TMI BlogCorporate Governance in listed entities - Amendments to Clauses 35B and 49 of the Equity Listing AgreementX X X X Extracts X X X X X X X X Extracts X X X X ..... governance and to make the corporate governance framework more effective. 3. The full text of the revised Clause 35B of the Equity Listing Agreement is given in Part-A of the circular. The full text of the revised Clause 49 of the Equity Listing Agreement is given in Part-B of the circular. 4. Applicability 4.1 The revised Clause 49 would be applicable to all listed companies with effect from October 01, 2014. However, the provisions of Clause 49(VI)(C) as given in Part-B shall be applicable to top 100 listed companies by market capitalisation as at the end of the immediate previous financial year. 4.2 The provisions of Clause 49(VII) as given in Part-B shall be applicable to all prospective transactions. All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 shall be placed for approval of the shareholders in the first General Meeting subsequent to October 01, 2014. However, a company may choose to get such contracts approved by the shareholders even before October 01, 2014. 4.3 For other listed entities which are not companies, but body corporate or are subject to regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on) Rules, 2014 for shareholders to send their assent or dissent. (ii) Issuer shall continue to enable those shareholders, who do not have access to e-voting facility, to send their assent or dissent in writing on a postal ballot as per the provisions of the Companies (Management and Administration) Rules, 2014 or amendments made thereto. (iii) Issuer shall utilize the service of any one of the agencies providing e-voting platform, which is in compliance with conditions specified by the Ministry of Corporate Affairs, Government of India, from time to time. (iv) Issuer shall mention the Internet link of such e-voting platform in the notice to their shareholders Part-B 49. Corporate Governance I. The company agrees to comply with the provisions of Clause 49 which shall be implemented in a manner so as to achieve the objectives of the principles as mentioned below. In case of any ambiguity, the said provisions shall be interpreted and applied in alignment with the principles. A. The Rights of Shareholders 1. The company should seek to protect and facilitate the exercise of shareholders rights. a. Shareholders should have the right to participate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should not make it unduly difficult or expensive to cast votes. B. Role of stakeholders in Corporate Governance 1. The company should recognise the rights of stakeholders and encourage co-operation between company and the stakeholders. a. The rights of stakeholders that are established by law or through mutual agreements are to be respected. b. Stakeholders should have the opportunity to obtain effective redress for violation of their rights. c. Company should encourage mechanisms for employee participation. d. Stakeholders should have access to relevant, sufficient and reliable information on a timely and regular basis to enable them to participate in Corporate Governance process. e. The company should devise an effective whistle blower mechanism enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices. C. Disclosure and transparency 1. The company should ensure timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the company. a. Information should be prepared and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards. h. Overseeing the process of disclosure and communications. i. Monitoring and reviewing Board Evaluation framework. 3. Other responsibilities a. The Board should provide the strategic guidance to the company, ensure effective monitoring of the management and should be accountable to the company and the shareholders. b. The Board should set a corporate culture and the values by which executives throughout a group will behave. c. Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. d. The Board should encourage continuing directors training to ensure that the Board members are kept up to date. e. Where Board decisions may affect different shareholder groups differently, the Board should treat all shareholders fairly. f. The Board should apply high ethical standards. It should take into account the interests of stakeholders. g. The Board should be able to exercise objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to it; ii. If the promoter is an unlisted entity, its directors, its employees or its nominees shall be deemed to be related to it. B. Independent Directors 1. For the purpose of the clause A, the expression independent director shall mean a non-executive director, other than a nominee director of the company: a. who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience; b. (i) who is or was not a promoter of the company or its holding, subsidiary or associate company; (ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company; c. apart from receiving director's remuneration, has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year; d. none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any shall serve as an independent director in not more than three listed companies. 3. Maximum tenure of Independent Directors a. An independent director shall hold office for a term up to five consecutive years on the Board of a company and shall be eligible for reappointment for another term of up to five consecutive years on passing of a special resolution by the company. Provided that a person who has already served as an independent director for five years or more in a company as on October 1, 2014 shall be eligible for appointment, on completion of his present term, for one more term of up to five years only. Provided further that an independent director, who completes his above mentioned term shall be eligible for appointment as independent director in the company only after the expiration of three years of ceasing to be an independent director in the company. 4. Formal letter of appointment to Independent Directors a. The company shall issue a formal letter of appointment to independent directors in the manner as provided in the Companies Act, 2013. b. The letter of appointment along with the detailed profile of independent director shall be discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in aggregate. Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government. Provided further that independent directors shall not be entitled to any stock option. D. Other provisions as to Board and Committees 1. The Board shall meet at least four times a year, with a maximum time gap of one hundred and twenty days between any two meetings. The minimum information to be made available to the Board is given in Annexure - X to the Listing Agreement. 2. A director shall not be a member in more than ten committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore, every director shall inform the company about the committee positions he occupies in other companies and notify changes as and when they take place. Explanation: i. For the purpose of considering the limit of the committees on which a director can serve, all public limited companies, whether listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executive directors, including all functional heads. F. Whistle Blower Policy 1. The company shall establish a vigil mechanism for directors and employees to report concerns about unethical behaviour, actual or suspected fraud or violation of the company s code of conduct or ethics policy. 2. This mechanism should also provide for adequate safeguards against victimization of director(s) / employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases. 3. The details of establishment of such mechanism shall be disclosed by the company on its website and in the Board s report. III. Audit Committee A. Qualified and Independent Audit Committee A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following: 1. The audit committee shall have minimum three directors as members. Two-thirds of the members of audit committee shall be independent directors. 2. All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise. Explanation (i): The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration and terms of appointment of auditors of the company; 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 and auditor's report thereon 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 report in terms of clause (c) of sub-section 3 of section 134 of the Companies Act, 2013 b. Changes, if any, in accounting policies and practices and reasons for the same c. Major accounting entries involving estimates based on the exercise of judgment by management d. Significant adjustments made in the financial statements arising out of audit findings e. Compliance with listing and other legal requirements relating to financial statements f. Disclosure of any related party transactions g. Qualifications in the draft audit report 5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval; 6. Reviewing, with the management, the statement of uses / applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me meaning as provided in Clause 49(VII) of the Listing Agreement. 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. IV. Nomination and Remuneration Committee A. The company shall set up a nomination and remuneration committee which shall comprise at least three directors, all of whom shall be non-executive directors and at least half shall be independent. Chairman of the committee shall be an independent director. B. The role of the committee shall, inter-alia , include the following: 1. Formulation of the criteria for determining qualifications, positive attributes and independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral Meeting. G. Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the material subsidiary shall require prior approval of shareholders by way of special resolution Explanation (i): The term material non-listed Indian subsidiary shall mean an unlisted subsidiary, incorporated in India, whose income or net worth (i.e. paid up capital and free reserves) exceeds 20% of the consolidated income or net worth respectively, of the listed holding company and its subsidiaries in the immediately preceding accounting year. Explanation (ii): 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 (iii): 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. VI. Risk Management A. The company shall lay down proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(b) has significant influence over the entity (or of a parent of the entity); or Explanation: For the purpose of Clause 49(V) and Clause VII(B), the term control shall have the same meaning as defined in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. C. The company shall formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions. Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent of the annual turnover or twenty percent of the net worth of the company as per the last audited financial statements of the company, whichever is higher. D. All Related Party Transactions shall require prior approval of the Audit Committee. E. All material Related Party Transactions shall require approval of the shareholders through special resolution and the related parties shall abstain from voting on such resolutions. VIII. Disclosures A. Related Party Transactions 1. Details of all material transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should form part of the Annual Report to the shareholders. This Management Discussion Analysis should include discussion on the following matters within the limits set by the company s competitive position: a. Industry structure and developments. b. Opportunities and Threats. c. Segment wise or product-wise performance. d. Outlook e. Risks and concerns. f. Internal control systems and their adequacy. g. Discussion on financial performance with respect to operational performance. h. Material developments in Human Resources / Industrial Relations front, including number of people employed. 2. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resignation along with the detailed reasons of resignation to the stock exchanges not later than one working day from the date of receipt of resignation for dissemination through its website. G. Disclosure of formal letter of appointment 1. The letter of appointment of the independent director along with the detailed profile shall be disclosed on the websites of the company and the Stock Exchanges not later than one working day from the date of such appointment. H. Disclosures in Annual report 1. The details of training imparted to Independent Directors shall be disclosed in the Annual Report. 2. The details of establishment of vigil mechanism shall be disclosed by the company on its website and in the Board s report. 3. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report. I. Proceeds from public issues, rights issue, preferential issues, etc. When money is raised through an issue (public issues, rights issues, preferential issues etc.), the company shall disclose the uses / applications of funds by major category (capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year; 2. significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and 3. 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 over financial reporting. X. Report on Corporate Governance A. 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 included in this report is given in Annexure - XII to the Listing Agreement and list of non-mandatory requirements is given in Annexure - XIII to the Listing Agreement. B. 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 - XI to the Listing Agreement . The report shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 - XI to the Listing Agreement Format of Quarterly Compliance Report on Corporate Governance Name of the Company: Particulars Clause of Listing agreement Compliance Status Yes/No Remarks II. Board of Directors 49 (II) (A) Composition of Board 49 (IIA) (B) Independent Directors 49 (IIB) (C) Non-executive Directors compensation dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49 (VIII G) (H) Disclosures in the Annual report 49 (VIII H) (I) Proceeds from public issues, rights issue, preferential issues, etc 49 (VIII I) IX. CEO/CFO Certification 49 (IX) X. Report on Corporate Governance 49 (X) XI. Compliance 49 (XI) 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 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(VII). 3. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. Listing on Stock Exchanges vi. Stock Code vii. Market Price Data: High., Low during each month in last financial year vii ..... X X X X Extracts X X X X X X X X Extracts X X X X
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