Lok Sabha Question No. 1250 (UNSTARRED), answered on 2019-11-25
Subject: Reduction in Compliance Cost
Ministry: CORPORATE AFFAIRS
Asked by: Arvind Kumar Sharma

## GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS

LOK SABHA UNSTARRED QUESTION NO. 1250 ANSWERED ON MONDAY, THE 25 th  NOVEMBER, 2019 AGRAHAYANA 4, 1941 (SAKA)

## REDUCTION IN COMPLIANCE COST

## QUESTION

1250.  SHRI ARVIND KUMAR SHARMA: Will the Minister of CORPORATE AFFAIRS be pleased to state:

कारपोरेट कार्य मंत्री

- (a)  whether  the  Government  is  considering  measures  for  small  private  limited companies to reduce their compliance cost for various statutory filings, if so, the details thereof;
- (b) whether the Government extended CARO 2016 (Audits) to private schools and Hospitals especially built on concession land, if so, the details thereof;
- (c)  the  opinion  of  the  Government  regarding  creation  of  conflict  of  interest situation with the inclusion of ICAI members on the NFRA board; and
- (d)  the  steps  taken  by  the  Government  to  improve  corporate  governance especially regarding credit rating agencies and to tame punters and riggers who manipulate stock prices?

## ANSWER

THE MINISTER OF STATE FOR FINANCE               (SHRI ANURAG SINGH THAKUR)

AND CORPORATE AFFAIRS

वित्त एिं कॉपोरेट कार्य मंत्रालर् में राज्र् मंत्री

- (a):-  Ministry  of  Corporate  Affairs  (MCA)  has  been  taking  various  initiatives  on continuous  basis  to  provide  less  stringent  regulations  including  measures  with respect to filing requirements for small companies, One Person Companies (OPCs) and start-ups. The changes in this regard are made in the Companies Act, 2013 as well as various Rules and Forms thereunder from time to time.
- (b):-  The  Companies  (Auditor's  Report)  Order,  2016  (CARO,  2016)  has  not  been extended to private schools and hospitals built on concession land.

(c):-  The  opinion  of  the  Government  regarding  inclusion  of  Institute  of  Chartered Accountants  of  India  (ICAI)  members  on  the  NFRA  (National  Financial  Reporting Authority) Board is that it would not create conflict of interest situation. As per the National Financial Reporting Authority (Manner of Appointment and other Terms and Conditions of Service of Chairperson and Members) Rules, 2018, NFRA board has 13

( श्री अनुराग स ंह ठाकु र )

members out of which 3 members represent ICAI as per clause (v), (vi) and (vii) of Rule 4(6). The main functions under section 132(2) and (4) will be performed by the executive body of NFRA and as such, no conflict of interest will be there.

(d):-  The  Securities and Exchange Board of India (SEBI) under the Department of Economic Affairs (Ministry of Finance) has stated on 20.11.2019 that the following recent measures have been taken by SEBI to improve governance standard in rating agencies:-

- i. Credit Rating Agencies (CRA) to segregate the activity other than the rating of financial  instruments  under  the  respective  guidelines  of  a  financial  sector regulator or any authority as may be specified by SEBI.
2. ii.
3. MD/CEO of a CRA shall not be a member of rating committees of the CRA.
4. iii.
5. Rating committees of a CRA shall report to a Chief Ratings Officer (CRO).
- iv. One third of the board of a CRA shall comprise of independent directors, if the board is chaired by a non-executive director.  In case the board of the CRA is chaired  by  an  executive  director,  half  of  the  board  shall  comprise  of independent directors.
7. v.
8. The board of a CRA shall constitute the following committees:
9. (i) Ratings Sub-Committee
10. (ii) Nomination and Remuneration Committee
- vi. The  Chief  Ratings  Officer  (CRO)  shall  directly  report  to  the  Ratings  SubCommittee of the board of the CRA.
- vii. The Nomination   and   Remuneration   Committee   shall be chaired   by   an independent director.
- viii. CRAs  shall meet the audit  committee of  the  rated  entity, at  least  once  in a    year,    to  discuss  issues  including  related  party  transactions,  internal financial  control  and  other  material  disclosures  made  by  the  management, which  have  a  bearing  on  rating  of  the  listed  Non-Convertible  Debentures (NCDs).
- ix. Minimum net worth requirement of CRA increased from existing Rs. 5 Crore to Rs. 25 Crore.
- x. The promoter of a CRA to maintain a minimum shareholding of 26% in the CRA for a minimum period of 3 years from the date of grant of registration by the Board.
- xi. A CRA shall not, directly or indirectly, have 10% or more shareholding and/ or voting rights in another CRA and a CRA shall not have representation on the Board of any other CRA.

In addition, SEBI has stated that the following steps have been taken by SEBI to improve corporate governance of listed entities:-

1. Corporate governance norms were introduced through introduction of Clause 49 in the Listing Agreement on February 21, 2000 based on the recommendations of the Kumaramangalam Birla Committee.    Subsequently, the clause 49 was  revised and strengthened in 2004  based  on  the recommendations  of  the  Narayana  Murthy  Committee.  In  2015,  the  listing norms in the entire listing agreement including clause 49 was subsequently streamlined by SEBI in the form of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
2. SEBI formed a committee on corporate governance in June 2017 under the Chairmanship of Mr. Uday Kotak with a view to enhancing the standards of corporate governance of listed entities in India. The committee submitted its report to SEBI in October 2017.
3. Based on the public comments and discussions with various stakeholders, various actions on the recommendations of Kotak Committee were approved by SEBI Board and accordingly amendments to the SEBI (Listing Obligations and  Disclosure  Requirements)  Regulations,  2015  were  notified  on  May  09, 2018.
4. Major reforms arising out of the recommendations of Kotak Committee have been implemented in a phased manner. Some of these reforms are as follows:-
- i. At least one woman independent director in the top 500 listed entities by  market  capitalization  by  April  1,  2019  and  in  the  top  1000  listed entities, by April 1, 2020,
- ii. Separation of CEO/MD and Chairperson (to be initially made applicable to the top 500 listed entities by market capitalization w. e. f. April 1, 2020).
- iii. Enhanced disclosure of related party transactions (RPTs) and related parties to be permitted to vote against RPTs.
- iv. Reduction in the maximum number of listed entity directorships from 10 to 8 by April 01, 2019 and to 7 by April 1, 2020.
- v. Enhanced role of the Audit Committee, Nomination and Remuneration Committee (NRC) and Risk Management Committee.
- vi. Disclosures of auditor credentials, audit fee, reasons for resignation of auditors, etc.,
- vii. Disclosure of expertise/ skills of directors. viii. Mandatory disclosure of consolidated quarterly results with effect from FY 2019-20. ix. Secretarial Audit to be mandatory for listed entities and their material unlisted subsidiaries. x. Minimum  six  directors  in  the  top  1,000  listed  entities  by  market capitalization by April 1, 2019 and in the top 2000 listed entities, by April 1, 2020. xi. Quorum for Board meetings (1/3rd of the size of the Board or 3 members, whichever  is  higher)  in  the  top  1000  listed  entities  by  market capitalization by April 1, 2019 and in the top 2000 listed entities, by April 1, 2020. xii. Top 100 entities to hold AGMs within 5 months from the end of FY 201819 i.e. by August 31, 2019. xiii. Webcast of AGMs will be compulsory for top 100 entities by market capitalization.
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