SEBI introduces stricter norms for appointment of MD at listed companies

  • SEBI said that for considering the appointment or re-appointment of a person rejected by the company’s shareholders as MD, a detailed explanation and justification needs to be provided
  • The stricter changes brought in by SEBI seeks to empower shareholders, who are entrusted by the law to approve the appointment of directors to the boards of companies

New Delhi: Introducing stringent norms for the appointment of a Managing Director (MD) at listed companies, the Securities and Exchange Board of India (SEBI) has said that a person rejected by shareholders at a general meeting cannot be appointed or re-appointed as an MD or a whole-time director or manager without providing detailed justifications and ensuring compliance with various conditions. “The appointment or a re-appointment of a person, including as a Managing Director (MD) or a Whole Time Director (WTD) or a Manager, who was earlier rejected by the shareholders at a general meeting, shall be done only with the prior approval of the shareholders,” said Sebi.

Amending the Listing of Obligations and Disclosure Requirements (LODR) through a Gazette notification on January 24, the market regulator said that for considering the appointment or re-appointment of a person rejected by the company’s shareholders, a detailed explanation and justification by the company’s nomination and remuneration committee and the board of directors must be provided for recommending the person.

Appointment of MD: The previous rulebook

According to the Companies Act, 2013, while the board could not appoint a person who was rejected by shareholders at a general meeting as an additional director, it could re-appoint the person as an MD or WTD. Moreover, it was possible for the board to continue to appoint such persons as MD even after subsequent rejections by shareholders.

The stricter changes brought in by SEBI seeks to empower shareholders, who are entrusted by the law to approve the appointment of directors to the boards of companies.

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