Informal Guidance No.: SEBI/HO/CFD/PoD2/OW/P/2025/13133/1, Dated 14.05.2025
A listed company recently approached the Securities and Exchange Board of India (SEBI) under the SEBI (Informal Guidance) Scheme, 2003, seeking clarification on the interpretation of the term ‘material pecuniary relationship’ as referred to in Regulation 16(1)(b)(iv) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).
1. Background of the Query
The clarification was sought in the context of a proposed consultancy engagement involving one of the company’s Independent Directors and its overseas subsidiary. The proposed arrangement entailed the Independent Director offering strategic and advisory services to the subsidiary for a limited compensation, without assuming any executive role or day-to-day operational responsibility.
The listed entity further stated that –
- The proposed remuneration would not exceed 10% of the Independent Director’s total annual income.
- The engagement would be purely advisory in nature, ensuring the Director’s independence in management decisions remains intact.
2. SEBI’s Guidance and Clarification
SEBI responded by noting that the LODR Regulations do not prescribe any specific monetary threshold to determine what qualifies as a material pecuniary relationship. Instead, the determination of independence must be guided by –
- The intent and spirit of the regulations,
- The facts and circumstances of each case,
- And the principles of corporate governance laid out in the LODR framework.
SEBI emphasised the responsibility of –
- The Board of Directors, and
- The Nomination and Remuneration Committee (NRC)
in assessing the veracity of the director’s declaration of independence and ensuring that such relationships do not compromise the director’s impartiality.
3. Reference to Companies Act, 2013
SEBI also referred to Section 149(6) of the Companies Act, 2013, which provides statutory criteria for pecuniary relationships while defining independent directors. While this provision caps such relationships at 10% of total income, SEBI advised that compliance with both LODR and Companies Act provisions is essential.
4. Conclusion
SEBI concluded that the listed company’s Board must carefully evaluate the proposed arrangement to ensure it aligns with all applicable regulations on independence. It further clarified that the informal guidance issued –
- Was specific to the facts presented, and
- Does not constitute a formal decision or a binding precedent.
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