Taxmann's Securities Laws & Capital Markets (SLCM) | STUDY MATERIAL

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Chapter-wise Marks Distribution

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PART I SECURITIES LAWS (70 MARKS) Chapter 1 1.3

SECURITIES CONTRACTS (REGULATION) ACT, 1956

Chapter 2 SECURITIES & EXCHANGE BOARD OF INDIA ACT, 1992

2.1

Chapter 3 3.1

DEPOSITORIES ACT, 1996

Chapter 4 AN OVERVIEW OF THE SEBI (ISSUE OF CAPITAL & DISCLOSURE REQUIREMENTS) REGULATIONS, 2018

4.1

Chapter 5 SEBI (LISTING OBLIGATIONS & DISCLOSURE REQUIREMENTS) REGULATIONS, 2015

5.1

Chapter 6 SEBI (SUBSTANTIAL ACQUISITION OF SHARES & TAKEOVERS) REGULATIONS, 2011

6.1

Chapter 7 SEBI (BUY-BACK OF SECURITIES) REGULATIONS, 2018

7.1

Chapter 8 SEBI (DELISTING OF EQUITY SHARES) REGULATIONS, 2021

8.1

Chapter 9 9.1

SHARE BASED EMPLOYEE BENEFITS

Chapter 10 10.1

ISSUE OF SWEAT EQUITY SHARES

Chapter 11 SEBI (PROHIBITION OF INSIDER TRADING) REGULATIONS, 2015

I-7

11.1

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Chapter 12 12.1

MUTUAL FUNDS

Chapter 13 13.1

COLLECTIVE INVESTMENT SCHEMES

Chapter 14 14.1

SEBI (OMBUDSMAN) REGULATIONS, 2003

PART II CAPITAL MARKET & INTERMEDIARIES (30 MARKS) Chapter 15 STRUCTURE OF CAPITAL MARKET

15.3

Chapter 16 CAPITAL MARKET INSTRUMENTS

16.1

Chapter 17 IMPORTANT ASPECTS OF PRIMARY MARKET

17.1

Chapter 18 SECONDARY MARKET

18.1

Chapter 19 SECURITIES MARKET INTERMEDIARIES

SOLVED PAPER : DECEMBER 2021 (SUGGESTED ANSWERS) SOLVED PAPER : JUNE 2022 (SUGGESTED ANSWERS)

19.1 P.1 P.13

5

CHAPTER

SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015 RELEVANT PROVISIONS Companies Act, 2013

Section 24 Section 40

Power of SEBI to regulate issue and transfer of securities Securities to be dealt with in stock exchanges

Securities Contracts (Regulation) Act, 1956

Section 21 Section 22A

Conditions for listing

Right of appeal to SAT against refusal to list securities of public companies by a recognized stock exchange SEBI (LODR) Regulations, 2015

Regulation 3 Regulation 6 Regulation 9 Regulation 10 Regulation 11 Regulation 12 Regulation 14 Regulation 17 Regulation 18 Regulation 20 Regulation 21 Regulation 22 Regulation 23 Regulation 24A Regulation 27 Regulation 29 Regulation 31A Regulation 32 Regulation 33 Regulation 34 Regulation 43 Regulation 43A Regulation 45 Regulation 48 SCHEDULE V – PART B

Applicability of the regulations

ϐ Policy for Preservation of documents Filing of information

Scheme of Arrangement

Payment of dividend interest, redemption or repayment principle amounts Fees and other charges Board of directors Audit Committee

Stakeholders Relationship Committee Risk Management Committee Vigil Mechanism Related Party

Secretarial Audit and Secretarial Compliance Report Corporate Governance Report Prior Intimations

Ǧ ϐ Ȁ Financial Results Annual Report

Annual Information Memorandum Dividends

Dividend Distribution Policy

Change in name of the listed entity Accounting Standards

Management Discussion & Analysis Report 5.1

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5.2

LISTING OF SECURITIES Types of Listing

ϐ Ȃ

1. Initial listing: ϐ on a stock exchange is called initial listing.

2. Listing for public issue: When a company whose shares are listed on a stock exchange comes out with a public issue of securities, it has to list such issue with the stock exchange.

3. Listing for rights issue: When companies whose securities are listed on the stock exchange issue securities to existing shareholders on rights basis, it has to list such rights issues on the concerned stock exchange.

4. Listing of bonus shares: It is listing of shares issued as a result of capitalisation of ϐ Ǥ

ϐ

5. Listing for merger or amalgamation: When new shares are issued by an amalgamated company to the shareholders of the amalgamating company, such shares are also required to be listed on the concerned stock exchange.

ϐ ǣ ϐ listed by a company in the stock exchange:

Public image of the company is enhanced.

The liquidity of the security is ensured making it easy to buy and sell the securities

in the stock exchange.

Tax concessions are made available both to the investors and the companies.

Listing procedure compels company management to disclose important information

to the investors enabling them to make crucial decisions with regard to keeping or disposing of such securities.

Listed companies command better support such as loans and investments from Banks

and FIs.

ϐ ǣ

Multiple Listing

It affords liquidity to their holdings.

It affords them to obtain the best prices for the securities they want to sell off.

The Stock Exchange quotation helps the investors to keep themselves abreast of the

price changes of the securities owned or held by them.

The investors get maximum protection in regard to their holdings, because the Stock

Exchange rules and regulations have been formulated with the end in view.

Listing

gives an added collateral value to the securities held by investors, for banks in making loans and advances prefer a security quoted on the Stock Exchange.

Listing is also advantageous in the matter of income-tax, wealth-tax, estate duty and

other taxes payable by shareholders in their capacity as assessee.

A company with a paid-up capital above ` 5 Crore should list its securities or have its securities permitted for trading, on at least one stock exchange having Nationwide Trading Terminals.

ϐ ǣ Multiple listing provides arbitrage opportunities to the ǡ ϐ the said exchanges.

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5.3

COMPANIES ACT, 2013 Power of SEBI to Any Company which is listed or intend to get their securities listed on any recognized stock re g u l a te i s s u e exchange will be administered by Regulations prepared by SEBI for matters relating to issue and transfer of and transfer of securities and non payment of dividend. securities [Section 24] Securities to be dealt with in stock exchanges [Section 40]

Every

company making public offer shall make an application to one or more recognised stock exchange and obtain permission for the securities to list on such stock exchange.

If

the prospectus states that an application has been made to list shares on stock exchange, such prospectus shall also state the name of the stock exchange in which the securities shall be dealt with.

SECURITIES CONTRACTS (REGULATION) ACT, 1956

Conditions for Where securities are listed on the application of any person in any recognised stock exchange, listing [Section 21] such person shall comply with the conditions of the listing agreement with that stock exchange.

Right of appeal to SAT against refusal to list securities of public companies by a recognized stock exchange [Section 22A]

Where

ϐ 15 days from the date of refusal. However, SAT may

a recognized stock exchange refuses to list the securities of any public company or collective investment scheme, it shall furnish the reasons for such refusal. extend such period not exceeding 1 month on ϐ being shown.

Every appeal to SAT shall be in prescribed form along with prescribed fee.

SAT may vary or set aside the decision of the stock exchange.

ϐ ǡ ǡ SAT may grant or refuse the permission.

Appeal should be decided by the SAT expeditiously and possibly within 6 months.

SAT shall send a copy of every order made by it to the SEBI and parties to the appeal.

PAST EXAMINATION QUESTIONS

ͳǣ ϐ ǣ

ȏ ʹͲͳ͵ ȋ͵ ȌȐ Ƭ ȏ ʹͲͳ͸ ȋʹ ȌȐ

Hint: Refer Topic “Multiple Listing”.

Question 2: Write a short on: Types of Listing

[Dec. 2016 (4 Marks)]

Hint: Refer Topic Types of Listing.

Question 3: “Listing of securities with stock exchanges is a matter of great importance for companies and Ǥdz ϐ Ǥ

ȏ Ǥ ʹͲͲ͹ ȋͷ ȌȐ Ƭ ȏ ʹͲͳ͹ ȋͶ ȌȐ Hint: ϐ Ǥ

QUESTIONS FOR PRACTICE

ͳǣ ϐ Ǥ Hint: Refer to sections 24 & 40 of the Companies Act, 2013 and Sections 21 & 22A of the Securities Contracts (Regulation) Act, 1956.

Question 2: Write a short note on: Types of Listing Hint: Refer Topic Types of Listing.

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5.4

SEBI (LODR) REGULATIONS, 2015 Ƭ Applicability of the regulations [Regulation 3]

The SEBI (LODR) Regulations, 2015 shall apply to the listed entity which has listed any of the following designated securities on recognized stock exchange:

Compliance ϐ Obligations [Regulation 6]

ϐ Platform (ITP)

Non-convertible

Debt Securities (NDS), Non-Convertible Redeemable Preference Shares (NCRPS), Perpetual Debt Instrument, Perpetual Non-Cumulative Preference Shares

Indian Depository Receipts

Securitized Debt Instruments Security receipts

Units issued by mutual funds

ϐ Ǥ

Provisions of the SEBI (LODR) Regulations, 2015 which become applicable to listed entities on the basis of market capitalization criteria shall continue to apply to such entities even if they fall below such thresholds.

ϐ Company

ϐ .

Secretary as the Compliance

ϐ ǣ

- Ensuring conformity with the regulatory provisions applicable to the listed entity in letter and spirit.

- Co-ordination with and reporting to SEBI, recognized stock exchanges and depositories with respect to compliance with rules, regulations and other directives of these authorities in specified manner.

- Ensuring that the correct procedures have been followed that would result in the correctness, authenticity and comprehensiveness of the information, statements and reports filed by the listed entity under these regulations.

- Monitoring email address of grievance redressal division as designated by listed entity for the purpose of registering complaints by investors.

ǡ ϐ in the case of units issued by mutual funds which are listed on recognized stock exchange but shall be governed by the provisions of the SEBI (Mutual Funds) Regulations, 1996.

Policy for

documents [Regulation 9]

Listed entity shall have a policy for preservation of documents, approved by its board of ǡ Ȃ

Filing of information [Regulation 10]

ϐ ǡ ǡ ǡ ϐ ϐ the recognized stock exchange.

(a) Documents whose preservation shall be permanent in nature.

(b) Documents with preservation period of not less than 8 years after completion of the relevant transactions.

Listed entity may keep documents in electronic mode.

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Scheme of Arrangement [Regulation 11]

5.5

Ȁ Ȁ Ȁ Ȁ etc. to be presented to any Court or Tribunal does not in any way violate, override or limit the provisions of securities laws or requirements of the stock exchanges.

Listed entity shall use electronic mode of payment facility approved by the RBI for Payment of the payment of dividends, interest, redemption or repayment principle amounts. ǡ redemption However, where it is not possible to use electronic mode of payment, ‘payable-at-par’ or repayment warrants or cheques may be issued. principle Where the amount payable as dividend exceeds ` 1,500, the ‘payable-at-par’ warrants amounts or cheques shall be sent by speed post.

[Regulation 12] Example: Ǥǡ ͳͲΨ Ǧ Ǥ ǡ `ʹǡͲͲͲ company. Finance director of the company is of the opinion that since amount payable

Ǥ Ǥ

Fees and other charges [Regulation 14] Applicability of corporate

[Regulation 15]

As per Regulation 12 of the SEBI (LODR) Regulations, 2015, dividend to Pratik, a shareholder should be paid by transferring the amount in electronic mode. If it is not possible to use electronic mode of payment, ‘payable-at-par’ warrants or cheques may be issued. Such cheque cannot be sent by simple post as the amount payable as dividend exceeds `1,500.

It must be sent by speed post.

Listed entity shall pay all such fees or charges, as applicable, to the recognized stock exchanges, ϐ Ǥ

ϐ ͳ͹ ʹ͹ ȋb) to (i) and (t) of Regulation 46(2) and Para C, D and E of Schedule V shall not apply, in respect of listed entity having Ǧ not exceeding `10 Crore and net worth not exceeding `25 Crore, as on the last day of the previous ϐ Ǥ However, once above provisions become applicable to a listed entity at a later date, it shall ensure compliance with the same within 6 months from such date.

Once the above regulations become applicable to a listed entity, they shall continue to remain applicable till such time the equity share capital or the net-worth of such entity reduces ϐ ͵ ϐ .

Example: Ǥ ` 8 Crore, preference share capital of ` 5 Crore and net worth of ` 15 Crore as on 31st March, 2019. The Dz dz ȋ Ȍ ǡ ʹͲͳͷǤ Ǥ ǡ `15 Crore, preference share capital to `8 Crore and net worth to `35 Crore.

As per Regulation 15 of the SEBI (LODR) Regulations, 2015, corporate governance provisions shall apply to listed companies subject to certain exceptions.

ȏ ͳ͹ ʹ͹Ȑ entity having: - Paid-up equity share capital not exceeding `10 Crore, and

- Net worth not exceeding `ʹͷ ǡ ϐ Ǥ

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5.6 In the given case Situation–I:

– Paid up equity share capital is ` 8 Crore i.e. not exceeding ` 10 Crore AND

– Net worth is `15 Crore i.e. not exceeding `25 Crore.

ǡ ͳ͹ȋͷȌ Ƭ

Management does not apply to GK Ltd. Situation-II:

If paid-up equity share capital is increased to `15 Crore and Net worth is increased to `35 ǡ ͳ͹ȋͷȌ Ƭ shall become applicable as it will exceed the criteria of share capital and net worth.

Note: Preference share capital does not have any bearing on the instant case.

PAST EXAMINATION QUESTIONS

ͳǣ Ǯ ϐ ǯ Ǥ Hint: Refer to Regulation 6 of the SEBI (LODR) Regulations, 2015.

Question 2: State any four regulations of the SEBI (LODR) Regulations, 2015.

Hint: Refer Regulations 6, 9, 10 and 11.

Question 3: ȋ Ȍ ǡ ʹͲͳͷǤ

ȏ Ǥ ʹͲͲ͸ ȋͶ ȌȐ [Dec. 2008 (5 Marks)] ȏ ʹͲͳʹ ȋͷ ȌȐ

Hint: Refer Regulations 3, 6 , 9 , 10, 11 and 12.

QUESTIONS FOR PRACTICE

Question 1: State the applicability of the SEBI (LODR) Regulations, 2015.

Hint: Refer to Regulation 3 of the SEBI (LODR) Regulations, 2015.

Question 2: ȋ Ȍ ǡ ʹͲͳͷ Dz dzǤ Hint: Refer to Regulation 9 of the SEBI (LODR) Regulations, 2015.

BOARD OF DIRECTORS

Composition Composition of board of directors of the listed entity shall be as follows: of board of Board of directors shall have an optimum combination of and nondirectors with at least 1 woman director and not less than ͷͲΨ [Regulation 17(1)] board of directors shall comprise of Ǧ .

However, the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least 1 independent woman director by April 1, 2020 .

Explanation: The top 500 and 1000 entities shall be determined on the basis of market ǡ ϐ Ǥ

Where

the chairperson of the board of directors is a Ǧ , at least 1/3rd of the board of directors shall comprise of independent directors.

Where the listed entity Ǧ , at least ͷͲΨ shall comprise of independent directors.

However, where the regular non-executive chairperson is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors, at least half of the board of directors of the listed entity shall consist of independent directors.

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5.7

The board of directors of the top 1000 listed entities (w.e.f. from April 1, 2019) and

the top 2000 listed entities (w.e.f. April 1, 2020) shall comprise of not less than 6 directors.

Explanation: The top 1000 and 2000 entities shall be determined on the basis of ϐ Ǥ

Where

the listed company has outstanding , at least half of the board of directors shall comprise of independent directors.

Explanation: ‘Related to any promoter’ shall have the following meaning:

- If the promoter is a listed entity, its directors other than the independent directors, its employees or its nominees shall be deemed to be related to it.

- If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it.

ǣ Ǥ Ƭ Ǥ comes under the category of top 1,000 listed entities. The details of directors of the ǣ Name of the Director

Designation

Mr. Sumit Malhotra

Whole time Director

Ǥ

Managing Director

Mr. Dilip Cherian

Independent Director

Mr. Aditya Somani

Independent Director

Ms. Lila Paul

Independent Director

Ǥ

Independent Director

Mr. Nayan Bajaj

Ǧ ȋ Ȍ

ȋ Ȍ ǡ ʹͲͳͷǡ of composition of Board of directors of the Bajaj Consumer Ltd. ͳ͹ȋͳȌ ȋ Ȍ ǡ ʹͲͳͷ and the fact that Bajaj Consumer Ltd. comes under the category of top 1,000 listed entities, answer to given case is as follows: (1) The board of directors shall comprise of not less than 6 directors. This condition is ϐ ͹ Ǥ

(2) The board of directors shall have at least 1 independent woman director. This condition ϐ Ǥ Ǥ

(3) Not less than 50% of the board of directors shall comprise of non-executive directors. ϐ ͹ ͷ Ǧ directors.

(4) Where the chairperson of the board of directors is a non-executive director, at least ͳȀ͵ Ǥ ͹ ͵ Ǥ ϐ Ͷ Ǥ

ϐ Ǥ of the SEBI (LODR) Regulations, 2015 with regard to ‘composition of board of directors’.

No listed entity shall appoint a person or continue the directorship of any person as a non who has attained the age of 75 years unless a special resolution is [Regulation 17(1A)] passed to that effect, in which case the explanatory statement annexed to the notice for such ϐ Ǥ Age limit of directors

ǣ Ǥ ͹͸ Ǧ Ǥǡ Ƭ Ǥ

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5.8

company proposes to appoint him as a director in EGM by passing ordinary resolution. ȋ Ȍ ǡ ʹͲͳͷǡ Ǥ Ǥ

Chairperson of the board [Regulation 17(1B)]

ͳ͹ȋͳ Ȍ ȋ Ȍ ǡ ʹͲͳͷǡ ͹ͷ Ǧ special resolution. Thus, Mr. Vardhman Joglekar cannot be appointed as non-executive director by passing ordinary resolution. Further explanatory statement annexed to the notice of the ϐ Ǥ With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson Ȃ (a) be a non-executive director;

(bȌ ϐ ϐ Dz dz ϐ ǡ ʹͲͳ͵Ǥ

ϐ ϐ Ǥ

shareholders for appointment of director [Regulation 17(1C)]

Explanation: The top 500 entities shall be determined on the basis of market capitalization, ϐ Ǥ

The listed entity shall ensure that approval of shareholders for appointment of a person on the Board of Directors is taken at the next general meeting or within a time period of 3 months from the date of appointment, whichever is earlier.

No. of meeting of The board of directors shall meet at least 4 times a year, with a maximum time gap of 120 directors days between any two meetings.

[Regulation 17(2)] Example 1: During the year 2021, Bahubali Ltd. (listed entity) held four meetings of ʹ ǡ ʹͲʹͳǡ ͳͲ ʹͲʹͳǡ ͳ͸ ǡ ʹͲʹͳǡ ͵ͳ ǡ ʹͲʹͳǤ ȋ Ȍ Regulations, 2015. ͳ͹ȋʹȌ ȋ Ȍ ǡ ʹͲͳͷǡ minimum 4 meetings of its Board of Directors every year. The gap between two board meetings should not be more than 120 days.

As per facts given in case, gap between various meetings are shown below: 2nd January to 10th May

10th May to 16th October

16th October to 31st December

ǣ ͳʹ͹ : 158 days ǣ ͹ͷ

Thus, from the above calculation, it is clear that company has contravened provisions of SEBI (LODR) Regulations, 2015 for the meeting held on 16th October, 2021.

ʹǣ Ǥ the year 2019:

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First Meeting

– 15.1.2019

Second Meeting

– 25.4.2019

Third Meeting

– 31.7.2019

Fourth Meeting

– 21.10.2019

5.9

ǡ ͳͲǤͳͳǤʹͲͳͻǤ ȋ Ȍ Regulations, 2015? ͳ͹ȋʹȌ ȋ Ȍ ǡ ʹͲͳͷǡ a minimum 4 meetings of its Board of Directors every year. The gap between two board meetings should not be more than 120 days.

As per facts given in case, gap between various meetings are shown below: 15.1.2019 to 25.4.2019 ʹͷǤͶǤʹͲͳͻ ͵ͳǤ͹ǤʹͲͳͻ

͵ͳǤ͹ǤʹͲͳͻ ʹͳǤͳͲǤʹͲͳͻ

: 100 days ǣ ͻ͹ : 92 days

In case of fourth meeting date of original meeting will be taken and not the date of adjourned meeting. This is so because adjourned meeting is mere continuance of original meeting.

Since Jolly Ltd. has held all the four Board Meeting during the calendar year 2019 and the gap between any two meetings is not more than 120 days, it has complied with Regulation ͳ͹ȋʹȌ ȋ Ȍ ǡ ʹͲͳͷǤ

The quorum for every meeting of the board of directors of the top 1000 listed entities with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be 1/3rd of its total strength or 3 directors, whichever is higher, including at least [Regulation 17(2A)] one independent director.

Quorum for meetings of Board

Explanation: The participation of the directors by video conferencing or by other audiovisual means shall also be counted for the purposes of such quorum.

Example: Star Gen Ltd., a listed company, held a meeting of its Board of directors on ͵ͳ ǡ ʹͲʹͳ ϐ Ǥ ͳʹ its board, only 3 directors were present at the commencement of meeting. Out of 3 directors that are present at the meeting one director is independent director. State Ǥ SEBI (LODR) Regulations, 2015. ͳȀ͵ or 3 directors, whichever is higher, including at least one independent director.

ǡ ͳʹ ͳȀ͵ ͶǤ ǡ 4 directors should be present at the meeting whereas only 3 directors are present in the ͳ͹ȋʹ Ȍ of the SEBI (LODR) Regulations, 2015.

The board of directors shall periodically review compliance reports pertaining to all laws compliance applicable to the listed entity, prepared by the listed entity as well as steps taken by the reports listed entity to rectify instances of non-compliances.

[Regulation 17(3)] Plans for orderly The board of directors of the listed entity shall satisfy itself that plans are in place for orderly succession for succession for appointment to the board of directors and senior management. appointment of BoD [Regulation 17(4)]

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5.10

Code of conduct The board of directors shall lay down a code of conduct for all members of board of for board of directors and senior management of the listed entity. directors The code of conduct shall suitably incorporate the duties of independent directors [Regulation 17(5)] as laid down in the Companies Act, 2013.

The board of directors shall recommend all fees or compensation paid to non-executive Fees or directors, including independent directors and shall require approval of shareholders compensation for in general meeting.

Board of directors [Regulation 17(6)] The requirement of obtaining approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government.

The approval of shareholders which requires for fees or compensation to non-executive

directors shall specify the limits for the maximum number of stock options that may Ǧ ǡ ϐ Ǥ

Approval of shareholders by special resolution shall be obtained every year, in which

the annual remuneration payable to a single non-executive director exceeds ͷͲΨ the total annual remuneration payable to all non-executive directors, giving details of the remuneration.

Independent directors shall not be entitled to any stock option.

Fees

or compensation payable to members of the promoter group, shall be subject to the approval of the shareholders by special resolution ǡ Ȃ (i) Annual remuneration payable to such executive director exceeds ` 5 Crore or ʹǤͷΨ of the listed entity, whichever is higher.

(ii) Where there is more than one such director, the aggregate annual remuneration to such directors exceeds ͷΨ of the listed entity.

Approval of the shareholders shall be valid only till the expiry of the term of such director.

Explanation: ϐ ͳͻͺ ǡ ʹͲͳ͵Ǥ Example 1: X Ltd., a listed entity has policy to pay fees or compensation to directors as recommended by its Whole-time Chairman.

ͳ͹ȋ͸Ȍ ȋ Ȍ ǡ ʹͲͳͷǡ board of directors shall recommend all fees or compensation paid to non-executive directors. Hence, policy of the company is not in accordance with the provisions of the SEBI (LODR) Regulations, 2015.

ʹǣ Ǥ Ǧ Ǥǡ Ǥ The company intends to pay him annual remuneration of ` 5 Lakh. Total annual Ǧ ` 9 Lakh.

Approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration payable to a single non-executive director exceeds 50% of the total annual remuneration payable to all non-executive directors. As per given facts, remuneration payable to Mr. Pavan Jha exceeds prescribed limit and hence remuneration of ` 5 Lakh can be paid to him only after obtaining the approval of shareholder by way of special resolution every year.

Example 3: Y Ltd. a listed entity desires to grant stock options to its independent director. Can company do so?

ͳ͹ȋ͸Ȍ ȋ Ȍ ǡ ʹͲͳͷǡ shall not be entitled to any stock option. Hence, Y Ltd. cannot grant stock options to its independent director.

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5.11

Ͷǣ Ǥ Ǥǡ Ǥ ϐ Ǥ `60 Crore as per Section 198 of the Companies Act, 2013. The board of directors of the company recommended monthly remuneration of ` Ͷͷ Ǥ remuneration payable to Mr. Rajesh Bhumkar. ͳ͹ȋ͸Ȍ ȋ Ȍ ǡ ʹͲͳͷǡ payable to executive directors who are promoters or members of the promoter group, shall be subject to the approval of the shareholders by special resolution in general meeting, if annual remuneration payable to such executive director exceeds ` 5 Crore or 2.5% of net ϐ ǡ Ǥ ʹǤͷΨ ϐ α ` ͸Ͳ έ ʹǤͷΨ α ` 1.5 Crore α ` Ͷͷ έ ͳʹ α ` 5.4 Crore

Remuneration payable to Mr. Rajesh Bhumkar exceeds both the amount that is 2.5% of the net ϐ ϐ `5 Crore; hence he can be paid monthly remuneration of `45 lakh only after obtaining approval of shareholders by way of special resolution in general meeting.

ϐ Part Other A of Schedule II.

respect to Board ϐ ϐ ϐ of Directors ϐ ϐ Ǥ [Regulation 17 The listed entity shall lay down procedures to inform members of board of directors (7) to (11)] about risk assessment and minimization procedures.

The board of directors shall be responsible for framing, implementing and monitoring

the risk management plan for the listed entity.

The evaluation of independent directors shall be done by the entire board of directors

Ȃ

(a) Performance of the directors; and

(b) Fulfilment of the independence criteria as specified in these regulations and their independence from the management.

However, in the above evaluation, the directors who are subject to evaluation shall not participate.

The

statement to be annexed to the notice as referred to in Section 102(1) of the Companies Act, 2013 for each item of special business to be transacted at a general meeting shall also set forth clearly the recommendation of the board to the shareholders ϐ Ǥ PAST EXAMINATION QUESTIONS

Question 1: Nikhil Ltd., a listed company is confused about the composition of Board of directors, seeks ȋ Ȍ ǡ ʹͲͳͷǤ Ǥǡ regulation.

[Dec. 2015 (6 Marks)] Hint: ͳ͹ȋͳȌ ȋ Ȍ ǡ ʹͲͳͷǤ

Question 2: Neo Engineering Ltd. is in the list of top 1000 listed entity on the basis of market capitalization.

What would be the composition of the Board?

[Dec. 2019 (4 Marks)] Hint: ͳ͹ȋͳȌ ȋ Ȍ ǡ ʹͲͳͷǤ

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5.12

QUESTIONS FOR PRACTICE ͳǣ the SEBI (LODR) Regulations, 2015.

Hint: ͳ͹ȋʹȌ ȋ Ȍ ǡ ʹͲͳͷǤ

ʹǣ the SEBI (LODR) Regulations, 2015.

Hint: ͳ͹ȋʹ Ȍ ȋ Ȍ ǡ ʹͲͳͷǤ Ƭ

ϐ Ǥ Composition of audit committee Audit committee shall have minimum 3 directors as members.

[Regulation 18(1)] At least 2/3rd members of audit committee shall be independent directors and in case of a listed entity having outstanding SR equity shares, the audit committee shall only comprise of independent directors.

All members of audit committee shall be ϐ

and at least one member shall have accounting or related ϐ .

Chairperson of the audit committee shall be an independent director Ȁ

shall be present at AGM to answer shareholder queries.

Company Secretary shall act as the secretary to the audit committee.

ϐ ϐ function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee. However, occasionally the audit committee may meet without the presence of any executives of the listed entity.

Explanation 1: Financially literate shall mean the ability to read and understand basic ϐ i.e. ǡ ϐ ǡ ϐ Ǥ

Explanation 2: ϐ ϐ ǡ ϐ ǡ ǯ ϐ ǡ ϐ ǡ ϐ ϐ ϐ ϐ responsibilities.

Example 1: Reliance Power Ltd., a listed entity has total 9 directors. The company appointed following person as a member of Audit Committee: Name of the Director

Category

Ǥ

Chairman, Independent Director

Ǥ

Independent Director

Mrs. Rashna Khan

Independent Director

Mr. Raja Gopal

Whole-time Director

ȋ Ȍ ǡ ʹͲͳͷǡ of composition of Audit Committee of Reliance Power Ltd. Keeping in view the provisions of the Regulation 18(1) of the SEBI (LODR) Regulations, 2015, answer to given case is as follows:

(1) Audit committee shall have minimum 3 directors as members. This condition is ϐ Ͷ Ǥ

(2) ʹȀ͵ Ǥ ϐ ͵ Ǥ

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5.13

(3) Chairperson of the audit committee shall be an independent director. This condition ϐ Ǥ who is independent director.

ϐ ǡ Ǥ of the SEBI (LODR) Regulations, 2015 with regard to ‘composition of audit committee’.

Example 2: The composition of Audit Committee of MKC Ltd., an unlisted public company, as on 31.3.2019 comprised of 7 Directors including 4 Independent Directors.

The majority of the members of the Audit Committee has the ability to read and ϐ ϐ Ǥ stock exchange in the month of August 2019. Referring to the regulations of SEBI [LODR] Regulations 2015, decide whether the existing Audit Committee can continue after listing of its Securities?

According to Regulation 18 of SEBI (LODR) Regulations, 2015, every listed entity shall ϐ ǣ (a) Minimum three directors as members.

(b) Two-thirds of the members of audit committee shall be independent directors.

(cȌ ϐ ϐ Ǥ

As per the facts of the question, MKC Ltd., listed its securities in a recognized stock exchange in the month of August, 2019. In order to comply with the requirements of SEBI (LODR) Regulations, 2015, the company requires to do the following:

(iȌ Ǥ ͹ ǡ compliance.

(ii) The audit committee has 4 directors as independent directors. However, once the ǡ ͷ ȏ͹ έ ȋʹȀ͵ȌȐ Ǥ Thus, they need to change the composition of audit committee once the company gets listed on stock exchange.

(iii) In the existing audit committee though majority of the members have the ability to ϐ ϐ Ǥ ǡ ϐ ϐ Ǥ Hence, it is required that the company should appoint at least one member in the audit ϐ Ǥ

Example 3: As at 1.4.2019, the composition of the Board of Directors of Apex Ltd., an unlisted company comprised of 7 directors as under: S. No.

Name

Designation

1

Mr. X

ȋ Ǧ Ȍ

2

Mr. Y

ȋ Ƭ Ǧ Ȍ

3

Mrs. Z

Women Director (Non-Independent)

4

Mr. A

Independent

5

Mr. B

Independent

6

Mr. C

Independent

7

Mr. D

Independent

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As at 1.4.2019, the constitution of the Audit Committee comprised of the following directors: Name

Designation

Mr. Y

Chairman

Mr. X

Member

Mrs. Z

Member

Mr. Y

Member

ϐ ϐ Ǥ ǡ ʹͲʹͲǡ Public Issue (IPO) and got its shares listed on a recognized Stock Exchange. Referring ȋ Ƭ Ȍǡ ǡ ʹͲͳͷǣ (iȌ ǡ ϐ constituted? (ii) Whether the present constitution of the Audit Committee is in order and whether it can continue post listing of its securities in the Stock Exchange?

Hint: Existing audit committee cannot continue after listing of its securities. The company will have to comply with Regulation 18 of the SEBI (LODR) Regulations, 2015.

Audit committee shall meet at least 4 times in a year and not more than 120 days Number of shall elapse between two meetings. meetings and

Quorum for audit committee meeting shall either be 2 members or 1/3rd of the Audit Committee members of the audit committee, whichever is greater, with at least 2 independent meetings directors.

[Regulation 18(2)] Audit committee shall have powers to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.

Role of audit Role of the audit committee and the information to be reviewed by the audit committee committee ϐ Ǥ [Regulation 18(3)] Nomination and remuneration committee [Regulation 19]

Board

of directors shall constitute the Nomination & Remuneration Committee as follows: - Committee shall comprise of at least 3 directors.

- All directors of the committee shall be Ǧ directors.

- At least ͷͲΨ shall be independent directors.

- In case of a listed entity having outstanding , 2/3rd members of the Nomination & Remuneration Committee shall comprise of independent directors.

Chairperson

of the Nomination & Remuneration Committee shall be an independent director.

However, the chairperson of the listed entity, whether executive or non-executive, may be appointed as a member of the Nomination & Remuneration Committee and shall not chair such committee.

The

quorum for a meeting of the nomination and remuneration committee shall be either 2 members or 1/3rd members of the committee, whichever is greater, including at least one independent director in attendance.

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Nomination & Remuneration Committee shall meet at least once in a year.

of the Nomination & Remuneration Committee may be present at the AGM, to answer the shareholders’ queries. However, it shall be up to the chairperson to decide who shall answer the queries.

Chairperson

Ƭ

D of the Schedule II.

ϐ Part

ͳǣ Ǥ ͻ Ǥ Ƭ 5 directors out of 9 directors as member of the said committed. Among the 5 directors ͵ Ǧ Ǥ Ƭ

by KUAN Ltd. Regulation 19 provides that Nomination & Remuneration Committee shall comprise of at least 3 directors and all directors of the committee shall be non-executive directors.

As all the directors in Nomination & Remuneration Committee of KUAN Ltd. are not nonexecutive directors, composition of committee is not in accordance with provisions of the SEBI (LODR) Regulations, 2015

Example 2: Mr. Ashok Miskin is the Chairperson of the KPIT Ltd. The Company recently Ƭ Remuneration Committee. Mr. Ashok Miskin will be appointed as Chairperson of the Ǥ Ǥ Ƭ Ǥ Regulation 19 provides that the Chairperson of the listed entity, whether executive or nonexecutive, may be appointed as a member of the Nomination & Remuneration Committee but shall not chair such committee.

Thus, Mr. Ashok Miskin who is Chairperson of the KPIT Ltd. can be appointed as member of the Nomination & Remuneration Committee but he cannot be appointed as Chairperson of the said committee.

͵ǣ Ǥ Ǥ as a Chairman of the Ƭ Ǥ company which held on 31st ʹͲʹͳǡ Ǥ Ǥ Ǥ

shareholder. Comment

Stakeholders Relationship Committee [Regulation 20]

Regulation 19 provides that Chairperson of the Nomination & Remuneration Committee may be present at the AGM, to answer the shareholders’ queries. However, it shall be up to the chairperson to decide who shall answer the queries. Thus, on the request of the Chairperson of the Nomination & Remuneration, if Company Secretary replies to query raised by shareholder there will be no violation of provisions of the SEBI (LODR) Regulations, 2015.

Chairperson of this committee shall be a Ǧ

ϐ look into various aspects of interest of shareholders, debenture holders and other security holders. .

In case of a listed entity having outstanding , 2/3rd of the nomination

and remuneration committee shall comprise of independent directors.

At

least 3 directors, with at least one being an independent director, shall be members of the Committee.

Chairperson of the Stakeholders Relationship Committee shall be present at the AGM

to answer queries of the security holders.

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Stakeholders Relationship Committee shall meet at least once in a year.

of the Schedule II.

ϐ Part D

Example: Mr. Ǥ Ƭ

Ǥ ȋ Ȍ ǡ ʹͲͳͷ ǫ Regulation 19 provides that Chairperson of the Nomination & Remuneration Committee may be present at the AGM. Regulation 20 provides that Chairperson of the Stakeholders Relationship Committee shall be present at the AGM. Thus, attendance of Chairperson of the Stakeholders Relationship Committee is mandatory but not for Chairperson of the Nomination & Remuneration Committee.

As per the facts given in case, it is not necessary for Mr. A to attend the AGM but Mr. B must attend the AGM.

Risk Management Board of directors shall constitute a Risk Management Committee.

Committee Risk Management Committee shall have minimum 3 members with majority of [Regulation 21] them being members of the board of directors, including at least one independent director.

Vigil Mechanism [Regulation 22]

In case of a listed entity having outstanding , at least 2/3rd members

of the Risk Management Committee shall comprise independent directors.

Chairperson of the Risk management committee shall be a member of the board of

directors and senior executives of the listed entity may be members of the committee.

Risk management committee shall meet at least twice in a year.

Quorum for a meeting of the Risk Management Committee shall be either 2 members

or 1/3rd members of the committee, whichever is higher, including at least one member of the board of directors in attendance.

Meetings

of the risk management committee shall be conducted in such a manner that on a continuous basis not more than 180 days shall elapse between any two consecutive meetings.

Provisions of relating to Risk Management Committee shall be applicable to top 1000

ϐ Committee and may delegate monitoring and reviewing of the risk management ϐ ϐ Ǥ ǡ Management Committee shall mandatorily include the performance of functions ϐ Ǥ listed entities, determined on the basis of market capitalization, as at the end of the ϐ Ǥ

Risk

Management Committee shall have powers to seek information from any employee, obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary.

Ȁ and employees to report genuine concerns.

Vigil

mechanism shall provide for adequate safeguards against victimization of directors or employees or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

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Ǯ ǯȀǮ ǯǣ The concept of ‘Whistle ǯȀǮ ǯ Ǥ there are many employees at various levels in the organization who feel that something is Ǥ Ǥ ǡ ǡ ǡ Ǥ Ȁ mechanism to report such corruption, violation of law, wastages, and unethical practices is known as vigil mechanism.

In many cases when lower level employee reports such incidence and they are victimized Ȃ Ǥ incidence hence regulation provides that vigil mechanism shall provide adequate safeguards against victimization of directors or employees or any other person who avail the mechanism.

PAST EXAMINATION QUESTIONS

ͳǣ ϐ ǡ listing regulations.

[Dec 2010 (7 Marks)] Hint: Refer to Regulation 18 of the SEBI (LODR) Regulations, 2015.

ʹǣ ϐ Ǯ ǯ Ǥ

ȏ ʹͲͳ͵ ȋͻ ȌȐ Hint: Refer to Regulation 18 of the SEBI (LODR) Regulations, 2015. ͵ǣ ǣ

ȏ ʹͲͳͷ ȋͶ ȌȐ

Hint: Refer to Regulation 22 of the SEBI (LODR) Regulations, 2015.

QUESTIONS FOR PRACTICE

ͳǣ ȋ Ȍ ǡ ʹͲͳͷ Dz Ƭ dzǤ Hint: Refer to Regulation 19 of the SEBI (LODR) Regulations, 2015.

Question 2: ȋ Ȍ ǡ ʹͲͳͷ Dz dzǤ Hint: Refer to Regulation 20 of the SEBI (LODR) Regulations, 2015.

Question 3: ȋ Ȍ ǡ ʹͲͳͷ Dz dzǤ Hint: Refer to Regulation 21 of the SEBI (LODR) Regulations, 2015.

OBLIGATIONS WITH RESPECT TO RELATED PARTY TRANSACTIONS

ϐ ʹȋ76) of the Companies Related Party Act, 2013 or under the applicable accounting standards.

[Regulation 2(zb)]

Any person or entity belonging to the promoter or promoter group of the listed entity

and holding ʹͲΨ in the listed entity shall be deemed to be a related party.

Related Party Ȃ [Section 2(76)] (i) A director or his relative. ȋ ϔ (ii) A KMP or his relative.

Companies Act, (iiiȌ ϐ ǡ ǡ Ǥ 2013)

(iv) A private company in which a director or manager or his relative is a member or director. (v) A public company in which a director or manager is a director and holds along with his relatives, more than ʹΨ Ǧ .

Securities Laws & Capital Markets (SLCM) | STUDY MATERIAL AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: : : : : : :

N.S. Zad , Divya Bajpai TAXMANN July 2022 3rd Edition 9789356223127 512 PAPERBACK

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