Corporate Governance in Listed Companies in India by I.

Sridhar
Clause 49 of Listing Agreement

SEBI, as part of its endeavour to continuously improve the standards of corporate

governance in line with the needs of a dynamic market, constituted a Committee on
Corporate Governance under the Chairmanship of Shri N.R. Narayana Murthy to
review the performance of Corporate Governance to enhance the transparency and
integrity of the market.

Based on the recommendations of the Committee and also with a view to promote
and raise the standards of Corporate Governance, SEBI revised claused 49 of the
Listing agreement vide its circular dated August 26, 2003, the implementation of
which was deferred later. The Securities and Exchange Board of India on October
29, 2004 again revised the Clause 49 of the Listing Agreement.

However, noticing that a large number of companies were still not in the state of
preparedness to be fully compliant with the requirements of revised clause 49 of
the listing agreement, SEBI allowed more time to the corporates to conform to
clause 49 of the listing agreement and extended the date for ensuring compliance
with the revised clause 49 of the listing agreement to December 31, 2005.

The text of Revised clause 49 as applicable to the listed companies as on date is

given below :
The company agrees to comply with the following provisions:
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 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;
(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 shareholder of the company i.e., owning two per cent or more of the
block of voting shares.
Nominee directors appointed by an institution which has invested in or lent to the
company shall be deemed to be independent directors.
(B). Non Executive Directors - Compensation and Disclosures
All fees/compensation, if any paid to non-executive directors, including independent
directors, shall be fixed by the Board of Directors and shall require previous
approval of shareholders in general meeting.

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
four months between any two meetings.
(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 companies, foreign companies and
companies under section 25 of the Companies Act shall be excluded.
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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 noncompliance.
(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

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.
II. Audit Committee
A qualified and independent audit committee shall be set up, giving the terms of
reference subject to the following:
(i) The audit committee shall have minimum three directors as members. Twothirds of the members of audit committee shall be independent directors.
(ii) All members of audit committee shall be financially literate and at least one
member shall have accounting or related financial management expertise.
Explanation 1:- The term "financially literate" means the abiIity to read and
understand basic financial statements, ie., balance sheet, profit and loss account,
and statement of cash flows.
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Explanation 2 :-A member will be considered to have accounting or related

financial management expertise if he or she possesses experience in finance or
accounting, or requisite professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication, including being or havin'g 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 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-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 manqgement, 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 report in terms of clause (2AA) of section 217 of the
Companies Act, 1956
(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.
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5. Reviewing, with the management, the quarterly financial statements before

submission to the board for approval.
6. 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 there on.
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 functioning of the Whistle Blower mechanism, in case the same is
existing.
13. Carrying out any other function as is mentioned in the terms of reference of the
Audit Committee.
(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. 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 Cornmittee 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 listed holding
company, a statement of all significant transactions and arrangements entered into
by the unlisted subsidiary company.
Explanation 1 : The term "material non-listed Indian subsidiary" shall mean an
unlisted subsidiary, incorporated in India, whose turnover or net worth (i.e., paid up
capital and 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 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.
(B). Disclosure of Accounting Treatment
Where in the preparation of financial 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, 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 corporate governance of the Annual Report:
(a) All elements of remuneration package of individual directors summarized under
major groups, such as salary, benefits, 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.

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(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
(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:
(i) Industry structure and developments.
(ii) Opportunities and threats.
(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.

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(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(1V)(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
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
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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 wholetime 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
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
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(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.
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.
Noncompliance of any mandatory requirement of this clause with reasons thereof
and the extent to which the nonmandatory requirements have been adopted should
be specifically highlighted. The suggested list of items to be included in this report
is given in Annexure-IC and list of non-mandatory requirements is given in
Annexure-ID.
(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 lB. 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
practising 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 nonmandatory requirements shall be made in the section on corporate governance of
the Annual Report.

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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 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 non-payment 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 thc
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 singing of wage
agreement, implementation of Voluntary Retirement Scheme etc.
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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 IB
Format of Quarterly Compliance Report on Corporate Governance
Name of the Company:
Quarter ending on :

Particulars

Clause
Listing

Status - Yes

Agreement

/ No

I. Board of Directors

49I

(A) Composition of Board

49 (IA)

(B)

Non

executive

Directors

of Compliance

Remarks

49 (IB)

compensation & disclosures

(C) Other provisions as to Board

49 (IC)

and Committees
(d) Code of Conduct

49 (ID)

II. Audit Committee

49 II

(A) Qualified & Independent Audit

49 (IIA)

Committee
(B) Meeting of Audit Committee

49 (IIB)

(c) Powers of Audit Committee

49(IIC)

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(D) Role of Audit Committee

(E)

Review

of

49(IID)

Information

by 49(IIE)

Audit Committee
III. Subsidiary Companies

49(III)

IV. Disclosures

40(IV)

(A)

Basis

of

related

party

49(IV A)

transactions
(B) Board Disclosures

49 (IV B)

(C) Proceeds from public issues,

49 (IV C)

rights issue etc

(D) Remuneration of Directors

49 (IV D)

(E) Management

49 (IV E)

(F) Shareholders

49 (IV F)

V. CEO / CFO Certification

49 (V)

VI.

49 (VI)

Report

on

Corporate

Governance
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 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
17

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 IC
Suggested list of items to be included in the Report on Corporate
Governance in the Annual Report of Companies
1. A brief statement of company's philosophy on code of governance.
2. Board of Directors
(i) Composition and category of directors, for example, promoter, executive, nonexecutive,

independent

nonexecutive,

nominee

director,

which

institution

represented as lender or as equity investor.

(ii) Attendance of each director at the Board meetings and the last AGM.
(iii) Number of other Boards or Board Committees in which he/ she is a member or
Chairperson.
(iv) 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

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(iii) Attendance during the year

(iv) 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.

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(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

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(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 ID
Non-Mandatory Requirements
(1) 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.

(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.
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(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 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
22

Committee in exceptional cases. Once established, the existence of the mechanism

may be appropriately communicated within the organization.

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