified this recommendation to make it applicable to only the top 500 listed companies.

(b) Woman independent director

Kotak Committee recommended the appointment of at least one woman independent Director by 1-10-2018. SEBI made this applicable to top 500 listed companies (by market cap) by April 2019 and top 1000 listed companies by April 2020.

(c) Royalty payments to related parties

Kotak Committee had recommended that royalty or payments for brand usage made to related parties which exceed 5% of annual consolidated turnover shall require a prior shareholders’ approval. SEBI reduced this threshold to 2%.

(d) Change in implementation dates

Kotak Committee suggested certain procedural changes such as minimum number of directors for listed companies to be 6. SEBI modified this timeline and now the top 1000 listed companies are required to comply by 1-4-2019 and top 2000 listed companies are required to comply by 1-4-2020.

Further, AGM of top 100 listed companies should be held within 5 months after closing of the financial year instead of existing 6 months deadline. SEBI has accepted this proposal, however has adopted an implementation schedule different than what was suggested by the Kotak Committee.

Implications of the changes

The changes proposed by Kotak Committee and SEBI’s acceptance thereof are much needed steps towards changing the dilapidated corporate governance structure in the country. Minority shareholders are often targetted and their interests remain unprotected and vulnerable. The implications of the changes being brought about are as follows:

(i) The suggested and implemented changes could bring more transparency in the existing corporate structure. Disclosures are now mandated on a wide variety of things including appointment of Auditors and related party transactions. Such processes would be more inclusive towards minority shareholders and would afford them greater protection.

(ii) Certain disclosures have to be made to the stock exchanges. This would reduce, if not completely eliminate, chances of fraud.

(iii) The changes in the structure of independent Director appointments to prevent Board interlocks would help in avoiding conflict of interest situations. However, this may also create unnecessary difficulties in cases where an unintended Board interlock occurs.

(iv) Reducing the limit on maximum number of directorships a person can hold would ensure that directors devote proper quality time to their responsibilities.

(v) Separation of key positions would help decentralise the corporate structure and would prevent too much concentration of power in one hand.

(vi) Having at least one woman independent Director on Board, would bring about gender diversity.

(vii) SEBI has majorly restricted a lot of changes to top 500 or 100 listed companies. This modification would prevent the burden of compliances falling on mid and small-sized companies and would also act as a pilot test of the changes.


The Kotak Committee recommendations are definitely a whiff of fresh air in the “closed door” corporate governance structures. However, these changes can be efficient only if implemented properly. These alterations would bring about greater transparency and will boost shareholders’ confidence. SEBI would be required to ensure strict compliance in order to make efficient corporate governance a reality in the country.


*Bhumesh Verma is Managing Partner at Corp Comm Legal and can be contacted at and Soumya Shekhar is Research Associate.

[1]    <…/Corporate%20Governance.doc>, date visited 14-3-2018.

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