Demystifying ‘Board Inter-locks’ under SEBI’s Amended Listing Regulations

[Gaurav Pingle is a practising Company Secretary in Pune and can be reached at [email protected]]


On June 2 2017, the Securities and Exchange Board of India (‘SEBI’) constituted a committee under the chairmanship of Mr. Uday Kotak for improving the standards of corporate governance of listed companies in India. On October 5, 2017, Kotak Committee submitted its report to SEBI. The SEBI Board (in its meeting held on March 28, 2018) accepted several recommendations of the Committee without any modifications, whereas certain recommendations were accepted with modifications. The SEBI Board decided to refer certain recommendations to various agencies (i.e. the Government, other regulators, professional bodies, etc.). On May 9, 2018, SEBI amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’).

Several provisions relating to independent directors have been amended, namely age-limits of non-executive directors, presence of independent directors in board meetings, remuneration to non-executive directors, eligibility criteria for appointment of a person as an independent director, alternate director of independent director, declaration of independence by the director, directors and officer Policy (D&O Policy), evaluation of independent directors and independent director on the board of directors of unlisted material subsidiary (whether in India or abroad).

The post briefly analyzes the newly introduced provision of ‘board inter-locks’. The said provision directly affects the eligibility criteria for independent directors. The Kotak Committee, in its Report, stated that board inter-locks arise due to common non-independent directors on boards of listed entities. By this, a non-independent director of a company on the board of which any non-independent director of the listed entity is an independent director, cannot be an independent director on the board of the listed entity. For sake of convenience, this is illustrated further below.

The Kotak Committee found such board inter-locks to be undesirable from the point of view of good governance as they may pose a structural vulnerability due to the presence of quid pro quo. The Committee recommended excluding ‘board inter-locks’ for considering a person as an independent director of a listed entity.

By the amendment to the SEBI Regulations, clause (viii) has been inserted in the definition of independent director (as provided in regulation 16(1)(b) of Listing Regulations). As per the amendment, ‘independent director’ means a non-executive director, other than a nominee director of the listed entity, who is not a non-independent director of another company on the board of which any non-independent director of the listed entity is an independent director.

Based on the example provided in Kotak Committee Report and the provisions included in the Listing Regulations, the simplified example of ‘board inter-locks’ is as follows. Mr. A is an executive director (i.e. managing director or whole-time director) on A Limited (listed entity). Mr. A is also an independent director on B Limited. In such a scenario, Mr. B, an executive director (i.e. managing director or whole-time director) of B Limited cannot be an independent director of A Limited.

In my view, there is a need to clarify the status of B Limited, whether it is a listed public company or unlisted public company. The purpose of ‘board inter-locks’ would be achieved if B Limited is a public company – listed or unlisted. The amendment relating to ‘board inter-lock’ is effective from October 1, 2018.

The following check-list would be helpful for compliance officers, company secretaries and legal heads of the listed companies for effectively implementing the newly introduced provisions:

  1. prepare a list of directorships of all independent directors in other companies (whether listed or not);
  2. specifically note the executive directorships of independent directors of the said listed company;
  3. confirm whether executive directors of other company are appointed as independent directors on the board of the listed company;
  4. if the answer to the above question is affirmative, then the provisions relating to ‘board inter-locks’ are applicable.
  5. if the provisions are applicable, then necessary change in directors shall be made either on the listed entity or other company.


If the listed entity fails to make a requisite change as contemplated by the newly introduced provisions, the independent director will dilute her independence and ultimately the board of directors of the listed will not be duly constituted, thereby resulting in regulatory consequences.

Gaurav Pingle

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