TaxTMI 
TaxTMI 
Corporate Governance in listed Companies – Clause 49 of the Listing Agreement
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....orting requirements for a company. 2. Please note that this is a master circular which supersedes all other earlier circulars issued by SEBI on clause 49 of the Listing Agreement. 3. The provisions of the revised clause 49 shall be implemented as per the schedule of implementation given below: (a) For entities seeking listing for the first time, at the time of seeking in-principle approval for such listing. (b) For existing listed entities which were required to comply with clause 49 which is being revised i.e. those having a paid up share capital of Rs. 3 crores and above or net worth of Rs. 25 crores or more at any time in the history of the company, by April 1, 2005. Companies complying with the provisions of the existing clause 49 at present (issued vide circulars dated 21st February, 2000, 9th March, 2000, 12th September, 2000, 22nd January, 2001, 16th March, 2001 and 31st December, 2001) shall continue to do so till the revised clause 49 of the Listing Agreement is complied with or till March 31, 2005, whichever is earlier. ....
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....company shall have an optimum combination of executive and non-executive directors with not less than fifty per cent of the board of directors comprising of non-executive directors. (ii) Where the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise of independent directors and in case he is an executive director, at least half of the Board should comprise of independent directors. (iii) For the purpose of the sub-clause (ii), the expression 'independent director' shall mean a non-executive director of the company who: a. apart from receiving director's remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director; b. is not related to promoters or persons occupying management positions at the board level or at one level below the board; c. has not been an executive of the company in the immediately preceding three financial years....
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....ng. The shareholders' resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, including independent directors, in any financial year and in aggregate. (C) Other provisions as to Board and Committees (i) The board shall meet at least four times a year, with a maximum time gap of three months between any two meetings. The minimum information to be made available to the board is given in Annexure- IA. (ii) A director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. Explanation: 1. For the purpose of considering the limit of the committees on which a director can serve, all public limited companies, whether listed or not, shall be included and all other companies including private limited com....
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....s in the individual's financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. (iii) The Chairman of the Audit Committee shall be an independent director; (iv) The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries; (v) The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and a representative of the statutory auditor may be present as invitees for the meetings of the audit committee; (vi) The Company Secretary shall act as the secretary to the committee. (B) Meeting of Audit Committee The audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either two members or one third of the members of the ....
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.... Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems. 7. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. 8. Discussion with internal auditors any significant findings and follow up thereon. 9. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. 10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern. 11. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors. 12. To review the funct....
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.... free reserves) exceeds 20% of the consolidated turnover or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year. Explanation 2: The term "significant transaction or arrangement" shall mean any individual transaction or arrangement that exceeds or is likely to exceed 10% of the total revenues or total expenses or total assets or total liabilities, as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year. Explanation 3: Where a listed holding company has a listed subsidiary which is itself a holding company, the above provisions shall apply to the listed subsidiary insofar as its subsidiaries are concerned. IV. Disclosures (A) Basis of related party transactions (i) A statement in summary form of transactions with related parties in the ordinary course of business shall be placed periodically before the audit committee. (ii) Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee. (iii) Details of ma....
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....s, bonuses, stock options, pension etc. (b) Details of fixed component and performance linked incentives, along with the performance criteria. (c) Service contracts, notice period, severance fees. (d) Stock option details, if any - and whether issued at a discount as well as the period over which accrued and over which exercisable. (iii) The company shall publish its criteria of making payments to non-executive directors in its annual report. Alternatively, this may be put up on the company's website and reference drawn thereto in the annual report. (iv) The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. (v) Non-executive directors shall be required to disclose their shareholding (both own or held by/for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such director (F) Management &....
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....mpany is listed to put it on its own web-site. (iii) A board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as 'Shareholders/Investors Grievance Committee'. (iv) To expedite the process of share transfers, the Board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight. V. CEO/CFO certification The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that: (a) They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief : (i) these state....
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.... VII. Compliance (1) The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors' report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company. (2) The non-mandatory requirements given in Annexure ID may be implemented as per the discretion of the company. However, the disclosures of the compliance with mandatory requirements and adoption (and compliance)/non-adoption of the non-mandatory requirements shall be made in the section on corporate governance of the Annual Report. Annexure IA Information to be placed before Board of Directors 1. Annual operating plans and budgets and any updates. 2. Capital budgets and any updates. 3. Quarterly results for the company and its operating divisions or business segments. 4. Minutes of meetings of audit committee and other committ....
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....sp; II. Audit Committee 49 (II) (A) Qualified & Independent Audit Committee 49 (IIA) ` (B) Meeting of Audit Committee 49 (IIB) (C) Powers of Audit Committee 49 (IIC) (D) Role of Audit Committee 49 (IID) (E) Review of Information by Audit Committee 49 (IIE) III. Subsidiary Companies 49 (III) IV. Disclosures 49 (IV) (A) Basis of related party transactions 49 (IV A) (B) Board Disclosures 49 (IV B) (C) Proceeds from public issues, rights issues, preferential issues etc. 49 (IV C) (D) Remuneration of Directors 49 (IV D) (E) Management 49 (IV E) (F) Shareholders 49 (IV F) V. CEO/CFO Certification 49 (V) VI. Report on Corporate Governance 49 (VI) VII. Compliance 49 (VII) Note: (1) The details under each head shall be ....
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....ors, as per format in main report. 5. Shareholders Committee: i. Name of non-executive director heading the committee. ii. Name and designation of compliance officer. iii. Number of shareholders' complaints received so far. iv. Number not solved to the satisfaction of shareholders. v. Number of pending complaints. 6. General Body meetings: i. Location and time, where last three AGMs held. ii. Whether any special resolutions passed in the previous 3 AGMs. iii. Whether any special resolution passed last year through postal ballot - details of voting pattern. iv. Person who conducted the postal ballot exercise. v. Whether any special resolution is proposed to be conducted through postal ballot. vi. Procedure for postal ballot. 7. Disclosures: i. Disclosures on materially significant related party transactions that may have potential conflict with the interests of....
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....bsp; The board may set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference, the company's policy on specific remuneration packages for executive directors including pension rights and any compensation payment. ii. To avoid conflicts of interest, the remuneration committee, which would determine the remuneration packages of the executive directors may comprise of at least three directors, all of whom should be non-executive directors, the Chairman of committee being an independent director. iii. All the members of the remuneration committee could be present at the meeting. iv. The Chairman of the remuneration committee could be present at the Annual General Meeting, to answer the shareholder queries. However, it would be up to the Chairman to decide who should answer the queries. (3) Shareholder Rights - A half-yearly declaration of financial performance including summary of the significant events in last six-months, may be sent to each household of shareholders. (4) Audit qualifications - Company ma....