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TMI BlogCorporate Governance in listed Companies – Clause 49 of the Listing AgreementX X X X Extracts X X X X X X X X Extracts X X X X ..... ny. 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 ₹ 3 crores and above or net worth of ₹ 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. 4. The companies which are required to comply with the requirements of the revised clause 49 shall submit a quarterly complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utive 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; d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: ( i ) the statutory audit firm or the internal audit firm that is associated with the company, and ( ii ) the legal firm(s) and consulting firm(s) that have a mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ittees 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 companies, foreign companies and companies under section 25 of the Companies Act shall be excluded. 2. For the purpose of reckoning the limit under this sub-clause, Chairmanship/membership of the Audit Committee and the Shareholders Grievance Committee alone shall be considered. ( iii ) The Board shall periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non-compliances. (D) Code of Conduct ( i ) The Board shall lay down a code of conduct for all Board members and senior management of the company. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 audit committee whichever is greater, but there should be a minimum of two independent members present. (C) Powers of Audit Committee The audit committee shall have powers, which should include the following: 1. To investigate any activity within its terms of reference. 2. To seek information from any employee. 3. To obtain outside legal or other professional advice. 4. To secure attendance of outsiders with relevant expertise, if it considers necessary. (D) Role of Audit Committee The role of the audit committee shall include the following : 1. Oversight of the company s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible. 2. Recommending to the Board, the appointment, re-app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny other function as is mentioned in the terms of reference of the Audit Committee. Explanation (i): The term related party transactions shall have the same meaning as contained in the Accounting Standard 18, Related Party Transactions, issued by The Institute of Chartered Accountants of India. Explanation (ii): If the company has set up an audit committee pursuant to provisions of the Companies Act, the said audit committee shall have such additional functions/features as is contained in this clause. (E) Review of information by Audit Committee The Audit Committee shall mandatorily review the following information: 1. Management discussion and analysis of financial condition and results of operations; 2. Statement of significant related party transactions (as defined by the audit committee), submitted by management; 3. Management letters / letters of internal control weaknesses issued by the statutory auditors; 4. Internal audit reports relating to internal control weaknesses; and 5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee III. Subsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report. (C) Board Disclosures - Risk management The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures. These procedures shall be periodically reviewed to ensure that executive management controls risk through means of a properly defined framework. (D) Proceeds from public issues, rights issues, preferential issues etc. When money is raised through an issue (public issues, rights issues, preferential issues etc.), it shall disclose to the Audit Committee, the uses/applications of funds by major category (capital expenditure, sales and marketing, working capital, etc.), on a quarterly basis as a part of their quarterly declaration of financial results. Further, on an annual basis, the company shall prepare a statement of funds utilized for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts. iii. Segment-wise or product-wise performance. iv. Outlook v. Risks and concerns. vi. Internal control systems and their adequacy. vii. Discussion on financial performance with respect to operational performance. viii. Material developments in Human Resources / Industrial Relations front, including number of people employed. ( ii ) Senior management shall make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.) Explanation: For this purpose, the term senior management shall mean personnel of the company who are members of its core management team excluding the Board of Directors. This would also include all members of management one level below the executive directors including all functional heads. (G) Shareholders ( i ) In case of the appointment of a new director or re-appointment of a director the shareholders must be provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stems of the company and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies. ( d ) They have indicated to the auditors and the Audit Committee: ( i ) significant changes in internal control during the year; ( ii ) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and ( iii ) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company s internal control system VI. Report on Corporate Governance ( i ) There shall be a separate section on Corporate Governance in the Annual Reports of company, with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. The suggested list of items to be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... joint venture or collaboration agreement. 11. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property. 12. Significant labour problems and their proposed solutions. Any significant development in Human Resources/Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc. 13. Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of business. 14. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material. 15. Non-compliance of any regulatory, statutory or listing requirements and shareholders service such as non-payment of dividend, delay in share transfer etc. Annexure I B Format of Quarterly Compliance Report on Corporate Governance Name of the Company: Quarter ending on: Particulars Clause of Listing agreement Compliance Status Yes/No Remarks I. Board of Directors 49 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) The details under each head shall be provided to incorporate all the information required as per the provisions of the clause 49 of the Listing Agreement. (2) In the column No.3, compliance or non-compliance may be indicated by Yes/No/N.A. For example, if the Board has been composed in accordance with the clause 49 I of the Listing Agreement, Yes may be indicated. Similarly, in case the company has no related party transactions, the words N.A. may be indicated against 49 (IV A). (3) In the remarks column, reasons for non-compliance may be indicated, for example, in case of requirement related to circulation of information to the shareholders, which would be done only in the AGM/EGM, it might be indicated in the Remarks column as - will be complied with at the AGM . Similarly, in respect of matters which can be complied with only where the situation arises, for example, Report on Corporate Governance is to be a part of Annual Report only, the words will be complied in the next Annual Report may be indicated. Annexure I C Suggested List of Items to be included in the Report on Corporate Governance in the Annual Report of Companies 1. A b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mandatory requirements and adoption of the non-mandatory requirements of this clause. 8. Means of communication. i. Quarterly results. ii. Newspapers wherein results normally published. iii. Any website, where displayed. iv. Whether it also displays official news releases; and. v. The presentations made to institutional investors or to the analysts. 9. General Shareholder information: i. AGM : Date, time and venue. ii. Financial year. iii. Date of Book closure. iv. Dividend Payment Date. v. Listing on Stock Exchanges. vi. Stock Code. vii. Market Price Data : High, Low during each month in last financial year. viii. Performance in comparison to broad-based indices such as BSE Sensex, CRISIL index etc. ix. Registrar and Transfer Agents. x. Share Transfer System. xi. Distribution of shareholding. xii. Dematerialization of shares and liquidity. xiii. Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion date and likely impact on equity. xiv. Plant Locations. xv. Address for correspondence. Annex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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