India: SEBI Partially Accepts Kotak Committee's Recommendations On Corporate Governance


In June 2017, the Securities and Exchange Board of India ("SEBI") constituted a committee on corporate governance under the chairmanship of Mr. Uday Kotak, to improve standards of corporate governance of listed entities in India (the "Kotak Committee"). The Kotak Committee submitted its report on October 5, 2017, detailing several recommendations (the "Kotak Committee Recommendations"). Thereafter, SEBI invited public comments to the Kotak Committee Recommendations, which were subsequently considered by the board of directors of SEBI (the "Board") in its meeting on March 28, 2018.


By way of a press release1, the decision of the Board on the Kotak Committee Recommendations was released to the public (the "Press Release"). The Board accepted several recommendations in their entirety, and some recommendations with certain modifications. Further, the Board also referred certain recommendations to other agencies and regulators, since the relevant subject matters therein required inputs and considerations from such other agencies.

This alert focuses on the Kotak Committee Recommendations which were mentioned in the Press Release, and we caution that other recommendations set out in the Kotak Committee's report did not find mention in the Press Release and the view of the Board in relation to those other recommendations is unclear.

In relation to those Kotak Committee Recommendations that were accepted by the Board with modifications, we have only highlighted the recommendation, to the extent accepted by the Board, without elaborating on the extent to which the original Kotak Committee Recommendation was modified.

While the following recommendations are those that were accepted by the Board (whether entirely or with modifications), the ultimate manner in which they will be codified into law remains to be seen.


The Board accepted the following recommendations in relation to directors.

3.1. Maximum directorships

The maximum number of listed companies in which a person may be a director should be reduced from 10 (ten) to 8 (eight) by April 1, 2019 and from 8 (eight) to 7 (seven) by April 1, 2020.

3.2. Minimum board size

There must be a minimum of 6 (six) directors, instead of the current 3 (three) directors, on the board of directors of the top 1,000 (one thousand) listed companies by market capitalization by April 1, 2019 and of the top 2,000 (two thousand) listed companies by market capitalization by April 1, 2020.

3.3. Independent woman director

There must be at least 1 (one) independent woman director on the board of directors of the top 500 (five hundred) listed companies by market capitalization by April 1, 2019 and of the top 1,000 (one thousand) listed companies by April 1, 2020. Currently, every listed company is required to have only 1 (one) woman director on its board of directors, irrespective of the nature of directorship.

3.4. Role separation

The roles of a chief executive officer or managing director and that of a chairperson must be separated, and must not be vested in the same person, in respect of the top 500 (five hundred) listed companies by market capitalization. Presently, it is stated that the same person shall not concurrently undertake both roles unless the articles of association of the listed company provide otherwise, or the listed company does not undertake multiple businesses.

3.5. Board of directors of subsidiaries

The current requirement of having at least 1 (one) independent director of the listed company on the board of directors of its Indian unlisted material subsidiaries should be extended to all unlisted material subsidiaries, whether or not incorporated in India, whose income or net worth exceeds 20% (twenty per cent) of the consolidated income or net worth of the listed company.


4.1. The Board considered the various Kotak Committee Recommendations on the subject of independent directors and accepted the recommendations of the Kotak Committee relating to revising the eligibility criteria for a director to be an 'independent director', to additionally include the following:

  1. Such person must not form part of the 'promoter group' of the listed company;
  2. Such person must provide an undertaking of not being aware of any circumstance, existing or anticipated, that could impact his or her independence;
  3. The above declaration must be taken on record by the board of directors of the listed company after duly assessing the veracity of such declaration;
  4. There must be no "board inter-locks", which means that if A, being a non-independent director of a listed company X, is an independent director of company Y, then any non-independent director of company Y cannot be an independent director of the listed company X.


5.1. The Board considered the various Kotak Committee Recommendations on the subject of board committees and accepted the recommendations of the Kotak Committee relating to enhancing the role of the audit committee, nomination and remuneration committee, and the risk management committee, to the following extent.

  1. Audit committee

    The audit committee should be required to scrutinize the end utilization of funds of the listed company which have been infused into its subsidiaries (including its foreign subsidiaries), where the total amount of such infusion exceeds INR 100 crore (approximately USO 15.4 million) or 10% (ten per cent) of the asset size of the subsidiary, whichever is lower.
  2. Nomination and remuneration committee

    All payments to be made to the senior management, in whatever form, shall be recommended by the nomination and remuneration committee to the board of directors of the listed company. Further, senior management must include all members of the management who are one position below the chief executive officer, managing director, whole time director or manager, and must specifically include the company secretary and the chief financial officer.
  3. Risk management committee

    The requirement of a risk management committee should be extended to the top 500 (five hundred) listed companies, instead of the top 100 (one hundred) listed companies, currently. Further, the role of the risk management committee must cover cyber security and related risks.


The Kotak Committee recommended a number of changes governing the meetings and decision making by directors and shareholders, of which, the recommendations accepted by the Board, are set out below.

6.1. Quorum

The quorum for every board meeting should be increased from 2 (two) to 3 (three) directors or one-third of the total strength of the board of directors, whichever is higher, in respect of the top 1,000 (one thousand) listed companies by market capitalization by April 1, 2019 and the top 2,000 (two thousand) listed companies by April 1, 2020. This

is in variance with the Companies Act, 2013 which currently requires the quorum to at least be one-third of the total strength of the board of directors, or 2 (two) directors, whichever is higher.

6.2. Earlier annual general meetings

After the end of the financial year 2018-19, the annual general meetings should be held within 5 (five) months of the end of the financial year in respect of the top 100 (one hundred) listed companies by market capitalization (as at the end of the previous financial year).

6.3. Webcast of proceedings

With effect from the financial year 2018-19, there must be a live webcast of the annual general meetings of the top 100 (one hundred) listed companies by market capitalization.

6.4. Brand or royalty payments

Prior approval of the shareholders must be required for payments made by listed companies to related parties for brand usage or royalty exceeding 2% (two per cent) of the consolidated turnover of the listed company.

6.5. Related party voting

In all listed companies, related parties should be allowed to cast a negative vote in respect of any related party transaction, in line with the Companies Act, 2013.


The Board considered the Kotak Committee Recommendations on the subject of enhancing transparency and increased disclosures, and accepted the following recommendations.

7.1. Utilization of proceeds

Listed companies should disclose the utilisation of proceeds raised through preferential issuance and qualified institutional placements in their annual reports. Currently, such disclosure is only required in case of public issuance.

7.2. Auditor-related matters

In case of any resignation by the auditor, the listed company must disclose to relevant stock exchanges the detailed reasons for such resignation, as given by the said auditor.

The explanatory statement forming part of the notice sent to the shareholders calling for an annual general meeting where the statutory auditor is proposed to be appointed or re-appointed must include disclosures pertaining to the fees payable, the terms of appointment, the basis of recommendation and the credentials of the auditor.

7.3. Director expertise

Every listed company must disclose a chart or matrix setting out the expertise that it believes its directors should possess, as well as the expertise its board members actually possess. Further, the names of the relevant directors possessing such expertise must also be disclosed in the annual report prepared for the financial year ending March 31, 2020.

7.4. Disclosures on related party transactions

The Board accepted the following recommendations in connection with related party transactions, requiring:

  1. a listed company must make half-yearly disclosures of all related party transactions on a consolidated basis within 30 (thirty) days of publishing its half-yearly financial results; and
  2. a listed company must additionally disclose, as part of its annual report, all transactions with any person or entity belonging to the promoter group, holding 10% (ten per cent) or more of the shareholding of the listed company;

The Board also accepted the Kotak Committee Recommendation to change the definition of a "related party" expanding it, to include, any person or entity belonging to the promoter or the promoter group of the listed company and holding 20% (twenty per cent) or more of its shareholding.

7.5. Subsidiary- related disclosures

The Board considered a number of recommendations made by the Kotak Committee on disclosures pertaining to any subsidiaries of listed companies, and accepted the following.

  1. All listed companies must disclose their consolidated financial statements on a quarterly basis with effect from the financial year 2019-20. Currently, this is only on an annual basis.
  2. All unlisted subsidiaries of a listed company, and not just the unlisted material subsidiaries, must be required to periodically disclose to the board of the directors of a listed company, a statement of all the significant transactions and arrangements entered into by such unlisted subsidiaries.

Further, the Board also accepted to change the definition of a 'material subsidiary and broadening it to include any subsidiary whose income or net worth exceeds 10% (ten per cent) instead of 20% (twenty per cent) of the consolidated income or net worth of the listed company.

7.6. Secretarial audit

Every listed company and its unlisted material subsidiaries in India must compulsorily undertake a secretarial audit in line with the provisions of the Companies Act, 2013.


While many of the Kotak Committee Recommendations were accepted by the Board, the fate of the other recommendations remains unclear. Some of these relate to the recommendations on: (a) ensuring updation of the knowledge of the board of directors, induction and training of independent directors; (b) proper channelization of unpublished price sensitive information to promoters or controlling shareholders: (c) shareholder approval for filling casual vacancies of the office of any independent director; (d) enhanced disclosures pertaining to credit ratings, depository receipt holders or directors; as well as formats for disclosures, which are yet to be addressed.

Additionally, the Board also decided to refer some Kotak Committee Recommendations, including: (a) the recommendations on strengthening the role of the Institute of Chartered Accountants of India (the "ICAI"); (b) internal financial controls; (c) adoption of Indian Accounting Standards; (d) treasury stock, and governance aspects of public sector enterprises to other authorities and regulators such the ICAI and the Ministry of Finance, where the recommendations involved such authorities or regulators and necessitated their inputs.


The Board's acceptance of many of the Kotak Committee Recommendations is certainly a step in the right direction in improving the corporate governance of listed companies in India. Proper and disciplined implementation should also be expected to bring greater transparency, dissemination of vital information and enhanced protection to shareholders' interests.

However, certain recommendations including the requirement to ensure there are no "board inter-locks" as well as the increased supervision and disclosure requirements in relation to unlisted subsidiaries may pose practical challenges and may be cumbersome from an economic and operational perspective. Especially in the context of ensuring no "board inter­ locks", it is unclear as to how any existing board inter-locks will be treated, as no transition period has been provided.

It also remains to be seen how these amendments will be aligned, keeping in mind the existing provisions of the Companies Act, 2013, and how the concerns raised by the Ministry of Corporate Affairs of possible legislative overlaps and conflicts with the Companies Act, 2013, will be addressed.

However, we will only be able to ascertain the exact manner in which these recommendations will be adopted and implemented in due course of time and only after SEBI formally amends the various regulations. To paraphrase from a famous proverb, the devil will be in the details.


1. PR No. 09/2018, available at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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