Shareholders’ nod compulsory for appointing directors now

New Delhi: Listed public-sector companies, including banks, will be required to take shareholders’ approval for any appointment or reappointment to the board of directors in the immediate next general meeting, capital markets regulator Sebi has clarified.

In case shareholders do not clear resolution for the appointment, such a person would cease to be a director, it added.

Providing informal guidance to state-owned Bank of Baroda, the Securities and Exchange Board of India (Sebi) indicated that its views might differ on a case-to-case basis. The clarification came after Bank of Baroda sought informal guidance in relation to amendments made in LODR (Listing Obligations and Disclosure Requirements) rules pertaining to shareholders' requirement for appointment on the board.

The bank has sought clarification on the status of government-appointed directors in a scenario where resolutions put for appointment are rejected by shareholders and whether the government can participate in such a resolution. Responding to the query, Sebi said that LODR regulation would be applicable to the bank and consequently, the approval of shareholders for the appointment or reappointment of a person on the board of directors is mandatorily required to be taken at the next general meeting of the bank. In addition, Sebi clarified that there is no restriction on voting by the Government of India on a resolution put up for consideration of the shareholders to approve an appointment or re-appointment.

“The LODR Regulations specify that every listed entity listing its specified securities on a recognised stock exchange shall comply with the provisions of the LODR Regulations. In the absence of any provisions in the Banking Companies (Acquisition and Transfer of Undertaking) Act relating to the approval of shareholders for appointment or reappointment of directors, compliance with the relevant provision of LODR Regulations would not violate the provision of the said Act. Accordingly, the requirement under Regulation 17 (1C) would have to be complied with by the bank,” Sebi clarified.

Further, in case of any inconsistency between the provisions of LODR norms and Banking Act, the requirement specified under Regulation 17 (1C) would be applicable to the banks. Under the Regulation 17 (1C) of LODR rules, listed entities will have to ensure that approval of shareholders for the appointment of a person on the Board of Directors or as a manager is taken at the next general meeting or within a time period of three months from the date of appointment, whichever is earlier. However, relaxation has been provided to the listed public sector companies from strict compliance with the requirement of three months’ time.