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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 ..... upersedes 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 compliance report to the stock exchanges as per sub-clause VI (ii), of the revised clause 49, within 15 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prise 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 material association with the company. e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; and f. is not a substantial sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation: 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 code of conduct shall be posted on the website of the company. (ii) All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO. Explanation: For this purpose, the term "senior management" shall mean person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-appointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. 3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. 4. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: a. Matters required to be included in the Director's Responsibility Statement to be included in the Board's rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Subsidiary Companies i. At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company. ii. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company. iii. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 other than those stated in the offer document/prospectus/notice and place it before the audit committee. Such disclosure shall be made only till such time that the full money raised through the issue has been fully spent. This statement shall be certified by the statutory auditors of the company. The audit committee shall make appropriate recommendations to the Board to take up steps in this matter. (E) Remuneration of Directors (i) All pecuniary relationship or transactions of the non-executive directors vis-a-vis the company shall be disclosed in the Annual Report. (ii) Further the following disclosures on the remuneration of directors shall be made in the section on the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t" 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 provided with the following information: (a) A brief resume of the director; (b) Nature of his expertise in specific functional areas; (c) Names of companies in which the person also holds the directorship and the membership of Committees of the Board; and (d) Shareholding of non-executive directors as stated in clause 49 (IV)(E)(v) above. (ii) Quarterly results and presentations made by the company to analysts shall be put on company's web-site, or shall be sent in such a form so as to enable the stock exchange on which the company 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 included in this report is given in Annexure I C and list of non-mandatory requirements is given in Annexure I D. (ii) The companies shall submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter as per the format given in Annexure I B. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company. 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. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors 49 I (A) Composition of Board 49(IA) (B) Non-executive Directors' compensation & disclosures 49 (IB) (C) Other provisions as to Board and Committees 49 (IC) (D) Code of Conduct 49 (ID) 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 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 compo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 company at large. ii. Details of non-compliance by the company, penalties, strictures imposed on the company by Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last three years. iii. Whistle Blower policy and affirmation that no personnel has been denied access to the audit committee. iv. Details of compliance with 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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