The Securities and Exchange Board of India (SEBI) on Tuesday said that the provision for mandating separation of the role of chairperson and managing director (MD) or chief executive officer (CEO) of listed companies will be made applicable on a "voluntary basis".

The market regulator removed the mandatory requirement citing "unsatisfactory level of compliance achieved so far" with respect to this corporate governance reform. The decision was taken at SEBI's board meeting in New Delhi.

SEBI said it continues to receive presentations from industry bodies and corporate expressing "various compelling reasons, difficulties and challenges" for not being able to comply with this regulatory mandate.

India's top 500 listed entities were earlier mandated to split the roles of chairperson and MD/CEO from April 1, 2020. However, after industry representations the deadline for compliance was extended by two years to April 01, 2022.

"As the revised deadline is less than two months away, on a review of the compliance status it is seen that the compliance level, which stood at 50.4% amongst the top 500 listed companies as on September 2019, has progressed to only 54% as on December 31, 2021. Thus there has been barely a 4% incremental improvement in compliance by the top 500 listed companies over the last two years, hence, expecting the remaining about 46% of the top 500 listed companies to comply with these norms by the target date would be a tall order," the market regulator said.

SEBI had set up a committee on corporate governance in June 2017 under the chairmanship of Uday Kotak with a view to seeking recommendations to further enhance the corporate governance norms for listed companies.

The rationale for separation of powers of the chairperson and MD/CEO was that it may provide a better and more balanced governance structure by enabling more effective and objective supervision of the management, according to SEBI.

The watchdog's board also approved an amendment to SEBI (Alternative Investment Funds) Regulations, 2012, providing flexibility to Category III Alternative Investment Funds (AIFs) to calculate the investment concentration norm based either on investable funds or net asset value of the fund while investing in listed equity of investee company.

Finance minister Nirmala Sitharaman, while addressing the board members of SEBI today, emphasised the need for the regulator to take further steps to reduce compliance burden, reduce cost of market intermediation, take more investor protection measures, further develop the corporate bond market, and develop green bond market in the context of increasing focus on ESG investment.

She also urged the market regulator to initiate the next generation of reforms to improve ease of doing business and be prepared for possible market turbulence on account of US Fed actions.

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