SEBI Notifies Stricter Norms For Appointment Of Listed Companies' MDs

Putting in place stringent norms, markets regulator SEBI has said that a person rejected by shareholders at a general meeting can be appointed or re-appointed as a managing director or whole time director or manager, only after 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," the regulator said in a notification on Monday.

For considering the appointment or re-appointment of such a person earlier rejected by the shareholders, there should be a detailed explanation and justification by the company's nomination and remuneration committee and the board of directors for recommending the person.

As per the Companies Act, 2013, the board cannot appoint a person who fails to get elected as a director at a general meeting as an additional director.

However, this does not explicitly prohibit the board from re-appointing a person as an MD or WTD, whose appointment to such posts was rejected by the shareholders at the general meeting.

Further, the board of a listed entity can continue to appoint such persons as WTD or MD even after subsequent rejections by the shareholders.

SEBI has amended the Listing of Obligations and Disclosure Requirements (LODR) Regulations with respect to the appointments.

Separately, it has also amended the rules pertaining to credit rating agencies.