SEBI Guidance on Material Pecuniary Relationship with Independent Directors - MMJC

Introduction

• This newsletter summarizes informal guidance from SEBI regarding the interpretation of “material pecuniary relationship” under Regulation 16(1)(b)(iv) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).
• The guidance was provided in response to a query from InfoBeans Technologies Limited concerning an independent director’s consultancy arrangement with a US-based subsidiary

Background of the Query

• InfoBeans Technologies Limited sought clarification on whether compensating an Independent Director for consultancy services with its US subsidiary would constitute a “material pecuniary relationship” under LODR Regulations.
• The director’s role in the US subsidiary would be advisory, focusing on strategic guidance, risk management, and business development, without executive authority.

Key Points of SEBI’s Guidance

• Materiality of Pecuniary Relationship
  • SEBI referred Regulation 16(1)(b)(iv) of the LODR Regulations, which defines an independent director as a non-executive director without having any material pecuniary relationship with the listed entity or its related entities except of remuneration as a director. SEBI further highlighted that the LODR Regulations do not specify quantitative limits for determining the materiality of a pecuniary relationship.

• Parameters for Independence and declaration of Independence
  • SEBI emphasized that apart from material pecuniary relationship there are other criteria for determining independence, such as not being a promoter or related to one, not holding a key managerial position, and not being a material supplier, service provider, customer, lessor, or lessee of the listed entity. SEBI further stated that independent directors are required to submit a declaration confirming they meet the independence criteria under Regulation 16(1)(b), and the Board of Directors must assess the veracity of this declaration.

• NRC’s Role in ascertaining independence of director
  • SEBI further stated that Nomination and Remuneration Committee (NRC) is responsible for formulating criteria for determining the qualification, positive attributes, and independence of a director, as well as evaluating the performance of independent directors. SEBI also drew attention to Section 149(6) of the Companies Act, 2013, which specifies limits on pecuniary relationships, including that the relationship should not exceed 10% of the director’s total income.

Conclusion

SEBI advised Infobeans Technologies Ltd that considering the above referred regulatory framework listed entities shall consider appointment of independent directors.

https://www.sebi.gov.in/enforcement/informal-guidance/may-2025/informal-guidance-application-received-from-infobeans-technologies-limited-seeking-interpretation-of-regulation-16-1-b-iv-of-the-sebi-listing-obligations-and-disclosure-requirements-regulations-_93935.html

Copy of the informal guidance can be accessed at below link: