Consultation paper on strengthening corporate governance at listed entities by empowering shareholders


This part is in continuation to previous proposed amendments of SEBI regarding strengthening corporate
governance at listed entities released on February 27, 2023.
The proposals and issues are explained in parts A to D. First two proposals were explained in our last update, next two points are explained below:

Part C – Sale, disposal or lease of assets of a listed entity outside the ‘Scheme of Arrangement’ framework


Section 180 (1) of the companies act imposes certain restrictions on power of board of directors, the powers which can only be exercised with the consent of shareholders. One of the such restriction is sale, disposal or lease of assets of a listed entity. This can be done only with prior approval of shareholders through special resolution.
Currently the sale, disposal or lease of assets of a listed entity can be done in two ways, first is through scheme of arrangement and another is Business Transfer Agreement.
As per Regulation 11,37 and 94 of SEBI (LODR) 2015, any scheme of arrangement that is to be presented before court or tribunal doesn’t violate, override, or limit the provision of securities law of stock exchange. Further the entity who is interested in scheme of arrangement shall file draft scheme with stock exchange for obtaining no objection letter before filing it with any court or tribunal. In addition, the stock exchange shall forward such draft scheme to SEBI.
Through above provision SEBI can ensure that right of the minority shareholders are protected. One of the safeguards provided in case of slump sale through scheme of arrangements is requirement of taking ‘majority of minority’ approval from public shareholders.
Sale, disposal or leasing of undertaking can be executed via Business Transfer Agreement without obtaining NCLT’s approval, but there is no explicit framework for protecting the interest of minority.

Proposed Amendment

In order to protect the interest of minority shareholders and for strengthening the framework of slump sale outside scheme of arrangement following proposals are made:

  • Introducing provisions in LODR Regulations for sale, disposal or lease of whole or substantially the whole of the undertaking of the listed company;
  • Mandating disclosure of the objects and commercial rationale for such sale, disposal or lease, to the
  • shareholders; and
  • Sale, disposal or lease of undertaking can be approved only if the votes cast by the public shareholders in favor of the proposal are more than the number of votes cast by the public shareholders against it. This condition shall be in the addition to the requirement to pass a special resolution as per the Companies Act, 2013.



Recently, the issue of few promoters of listed entities enjoying permanency on the board giving them an undue advantage, prejudicial to the interest of the public shareholders and also other instances of promoter-directors continuing on the board even after substantial dilution of their stake and after giving up the control of the company, were reported in the media.
As per the relevant provisions of the Companies Act related to appointment of Director and the extant practices being followed by companies leads to the following conclusion on appointment of directors:

  • Not all directors serving on the board of listed entity may be subject to ‘retirement by rotation’.
  • There may be some directors who are appointed to the board of a listed entity without a defined tenure and not liable to ‘retirement by rotation’.
  • In addition to the above, by virtue of the provisions of the AOA of a company, a person can be appointed as a director on a “permanent- basis”. Such director, so appointed on the basis of the provisions of AoA, serves as a “permanent director” on the board of the company.

Proposed Amendments

  • As on March 31, 2024, if there is any director serving on board of listed entity without approval of shareholders during the last 5 years, the listed entity shall take shareholder’s approval in first AGM to be held after April 1, 2024
  • Moreover, a listed entity should make sure that directorship of director serving the board shall be put up to shareholders once in every five years.

SW Remark: The proposed amendments by SEBI will help in strengthening corporate governance and
empowering shareholders. It will have strict controls on the permanent directors and interest of minority
shareholders will be protected. Public comments may be sent by an email to no later than March 07, 2023.

Muskan Rawat, Audit Associate, SW India

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