Image Source -

This article is written by Agam H Maloo.

Too many organization rely on the safety net of a corporate social responsibility report. It’s not enough.

Katherine Garrett-Cox, CBE CEO of Alliance Trust.


Corporate Governance deals with relations to board, management and shareholders of a corporate body. Good Governance is the foundation upon which  environment of trust, transparency and accountability is built. With regards to the same, the author attempts to explain the relationship of corporate governance with the implications of new Report by the Kotak Committee under the chairmanship of Uday Kotak on the Corporate Governance with salient amendments in SEBI Regulations. The author through this article attempts to critically examine the salient amendments inserted in the  SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018.SEBI (Listing Obligations and Disclosure Requirements) (Amendment) Regulations, 2018 The amendments made into the provisions of financial results, fees to statutory auditors and credential of auditors, resignation of auditor, Audit Qualification, Statutory Auditor to undertake Limited Review, Independent Directors and the committee this time introduced a new  provision regarding women empowerment and accordingly SEBI inserted the mandatory clause for the appointment of one Women Independent Director. This article also explains the evolving concept of reporting called Triple Bottom line for economic prosperity and sustainability and how it depends upon the efficient innovations and quality of the management as well as an organisations’ adherence to the principles of good corporate governance. This article also criticizes the US trial of Bernard “Bernie” Lawrence Madoff  investment scandal which is a major case of stock and securities fraud discovered in 2008 for the enforcement of legal principle laid down in the case.

Tracing the Origin

From last two decades, norms of corporate governance have evolved with the recommendations of several committees constituted from time to time. Some of the major establishments like National Stock Exchange and the Securities and Exchange Board of India have remarkably revamped the standards of governance prevailing in India. The Confederation of Indian Industry (CII) outlined a series of voluntary recommendations concerning best in class practices of corporate governance in India has released a report named “Desirable Corporate Governance: A Code”. In the year 1999, SEBI created a  committee under Kumar Mangalam Birla committee to promote and raise the standards of good corporate governance. Subsequently, in 2000, the key recommendations given by Birla Committee were accepted and enforced by SEBI which became part of clause 49 of the listing agreement of the stock exchange. In 2002, Naresh Chandra Committee was constituted by the Department of Company Affairs which made recommendations in financial and non-financial disclosures and independent oversight mechanism. Consequently, in the year 2003, SEBI constituted a committee under the chairmanship of Mr. N.R. Narayana Murthy with a view to review the clause 49 and suggest measures to improve the Corporate Governance standards. Later on, under the chairmanship of Dr. J.J. Irani, the Ministry of Corporate Affairs (MCA) constituted an expert committee for offering recommendations on Company Law.

Following from Harshad Mehta Scam to Nirav Modi Scam including the Satyam-Maytas Infra-Maytas Properties scandal especially that has rocked India since 16th December, 2008 are the examples of  massive fraud and to curb it lots of initiatives and actions have been taken by the Ministry of Corporate Affairs and Institute of Chartered Accountants of India by improving the existing norms of governance and ethics within the realm of their jurisdiction. NASSCOM (National Association of Software and Services Company), under the chairmanship of N. R. Narayana Murthy, initiated a committee for corporate ethics and corporate governance which issued its recommendations in 2010.

Later on, new provisions were introduced in the Companies Act, 2013 for improving Governance, Leadership, and Ethics in Indian Companies. These provisions relate to the working and conduct of a company’s leader called Independent Director, measures for securing the independence of the Board, aggrandized role and responsibility of audit committee, self-declaration of interest by the Directors as it was discussed in the case of removal of Cyrus Mistry from Tata, closer regulation and monitoring of related party transactions, proper formalizing of whistle blower policy and empowering shareholders group to file class action suits.

The Kotak Committee which was formed in June, 2017 under the chairmanship of Mr. Uday Kotak submitted its report on October 5th, 2017 detailing several recommendations on corporate governance. After inviting comments on such recommendations from the public and stakeholders, many of the recommendations were accepted by SEBI (some of them with certain modifications) at a meeting held on March 28th, 2018. Some of the accepted recommendations were :

  1. Expanding the eligibility criteria for independent directors, disclosures of expertise & skills of directors and reduction in the maximum number of listed entity directorships from 10 to 7 by 2020,
  2. Disclosure of utilization of funds from Qualified Institutional Placement/ preferential issue,
  3. Enhancing the role of audit committee, nomination and remuneration committee and Risk Management Committee,
  4. Disclosure of auditor credentials audit fee, reasons for resignation of auditors etc,
  5. Enhanced obligations with reference to subsidiaries and mandatory disclosure of consolidated quarterly results from 2019-20,
  6. Enhanced disclosures of related party transactions and related parties to be permitted to vote against such transactions.

Legal Scenario And Enforcement Technique

Mr. Madoff, the promoter of Madoff Company in the US was caught in the financial fraud of $65 billion. The fraud came into light in 2008 and then the trial was conducted and he was prosecuted with charges. Punishment of 150 years of imprisonment was given to him. Considering Mr. Madoff was an aged person, one might wonder about the purpose of such a severe punishment which cannot be fully served by any convict, but such a severe punishment sends two important messages to the society at large:

The investigation and judicial process carries out expeditiously and the verdict will be given within a short period of time so no one can do any such malpractice and get away with it without being indicted,

With this judgement, all those with fraudulent intentions are forewarned to what is in store for them if they defraud the stakeholders/public and erode the trust and confidence they are entrusted with.

If the Indian system gears up to adopt these two principles and effectively can get them in practice, then there would be absolute trust and faith in the legal system of the country which is essential to escalate investment flow to India.

Triple Bottom Line Reporting

In developed economies, the focus has shifted from financial reporting to Financial as well as Social and Environmental reporting recognized as Triple Bottom line Reporting (TBR). With this evolving concept the management, stakeholder and auditors need to learn about this and gear up to play their respective roles. The word Social and Environmental Reporting is not just about Corporate Social Responsibility, it is a very comprehensive concept. One of an integrated concept in it is Corporate Social Responsibility. Measuring financial results are easy for reporting but calibrating contribution to social aspects of the society is challenging. The efficient use of the natural resources depends on the business carried on or off by the established and growing industry and it’s the main concern of good governance. The present generation shall mainly be motivated towards sustainable development but they cannot be allowed to exhaust the natural resources to become successful at the cost of making lives of  future generation disastrous. When TBR emerges in India, the norms of governance will undergo a paradigm shift.

Ethical Governance And Economy

Corporate Sector in India plays a vital role in promoting economic growth of the nation. In 2014, India was ranked 142 among 189 countries in ‘ease of doing business’ list. Later on it moved to 130th rank. It is achieved mainly due to large reforms introduced in the legal field.

Salient Amendments in SEBI (Listing Obligations And Disclosure Requirements) (Amendment) Regulations, 2018

The Securities & Exchange Board of India (SEBI) on 9th May, 2018 issued SEBI (Listing Obligations & Disclosure Requirements) (Amendment) Regulations, 2018 (Amended Regulations) following the report of Kotak Committee on Corporate Governance issued on 5th October, 2017 suggesting amendments to be made in previous SEBI Regulations, 2015. Following are the amended regulations concerning Financial Statements, Audit Committee, Audit & Auditors and Independent Directors –

Financial Results

The following three clauses have been added after clause 33 (3) (f) which deal with Financial results :

“(g) The listed entity shall also submit a part of its standalone and consolidated financial results from the half year and also statements of cash flows for the half year through a note.

(h) The listed entity shall ensure that for the purpose of quarterly financial results, at least 80% of each of the consolidated revenues, assets and profits respectively, shall have been subjected to audit or in case of unaudited results, subjected to limited review.

(i) The listed entity shall disclose in the results of last quarter in financial year, by way of a note, the aggregate effect of material adjustments made in the results of the quarter which pertain to earlier periods.”


To enhance the level of transparency, submission of quarterly financial results as well as the publication of cash flow Statements half yearly is mandatory for the listed companies by the said amendment. The Company Act doesn’t require submission of Quarterly Financial Results but the Listing Regulations contained detailed provisions for the same.

The inserted clause of audit/ limited review at least 80% of consolidated revenue, assets and profits is to ensure that the underlying subsidiaries are also considered for audit/ limited review.

Earlier, foreign subsidiaries were not subjected to mandatory audit as per the local municipal laws and therefore this condition will be difficult to comply with.

The said amendment at present requires companies to submit the Audited Financial Results of last quarter along with the results of entire financial year. The last quarter results are balancing figures between the audit figures, figures of full financial year and published figures up to the third quarter of the current financial year.

With value to the interpretation of statute, in regulation 33(3)(b) the word ‘may’ has been replaced by the word ‘shall’ henceforth, it becomes the mandatory provision and they shall submit quarterly year-to-date consolidated financial results, and the option to opt submission of quarterly/ year-to-date consolidated financial results has been done away.

Fees To Statutory Auditors And Credentials Of Auditors

With respect to appointment/ reappointment of the statutory auditors, Annual General Meeting is required to include the following by a notice in the Explanatory Statement:

a) Proposed fees payable to statutory auditor(s) along with the terms of appointment and in case of a new auditor, any material change in the fee payable to such auditor from that paid to the outgoing auditor with the rationale for such change.

b) Basis of recommendation for appointment includes the details in relation to and credentials of the statutory auditor(s) proposed to be appointed (Insertion of Clause 5 to regulation 36). 


The reason behind the introduction of these provisions is to assure that the shareholders make informed decisions on the appointment of statutory auditors of listed companies.

Now, it has been laid down that the proposed fees must be disclosed in the notice and if there is any change in the fees paid to a new auditor as compared to current audit fee, the rationale for the same must be provided.

Critically, it will lead to solicitation/ advertisement which is not in line with the ICAI/ or any of the corporate firm Code of Ethics which prohibits a firm from marketing its credentials whether client wise, industry wise or in any other manner.

Resignation Of Auditor

Insertion of sub-clause 7A to schedule III of the listing regulations –

“In case of resignation of Auditor of the listed company, detailed reasons for resignation given by the said Auditor should be disclosed by the listed entities to the Stock Exchanges as soon as possible but after 24 hours of receipt of such from the Auditor”. 


According to Section 140(2) of the Companies Act, 2013 the auditor who has resigned from the company shall file within a period of thirty days from the date of resignation a statement in the prescribed form with the company and the Registrar, and also in reference to Companies Act sub-section 139, the auditor shall also file such statement with the Comptroller and Auditor-General of India, stating the reasons and other facts as may be relevant with regard to his resignation.

Rule 8 of the Companies (Audit & Auditors) Rule, 2014 lays down that when an auditor has resigned from the company, he shall file a statement in form ADT-3.

But in the said amendment, the auditor doesn’t have to disclose the detailed reasons of change/ resignation even though as per the new regulations, in case of change, auditor is deemed to be a material event and disclosure is required to be made to stock exchanges.

If an auditor resigns before the expiry of the term may be a cause for concern. As we discussed above that the listing regulations is mainly concern with the greater transparency and is required by the management, stakeholders and auditors.

The listed entities are required to intimate the stock Exchange within 24 hours of receipt of Resignation of the Auditor.

Audit Qualifications

The Existing Clause BB of Schedule IV (Disclosures in Financial Results) of the Listing Regulations has been substituted by the following.

  1. The management shall mandatorily make an estimate which the auditor shall review and report accordingly.
  2. Notwithstanding the above, the management may be permitted to not provide estimate on matters like ongoing concerns or sub judice matters, in which case the management shall provide the reasons and the auditor shall review the same and report accordingly.


The amendments relate to Audit Qualification where the Impact of qualification is not quantifiable.

In the Existing listing Regulations, the Management was required to make an estimate and the auditor was required to review and report accordingly where impact of qualification is not quantifiable.

An amendment has been made to clarify that the management is permitted to not provide estimate on matters like ongoing concerns or sub judice matters in which case the management shall provide the reasons for it and the auditor shall review the same report accordingly.

Enhanced Role Of Audit Committee

The Role of Audit Committee has been enhanced to review the utilisation of loans and/or advances from/investment by the holding company in the subsidiary exceeding Rupees 100 crores or 10% of the asset size of the subsidiary whichever is lower including existing loans/advances/investments existing as on the date of coming into force of this provision (Insertion of a new sub-clause 21 in Part C Clause A of Schedule II of Listing Regulations relating to Corporate Governance).


This time Uday Kotak Committee on Corporate Governance added extra responsibility on the Audit Committee to review utilization funds of the listed entity infused into unlisted subsidiary including foreign subsidiaries.

The fixed limits are to ensure that the Audit Committee review only such loans and/or advances as significant.

Independent Directors

Changes in Criteria of Independence –

Regulation 16 dealing with Definition of Independence Director has two changes effective from 1st October 2018 which are as follows –

In sub-clause (ii) of clause ‘b’ the words “or members of the promoter group of the listed company have been inserted”.

Consequently, this clause will not be read as “who is or was not a promoter of the listed Company or its holding, subsidiary or associate Company or member of the promoter group of the listed company”.

The following new clause has been added after clause vii.

“who is not a non-independent director of another company on the Board of which any non-independent director of the listed company is an Independent Director”.


Hence, an Independent Director cannot belong to the promoter Group as well.

Further, the Amendments excludes ‘Board Interlocks’ consequent to common non-independent directors on Boards of listed companies.

Insertion of a New Regulation 17A

“No person shall hold office as a director, including any alternative member in more than 8 listed entities at the same time (of which independent directorships shall not exceed seven) with effect from April 1, 2019 and not more than seven listed entities with effect from April 1, 2020,

Provided that any person who is serving as a whole-time director/ managing director in any listed entity shall serve as an independent director in not more than three listed entities.”


Critically, the said provision was essentially required through which the director would be able to provide sufficient time to the company to be effective in his role.

Independent Women Director

The Provision inserted in sub-Regulation 1 to Regulation 17 i.e.,

“Provided that the Board of directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020.”

And the following Explanation inserted in the same regulation:

“Explanation: the top 500 and 1000 entities shall be determined on the basis of market capitalization, as at the end of the immediate previous financial year.”


Companies (Appointment & Qualification of Directors) Rules, 2014 mandate the appointment of at least one Woman Director in a listed company. But such director need not be an Independent Director.

The objective concerning the Amendment is to ensure that the Women Directors are Independent as well. In recent corporate era, many of the women directors are from the family of the promoters/ directors.


There have been fascinating changes in the corporate culture in India and worldwide. The statutes and various regulations have also been modified and perspectives have been reshaped. The Government of India and Indian Judiciary is trying to impose strict and mandatory rules on the corporate entities by which the interest of investors and stakeholders should be preserved and transparency should be maintained.

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…