In recent years, the issue of corporate governance in India has been a hot topic of discussion. As India Inc. has grown by leaps and bounds, corporate India’s attention has evolved from simple ‘management’ to ‘governance’, and now ‘effective governance’. Given the unique challenges that India Inc. faces due to the predominance of family run businesses, there is a pressing need to move from the ‘Raja’ and ‘Praja’ model of governance (wherein the self-interests of the promoter family precedes the interests of other stakeholders) to the ‘Custodian’ model of governance (which is designed to serve the interests of all stakeholders). While some promoters have consciously worked hard to establish a “Ram Rajya” (a democratic-righteous rule), many are still reluctant to yield power and fear that it may lead to an abdication of their throne.
In June 2017, Securities and Exchange Board of India (SEBI), constituted a high powered committee under the chairmanship of Mr. Uday Kotak (Kotak Committee) with the aim of improving governance standards of Indian listed companies which came out with detailed recommendations (Kotak Report). The legal experts on the Kotak Committee included our Firm’s Managing Partner, Mr. Cyril Shroff.
On March 28th, 2018, SEBI’s Board decided on these recommendations whereby (i) 40 out of 80 were accepted without any modifications; (ii) 15 were accepted with modifications; and (iii) 18 were rejected.
Kotak Committee – Key recommendations accepted by SEBI
The Kotak Committee suggested numerous amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which will consequently impact all listed entities. In this article, we dissect some of the critical proposals and their impact on Indian Promoters. For a full list of recommendations accepted by SEBI, please refer to the press release.