SEBI proposes on stricter rules for the appointment of independent directors

The Securities and Exchange Board of India (SEBI) proposed that if listed companies in India wish to appoint or remove independent directors they should require the "dual approval" of shareholders and a majority of the company's minority investors. Hence, the approval of most of a listed company's minority investors would be mandatory. Currently, only 51% shareholder approval is needed for the process. The proposal would protect "the interest of the minority shareholders", as per SEBI.

SEBI said in its proposal, if either of the requirements are not met, a new person will not be appointed and existing independent directors can't be removed, which is open for public consultation until April 1.

The proposal may be revised after SEBI receives public feedback, and there is no clear timeline on its implementation.The role comes after the Tata Group fired its chairman Cyrus Mistry in 2016, and removed a board member who supported him.

"This would mean more rights to minority investors, better disclosures and also responsibility for promoters," said Sumit Agrawal, a partner at Regstreet Law Advisors and former SEBI official.

SEBI's proposal also stipulates that a former employee of an Indian group company cannot be appointed as an independent director at any entity within the same group if he left the group company less than three years previously.

There was "a need to further strengthen the independence of independent directors and enhance their effectiveness in protection of the interest of the minority shareholders," SEBI said.