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SEBI Tightens Rules on Independent Directors, Clarifies MF rules, Changes Investment Limits Amongst Other Key ChangesThe Securities and Exchange Board of India (SEBI), on 29 June 2021, revamped various regulations. The first pertaining to the appointment, removal, and remuneration of independent directors. The market regulator stated that the appointment, removal, and reappointment of independent directors shall take place via a special resolution which now requires 75% votes in favor as opposed to 51% previously. An independent directors appointment should be confirmed within 3 months or through the Annual General Meeting (AGM) whichever is earlier.

The Nomination and Remuneration Committee (NRC), which is responsible for the selection of and appointment of independent directors, should comprise two-thirds independent directors as opposed to a simple majority previously. They will also have to disclose and justify the skill set of the candidate while selecting them.

SEBI also stated that key managerial personnel and their relatives or employees of the promoter groups will have to observe a three-year cooling-off period before they get appointed as independent directors. 

It was also mentioned that if an independent director resigns from the board, the company is required to disclose the complete contents of the resignation letter with the exchanges. The new framework will come into effect on 1 January 2022.

SEBI also mentioned that Asset Management Companies (AMCs) will have to subscribe to their New Fund Offers (NFOs) based on the risk associated with the scheme to ensure more participation in the game. It had announced that the current regulation in which AMCs have to invest 1% of the amount raised during the NFO or Rs. 50,00,000, whichever is less, is no longer applicable. Such a move could mean that AMCs might have to invest larger amounts in riskier schemes, however, SEBI is yet to clarify the new norms pertaining to this. 

In a separate decision, SEBI changed the minimum investment limit for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) to Rs. 10,000 – Rs. 15,000 from Rs. 55,000. This move is expected to help increase retail participation and encourage more firms to come out with such investment products. 

Other Key Decisions that were taken by SEBI are:

  • Banks, other than scheduled commercial banks, can operate as investment bankers.
  • The informant mechanism reward was increased ten times to Rs. 10 crores with the aim to break down insider trading. 
  • Introduction of ‘accredited investors. 
    • According to the consultation paper released in February 2021, an investor can become an accredited investor if (primary residence of an individual cannot be counted in the net worth calculation): 
      1. Their annual income is at least Rs. 2 crores or,
      2. Their annual income is at least Rs. 1 crore and net worth is greater than Rs. 5 crores with at least Rs. 2.5 crores in financial assets or,
      3. Net worth at least Rs 7.5 crore with at least Rs 3.75 crore in financial assets 
      4. For Trusts and Corporates, net worth must be greater than Rs. 50 crores.
    • SEBI mentioned that accredited investors will have the benefit of investing in Alternative Investment Funds (AIF)/ Portfolio Management Services (PMS) products at a lower threshold than the one prescribed thereby allowing such investors greater flexibility.
  • Sebi also merged the Issue and Listing of Debt Securities Regulations, 2008, and the Non-Convertible Redeemable Preference Shares Regulations, 2013, into a single regulation known as the Issue and Listing of Non-Convertible Securities Regulations, 2021.