SEBI norms on independent directors for MIIs ‘not in sync’ with Companies Act

PALAK SHAH Mumbai | Updated on June 25, 2018

Experts seek more clarity on the age limit set by the market regulator

The norms recently approved by SEBI regarding appointment and age limit for public interest directors (PIDs) of market infrastructure institutions (MIIs), such as stock exchanges and depository, differ from those under the Companies Act.

The incorporation of a company, its responsibilities, directors and dissolution are all regulated under the Companies Act 2013.

SEBI, in its board meeting held on June 21, approved an age limit of 75 years for PIDs, also known as independent directors, on the board of MIIs. Also, SEBI has said that PIDs working with a parent company, an MII, cannot be appointed on the board of any of its subsidiary or even those of other MIIs.

Experts say the Companies Act does not curb the appointment of a PID on the board of a company after a certain age but prescribes that shareholder approval via a special resolution if the PIDs are 70 or above. Also, the Companies Act allows appointment of PIDs on the board of any material subsidiary of a parent company.

More clarity is required on whether the new norms are applicable retrospectively or from the day of SEBI’s announcement, they added.

Unlisted subsidiary

Under the Companies Act, a material subsidiary is described as an unlisted subsidiary incorporated in India, the income or net worth (i.e. paid-up capital and free reserves) of which exceed 20 per cent of the consolidated income or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding financial year.

SEBI has also said that PIDs can only be appointed for three terms comprising a tenure of up to three years each.

Yet another decision taken by SEBI in its board meeting with regard to capping the tenure of MDs of MIIs may lead to the departure of current officials of depository players NSDL, CDSL and BSE in one to four years. SEBI has prescribed that MDs of MIIs should not be given more than two terms comprising of up to five years each.

No to 5-year extension

Reportedly, SEBI had rejected a five-year extension offered to PS Reddy by the CDSL board. He had joined in 2012 for a five-year tenure, which was expended up to March 2019. Reddy is serving his second term. The tenure of GV Nageswara Rao, MD and CEO, NSDL, ends in July as he was appointed for five years in 2013 and he would now be serving his last term.

Similarly, the second term of Ashish Chauhan, MD and CEO, BSE, expires in November 2022. Chauhan’s first five-year tenure started in 2012, which was extended by another five years in 2017.

Among other large exchanges, NSE MD and CEO Vikram Limaye was appointed for five years last year after the resignation of Chitra Ramkrishna. He is eligible to serve up to 2027. MCX MD and CEO is Mrugank Paranjape is eligible to serve up to 2026 as he was appointed in 2016. NCDEX MD and CEO Vijay Kumar is eligible to serve up to 2028 as he was appointed only this year.

Published on June 25, 2018

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