Sebi to align governance norms with Cos Act

The Securities and Exchange Board of India (Sebi) will align its corporate governance norms in accordance with amendments to the Companies Act legislated in May this year by Parliament.
The ministry of corporate affairs (MCA) wrote to Sebi after the Companies Act was amended asking it to align its norms with the law.

According to the amended Companies Act, 50 per cent of minority shareholders need to vote for a resolution against the 75 per cent required by Sebi under Clause 49 of listing rules.
This will strike the correct balance between interested and disinterested shareholders.

“By reducing the threshold, the ministry and regulator seem to have yielded to corporate pressure. This is a retrograde step, as it weakens minority shareholders. A good company should ideally not have any related-party transaction.

According to the MCA, the term related party refers only to those related contractually to the resolution being passed. On the other hand, Clause 49 provides all entities under the definition of related parties must abstain from voting, irrespective of whether they are a party to a particular transaction.

With the amendments, the family and promoter entities not directly involved in the transaction can vote on the transaction, since they are not interested parties.

Sebi amended the approval from special resolution to ordinary resolution, the relief would be limited since, according to Clause 49, the related party would still not be able to vote on any resolution irrespective of whether it was a related party in the context of that particular transaction.

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eMinds Legal is a Corporate Law Firm based in Gurgaon, India specializing in Corporate Legal, Corporate Secretarial and Compliance. The Firm comprises of a team of Corporate Lawyers and Company Secretaries with in-depth subject matter knowledge and participative industry experience of over 15 years.

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