Clause 49 of Listing Agreement
Clause 49 of Listing Agreement
Clause 49 of Listing Agreement
I. Board of Directors
(A) Composition of Board
i. The Board of directors of the company shall have an optimum combination of executive
and non-executive directors with not less than fifty percent 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.
Provided that where the non-executive Chairman is a promoter of the company or is
related to any promoter or person occupying management positions at the Board level
or at one level below the Board, at least one-half of the Board of the company shall
consist of independent directors.
Explanation-For the purpose of the expression “related to any promoter” referred to in
sub-clause (ii):
a. If the promoter is a listed entity, its directors other than the independent directors, its
employees or its nominees shall be deemed to be related to it;
b. If the promoter is an unlisted entity, its directors, its employees or its nominees shall
be deemed to be related to it.”
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;
f. is not a substantial shareholder of the company i.e. owning two percent or more of
the block of voting shares.
g. is not less than 21 years of age
Explanation
For the purposes of the sub-clause (iii):
a. Associate shall mean a company which is an “associate” as defined in Accounting
Standard (AS) 23, “Accounting for Investments in Associates in Consolidated
Financial Statements”, issued by the Institute of Chartered Accountants of India.
b. “Senior management” shall mean personnel of the company who are members of its
core management team excluding Board of Directors. Normally, this would comprise
all members of management one level below the executive directors, including all
functional heads.
c. “Relative” shall mean “relative” as defined in section 2(41) and section 6 read with
Schedule IA of the Companies Act, 1956.
d. Nominee directors appointed by an institution which has invested in or lent to the
company shall be deemed to be independent directors.
Explanation:
“Institution’ for this purpose means a public financial institution as defined in Section 4A
of the Companies Act, 1956 or a “corresponding new bank” as defined in section 2(d) of
the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 [both Acts].”
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.
iv. An independent director who resigns or is removed from the Board of the Company
shall be replaced by a new independent director within a period of not more than 180
days from the day of such resignation or removal, as the case may be:
Provided that where the company fulfils the requirement of independent directors in its
Board even without filling the vacancy created by such resignation or removal, as the
case may be, the requirement of replacement by a new independent director within the
period of 180 days shall not apply
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 material individual transactions with related parties or others, which are not
on an arm’s length basis should be placed before the audit committee, together with
Management’s justification for the same..
(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. Furthermore,
where the company has appointed a monitoring agency to monitor the utilisation of proceeds
of a public or rights issue, it shall place before the Audit Committee the monitoring report of
such agency, upon receipt, without any delay. The audit committee shall make appropriate
recommendations to the Board to take up steps in this matter.
(F) Management
i. As part of the directors’ report or as an addition thereto, a Management Discussion
and Analysis report 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:
1. Industry structure and developments.
2. Opportunities and Threats.
3. Segment–wise or product-wise performance.
4. Outlook
5. Risks and concerns.
6. Internal control systems and their adequacy.
7. Discussion on financial performance with respect to operational performance.
8. 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 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
ia. Disclosure of relationships between directors inter-se shall be made in the Annual
Report, notice of appointment of a director, prospectus and letter of offer for issuances
and any related filings made to the stock exchanges where the company is listed.
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 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 statements do not contain any materially untrue statement or omit any material
fact or contain statements that might be misleading;
ii. these statements together present a true and fair view of the company’s affairs and are
in compliance with existing accounting standards, applicable laws and regulations.
b. There are, to the best of their knowledge and belief, no transactions entered into by the
company during the year which are fraudulent, illegal or violative of the company’s code
of conduct.
c. They accept responsibility for establishing and maintaining internal controls for financial
reporting and that they have evaluated the effectiveness of internal control systems of the
company pertaining to financial reporting and they have disclosed to the auditors and the
Audit Committee, deficiencies in the design or operation of such 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 over financial reporting 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 over financial reporting.
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 – I D 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 I A
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 committees of the board.
5. The information on recruitment and remuneration of senior officers just below the board
level, including appointment or removal of Chief Financial Officer and the Company
Secretary.
6. Show cause, demand, prosecution notices and penalty notices which are materially important
7. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution
problems.
8. Any material default in financial obligations to and by the company, or substantial
nonpayment for goods sold by the company.
9. Any issue, which involves possible public or product liability claims of substantial nature,
including any judgement or order which, may have passed strictures on the conduct of the
company or taken an adverse view regarding another enterprise that can have negative
implications on the company.
10. Details of any 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:
Committee
Annexure I C
Suggested List of Items to Be Included In the Report on Corporate Governance in the
Annual Report of Companies
1. A brief statement on company’s philosophy on code of governance.
2. Board of Directors:
a. Composition and category of directors, for example, promoter, executive, nonexecutive,
independent non-executive, nominee director, which institution represented as lender or
as equity investor.
b. Attendance of each director at the Board meetings and the last AGM.
c. Number of other Boards or Board Committees in which he/she is a member or
Chairperson.
d. Number of Board meetings held, dates on which held.
3. Audit Committee:
i. Brief description of terms of reference
ii. Composition, name of members and Chairperson
iii. Meetings and attendance during the year
4. Remuneration Committee:
i. Brief description of terms of reference
ii. Composition, name of members and Chairperson
iii. Attendance during the year
iv. Remuneration policy
v. Details of remuneration to all the directors, 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 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 nonmandatory
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
Annexure I D
Non-Mandatory Requirements
1. The Board
The Board - A non-executive Chairman may be entitled to maintain a Chairman's office at
the company's expense and also allowed reimbursement of expenses incurred in performance
of his duties. Independent Directors may have a tenure not exceeding, in the aggregate, a
period of nine years, on the Board of a company. The company may ensure that the person
who is being appointed as an independent director has the requisite qualifications and
experience which would be of use to the company and which, in the opinion of the company,
would enable him to contribute effectively to the company in his capacity as an independent
director."
2. Remuneration Committee
i. 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 may move towards a regime of unqualified financial statements.
5. Training of Board Members
A company may train its Board members in the business model of the company as well as
the risk profile of the business parameters of the company, their responsibilities as directors,
and the best ways to discharge them.
6. Mechanism for evaluating non-executive Board Members
The performance evaluation of non-executive directors could be done by a peer group
comprising the entire Board of Directors, excluding the director being evaluated; and Peer
Group evaluation could be the mechanism to determine whether to extend / continue the
terms of appointment of non-executive directors.
7. Whistle Blower Policy
The company may establish a mechanism for employees to report to the management
concerns about unethical behaviour, actual or suspected fraud or violation of the company’s
code of conduct or ethics policy. This mechanism could also provide for adequate safeguards
against victimization of employees who avail of the mechanism and also provide for direct
access to the Chairman of the Audit committee in exceptional cases. Once established, the
existence of the mechanism may be appropriately communicated within the organization.