By Munmi Phukon, Principal Manager, Vinod Kothari & Company (firstname.lastname@example.org)
MCA vide notification dated May 7, 2018 has notified 28 Sections of the Companies (Amendment) Act, 2017 (Amendment Act) in Phase III. The same has been made effective from May 7, 2018. SEBI also, pursuant to the recommendations made by Uday Kotak Committee Report, notified the SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 (Amendment Regulations) on May 9, 2018. Though the amended sections of the Amendment Act are effective immediately, the applicability of the Amendment Regulations are not immediate but shall be on specific dates provided for specific regulation. The reason behind providing such different applicable dates can be taken as to provide a smooth transitioning period so that the amendments can be complied with or proper mechanism can be put in place before the same comes into force. In view of the same, the companies are required to take up certain actions with immediate effect including obtaining approval of the shareholders. Since the companies are planning to convene their AGMs of FY 2017-18 in next few months, this article covers what all additional items may be taken up to such AGM in view of the recent regulatory changes as aforesaid.
A. Additional matters under the Companies (Amendment) Act, 2017
In view of the amendment Notification, the following additional matters may be taken up in the AGM 2018:
- Considering the amendments made in Section 185, the companies may seek approval of shareholders by way of a special resolution in the ensuing AGM if it is intending to provide loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by following persons/ entities:
- any private company of which any such director is a director or member;
- any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
- any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions o instructions of the Board, or of any director or directors, of the lending company
The explanatory statement to the notice shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact. Please note the amendment shall not affect the private companies covered under the MCA Notification dated 5th June, 2015 providing exceptions/ exemptions from applicability of certain provisions of the Act.
- The companies may further remove the item pertaining to ratification of the appointment of the statutory auditors in view of the omission of the proviso to section 139(1) of the Act.
B. Additional matters under the Amendment Regulations
In view of the proposed amendments in the Listing Regulations, the following additional matters seem to get included in the notice of the ensuing AGM 2018:
- In terms of Regulation 17 (1) (a), the listed companies shall have to appoint woman independent director. Though the requirement was already there in the Act as well as the Listing Regulations earlier, however, the same was limited to only a woman director and such director was not necessarily required to be an independent director too. Therefore, companies having a non- independent woman director shall be required to take up the same in the AGM. The amendment shall be applicable based on the market capitalization of the company i.e. if the company falls under top 500 listed entities then the same shall be effective from April 1, 2019 and if it falls under top 1000 listed entities then w.e.f. April 1, 2020.
- Regulation 17 (1) (c) requires top 1000 listed entities to have minimum 6 directors w.e.f. April 1, 2019 and top 2000 listed entities w.e.f. April 1, 2020. Though most of the listed entities shall already be in compliance of this requirement, however, the ones who have 5 or lesser number of directors will be required to appoint in the current FY if such listed entity falls in the list of top 1000 entities.
- Regulation 17 (6) (ca) provides the requirement to obtain approval of shareholders by special resolution every year, in which the annual remuneration payable to a single non-executive director exceeds fifty per cent of the total annual remuneration payable to all non-executive directors, giving details of the remuneration thereof. Since the clause uses the word ‘payable’, it seems to indicate that listed entities who will have payable to single NED annual remuneration for FY 2018-19 exceeding 50% of that payable to all other NEDs. Therefore, such listed entities will have to obtain shareholders’ approval by special resolution every year. Since the provision is effective from April 1, 2019, if there is a certainty on the same, the approval shall be obtained in AGM 2018 itself enabling it to make payment to such NEDs for FY 2018-19.
- Regulation 17 (1A) requires a special resolution for appointing/ continuing the directorship of any person as a non-executive director who has attained the age of seventy five The explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such a person. The provisions shall be effective from April 1, 2019 and also applicable to all listed entities. Since the provision includes continuation of the directorship also, in case the NEDs/ IDs of such listed entities are individuals who have already attained the age of seventy five years or will be attaining the age before April 1, 2019, such listed entities will have to seek approval of shareholders by special resolution in the ensuing AGM itself .
- In terms of Regulation 17 (6) (e), if the fee or compensation payable to executive directors who are promoters or members of promoter group is in excess of the thresholds i.e. rupees 5 crore or 2.5% of the net profits for one such director, whichever is higher and 5% of the net profit in aggregate for all such directors, then the listed entity shall have to obtain approval of shareholders by special resolution. Since the same is effective from April 1, 2019, the approval shall be obtained in the ensuing AGM itself enabling the company to pay remuneration to that extent for FY 2018-19. The listed entities which had already taken approval of the shareholders for payment of remuneration within the limits provided under the Act shall also get covered under this clause if the resolution so passed was not a special resolution.
Apart from the aforesaid, we have separately covered the actionables arising out of the aforesaid amendments. The actionables arising out of the Companies (Amendment) Act, 2017 can be viewed at http://vinodkothari.com/blog/actionables-from-28-notified-sections/ and the actionables arising out of the Amendment Regulations can be viewed at http://vinodkothari.com/blog/actionables-for-lodr-amendment-regulations-2018/.