Dividend distribution policy made mandatory for top 1,000 listed companies

CHENNAI: Markets regulator Securities and Exchange Board of India (SEBI) on Tuesday announced major tweaks in the guidelines governing the dividend policy of listed companies. Post the tweaks, India’s top 1,000 listed companies will now have to mandatorily formulate a dividend distribution policy. The regulator has also put in place a framework that will govern the applicability, constitution, and role of the Risk Management Committee (RMC), while also easing norms for re-classification of a promoter as a public shareholder. 

The changes were announced via a notification dated May 5.  Earlier, the requirement for the formulation of a dividend distribution policy had been limited to the top 500 listed entities, but this has now been extended to the top 1,000 listed entities on the basis of market capitalisation. Other listed entities can disclose their dividend distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.

As for the changes in guidelines governing RMCs, these rules have also been extended from the top 500 to cover the top 1,000 listed companies. According to SEBI, the RMC needs to have a minimum of three members with a majority of them being members of the board of directors, including at least one independent director. The quorum for a meeting of the RMC needs to be either two members or one third of the members of the committee, whichever is higher, including at least one member of the board of directors in attendance.

“The meetings of the Risk Management Committee shall be conducted in such a manner that on a continuous basis not more than 180 days shall elapse between any two consecutive meetings,” the notification went on to add. The role of the RMC has also been specified, with functions including the formulation of a detailed risk management policy and monitoring its implementation; periodic review of such policies; and reviews of the appointment, removal, and terms of remuneration of the chief risk officer (if any).

Among other changes, the regulator has rationalised the existing framework for the reclassification of promoter/promoter group entities. This includes exemptions from existing requirements in cases of reclassification pursuant to an order of the regulator in line with existing exemptions already available under the Insolvency and Bankruptcy Code. An exemption has also been provided from the requirement of seeking the approval of shareholders in cases where the promoter seeking reclassification holds a shareholding of less than 1 per cent, subject to the promoter not being in control, the regulator pointed out. 

Other exemptions have also been granted in a few procedural requirements related to reclassification such as obtaining approval from the board and shareholders in case of open offer under SEBI Takeover Regulations and a scheme of arrangement. This exemption would be subject to the outgoing promoter’s intent of reclassification being disclosed in the letter of offer or scheme of arrangement.