New NSE Prime Norms 2021: An Initiative Towards Better Corporate Governance

Blog   wpadmin   February 1, 2022

Executive Summary:

This article describes:

      • The purpose of this article is to shed light on some of the most important aspects of the newly implemented corporate governance system.
      • This article describe the overview of
        • The National Stock Exchange of India Limited Prime Registration Norms, 2021
        • Eligibility criteria to adopt these norms and
        • Other related matters

Introduction:

According to the Futures Industry Association (FIA), a derivatives trade body, National Stock Exchange (NSE) is the world’s largest derivatives exchange in 2021 by number of contracts traded. The NSE was the first exchange in the country to offer a modern, fully automated screen-based electronic trading system, allowing investors to trade from all over the country. To increase transparency in the Indian equity market, NSE was incorporated in 1992.Instead of limiting trading memberships to a group of brokers, the NSE ensured that anyone who was qualified, experienced, and met financial requirements could trade.

On 21 December 2021, the NSE launched a new corporate governance initiative called NSE Prime or “the National Stock Exchange of India Limited Prime Registration Norms, 2021”, in which companies listed on the exchange can adopt it voluntarily. The NSE Prime framework establishes higher corporate governance standards for listed companies. Additional disclosure criteria have also been imposed in order to provide for higher quality of public information and greater transparency. Listed companies who voluntarily choose to participate in NSE Prime, will need to comply with pre-defined conditions on an ongoing basis, which the NSE will monitor. These norms shall apply to all NSE Prime Companies effective July 1, 2022.

Factors Considered by NSE in Awarding NSE Prime Certification:

When establishing the applicant’s eligibility and awarding a certificate to such applicant, NSE will take into account the following factors:

  • The applicant must have been an NSE Listed entity for a period of at least 6 months previous to the date of application.
  • The applicant, its promoters, promoter group companies, directors, and Key Managerial Personnel (KMP) must have been in compliance with all relevant securities laws for a continuous period of at least 3 years previous to the date of application, as verified by the applicant’s Company Secretary.
  • Where the applicant has been an NSE listed entity for more than 1 year, it shall not have been in the trade-to-trade or graded surveillance measure (GSM) category of NSE for a continuous period of at least 1 year prior to the date of application under these norms due to non-compliance or surveillance actions.
  • The applicant should not have been in the trade-to-trade or GSM category of the NSE from the date of its listing if it has been an NSE Listed Entity for less than 1 (one) year.
  • For the 3 years preceding the date of application, no proceedings under “the Insolvency and Bankruptcy Code, 2016” have been admitted against the applicant, nor shall the applicant pass a resolution for voluntary winding up.
  • The applicant shall have a net worth of at least Rs.300 crores for 3 preceding financial year prior to date of application.
  • For a continuous period of six (6) months prior to the date of application, the applicant’s equity shares on the cash segment of the NSE’s Main Board shall have been an average daily turnover of at least Rs.5 crores.
  • The statutory auditors of the applicant shall not have issued any adverse, negative, or qualified opinions or remarks in respect to the applicant’s financial statements that may give rise to questions on the suitability of applicant’s internal controls, its accounting practices, or reliability.
  • The applicant, its promoters, promoter group entities, directors, and/or KMP shall not have been convicted of fraud, moral turpitude offences, or any economic offence debarred, restrained or subjected to any disciplinary action by any statutory authority in India or elsewhere orspecified as a Wilful Defaulter.
  • The applicant shall have a general reputation for fairness and integrity in all its business transactions.

Eligibility to opt for NSE Prime Registration:

  • Every NSE Prime Company should have at least 40% of its shares held by the public.
  • The board should have a minimum of 8 and a maximum of 15 directors.
  • With effect from July 1, 2025, at least two directors should be women, with at least one of them being an independent director.
  • If the public shareholding is greater than 50%, more than half of the Board of Directors (BOD) should be Independent Directors (IDs), and if the public shareholding is less than 50%, at least half of the BOD should be IDs.
  • A quorum for BOD meetings shall be at least half of total directors, as well as at least half of the Independent Directors who are members of the Board of Directors.
  • The “Audit Committee” “Nomination and Remuneration Committee” “Stakeholders’ Relationships Committee” and “Risk Management Committee” of the Board shall have specific composition, quorum, and other criteria.
  • The “Stakeholders’ Relationship Committee” should hold a meeting 45 to 60 days before the annual general meeting, at which the significant shareholders or their nominees will be able to participate and communicate their concerns and opinions to the Committee.
  • Every NSE Prime Company should constitute an “Independent Directors Committee” comprised only of its Independent Directors.

Obligations with Respect to Directors:

Every NSE Prime Company is responsible for ensuring that the following requirements are satisfied:

  • Not appoint or reappoint as a director anyone who is currently serving as a director in more than 4 public limited companies.
  • Independent directors who have served for a total of ten years are not eligible for reappointment.
  • Provide a detailed explanation of the reasons for any deviation of 25% or more in the calculation of any Key Financial Ratios from the preceding Financial Year in the form and manner required by NSE.
  • Required to disclose its business responsibility and sustainability in the form of a BRSR in such form and manner stated by SEBI.
  • Obligations for Financial Results in a definite and exact way. For the purposes of quarterly consolidated financial reports, it should verify that 100 percent of all consolidated revenues, assets, and profits have been audited.
  • Corporate reorganization and arbitration have separate chapters.

Obligations relating to Statutory Auditors:

NSE Prime Company’s Audit Committee shall adopt a policy specifying the selection criteria for the appointment of statutory auditors. Every NSE Prime Company should publish its policy for appointing statutory auditors on its official website.

Principles Governing Disclosures and Obligations:

Every NSE Prime Company shall make disclosures and obligations under these norms and the NSE Prime registration agreement in accordance with the following principles:

  • It should provide the required disclosures and follow these norms and the NSE Prime Registration Agreement in letter and spirit.
  • Relevant information should be included in event-based or periodic filings, reports, statements, papers, and information.
  • Information should be prepared and disclosed in compliance with accounting and financial disclosure requirements.
  • In case of preparation of financial information, specified accounting standards should be implemented in letter and spirit.
  • It should not make any false statements and should ensure that the information provided to NSE is accurate & true
  • It is responsible for providing adequate and timely information.
  • It must ensure that disseminations covered by these norms and NSE Prime Registration Agreement are free of errors, accurate, explicit, timely and presented in plain language.
  • In addition to all applicable laws, it shall comply with all rules, regulations, circulars and guidelines issued from time to time by NSE, including Securities Laws in general and the LODR Regulations in particular.

Conclusion:

The NSE, India’s biggest stock exchange, introduced the NSE Prime framework to promote corporate governance. Companies listed on the stock exchange can adopt this framework voluntarily. Listed entities who want to be part of NSE Prime will have to comply with pre-determined requirements on a continuous basis, which will be monitored by NSE.

This initiative will raise the bar for corporate governance standards in India, allow investors to discover companies that have voluntarily agreed to better corporate governance requirements, widen the quality of investors in listed companies, and enhance trust in Indian capital markets.

Regards,
Legal Team

Proind Business Solutions Private Limited
306, Tower B, I-thum, Plot No A-40, Sector 62, Noida, UP, India- 201301
No.: +91 120 4224203
Email: info@proind.in, website: www.proind.in

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