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JC - Legal Updates - Independent Directors and Related Party Transactions: What’s new?

Legal Updates

06 Aug 2021

Independent Directors and Related Party Transactions: What’s new?

Provisions related to related party transactions and independent directors have been amended by the Securities and Exchange Board of India (“SEBI”) by way of an amendment to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”). An overview of the key amendments are as follows:

1.    Related Party Transactions:

Previously, the whole of audit committee was authorised to approve the related party transactions. Now only the independent directors in the audit committee shall be authorised to approve the related party transactions.

2.    Independent Directors:

(a)  Eligibility

(i)   Under the criteria for eligibility to be appointed as an independent director, the restriction on not holding a position of the key managerial person (“KMP”) or being an employee in the listed entity or its associate, holding or subsidiary company has been extended to any company belonging to the promoter group of the listed entity.

However, relaxation has been provided in case of any relative of the independent director being an employee and not a KMP of the listed entity or such companies as mentioned above.

(ii)  The independent director that has resigned from the listed entity shall not be permitted to be appointed as the executive / whole time director on the board of directors of the listed entity or its associate, holding or subsidiary company or any company belonging to the promoter group of the listed entity for a period of one year from the date of resignation.

(b)  Appointment of a person on the Board of Directors

The appointment, re-appointment and removal of the independent directors shall now be subject to the approval of the shareholders by way of a special resolution.

(c)  Constitution of Nomination and Remuneration Committee

The Board of Directors shall now have to ensure that at least two-thirds (instead of fifty percent) of the directors constituting the committee are independent directors. This requirement is no longer specific to the case of listed entity having outstanding shares with superior rights.

(d)  Audit Committee

The regulations prescribed that the two-third members of the audit committee shall be independent directors. Now, the language has been modified to have two-third or more members of the audit committee to be independent directors.

(e)  Directors and Officers Insurance

Directors and Officers insurance for all independents directors shall now be undertaken for the top 1000 listed entities (instead of top 500 listed entities) by market capitalization with effect from January 1, 2022.

These amendments have been issued vide the SEBI (LODR) (Third Amendment) Regulations, dated 3rd August 2021.


For any further information, please contact Ms. Apurva Kanvinde (apurva.kanvinde@jclex.com) or Mr. Sumitava Basu (sumitava.basu@jclex.com).