SEBI ends permanent Board seats in listed companies

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From April 1, 2024,  promoter directors of listed entities or their related persons cannot enjoy “Board Permanency” with the market regulator SEBI now amending the listing regulations to mandate periodic shareholders approval — once in five years — for all categories of directors from that date.

This new requirement is expected to substantially address the concerns around grant of “Board permanency” to certain selected persons. 

This changeto its LODR regulations—flows out of a consultation paper on corporate governance issued by it in February this year— would mean that non-executive non-independent directors would not enjoy a permanent seat in Boards without shareholders approval after April 1, 2024.

No longer will those appointed as directors not liable to ‘retirement by rotation’ and without any defined tenure.

So far such non-independent non-executive directors did not need periodic shareholders’ approval.

From April 1, 2024, a listed entity should ensure that the directorship of all those serving on the Board is put up to shareholders for approval at least once in every 5 years, according to new amendments to Listing Obligation and Disclosure Requirements (LODR) regulations notified by SEBI and to be implemented from July 13.

Also as on March 31, 2024, if a director’s appointment or re-appointment does not have shareholder approval in the last 5 years i.e., from April 1, 2019, the listed entity would have to take shareholders’ approval in the first general meeting to be held after April 1, 2024, , SEBI has said.

However, the latest change in regulation will not apply in respect of directors appointed by a Court or a Tribunal or to a nominee director of the Government or of a financial sector regulator on the Board of a listed entity. 

It would also not apply to a director nominated by a financial institution registered with or regulated by RBI under a lending arrangement in the normal course of business, SEBI has said.

Story so far

Hitherto, listed companies were granting permanent board positions to select persons, usually promoter-directors or related persons, via the Articles of Association (AoA) clause that certain directors would be for lifetime.

This allowed such directors to serve for as long as they desired, regardless of the intent of shareholders on their , the SEBI consultation paper had noted. 



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