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Corporate Governance Evolution in India For Listed Companies
Corporate Governance Evolution in India For Listed Companies
In order to enhance corporate democracy, the concept of Postal Ballot to be introduced to enable
shareholders to vote through postal ballot.
Corporate governance Considering the significance of corporate governance for the protection of
investor interests and the need to augment corporate governance in the listed companies, a
seventeen-member Committee was set up under the chairmanship of Shri Kumar Mangalam Birla,
member SEBI board, to suggest measures. The terms of reference of this Committee encompass
suggestions for amendments to listing agreement executed by the stock exchange with the
companies in areas such as continuous disclosure of material information both financial and non-
financial information, accounting information, manner and frequency of such disclosure,
responsibility of directors, etc. The Committee has also been entrusted to draft a code of corporate
best practices and also suggest safeguards to be instituted within the companies to deal with insider
information and against insider trading.
Corporate Governance · A Committee was appointed by the SEBI under the chairmanship of Shri
Kumar Mangalam Birla, member SEBI Board, to enhance the standard of corporate governance. The
draft Report of the Committee was widely circulating d and deliberated. The recommendations were
accepted by the SEBI Board and implemented by the SEBI through the amendment of the listing
agreement of the s stock exchanges. The recommendations applicable first to all the listed
companies which are included either in group A of the BSE and in S& P CNX Nifty index as on January
1, 2000 to be completed by March 31, 2001 and in the subsequent years to other companies in a
phased manner. This will substantially enhance the standard of corporate governance in India.
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Box 1.4 :
· The board of director 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 com prising
of non-executives .
· All pecuniary relationship or trans actions of the non-executive directors viz.-a-viz. the
company, should be dis clos e d in the Annual Report.
· Board mee ting s h all beheld at least four times a year with a minimum time gap of at least
four months between any two meetings.
· The Committee re commended the constitutions of Audit Committee in a listed company.
· The committee recommended that audit committee shall have minimum three members, all
being non-executive directors, with the majority of them being independent, and with at
least one director having financial and accounting knowledge, the chairman of the
committee shall be an independent director.
· The audit committee shall meet at least thrice a year. One mee ting s h all beheld before
finalization of annual accounts and one e very six months. The audit committee shall have
powers which should include to investigate any activity within its terms of reference, to seek
information from any employee, to obtain outs ide legal or other professional advice, to s e
cure attendance of outsiders with relevant expertise, if it considers necessary.
· The committee will re view with the management, the external and internal auditors, the
adequacy of internal control systems, the adequacy of internal audit function including the
structure of the internal audit department, staffing and seniority of the official heading the
department, re porting structure, discussion with internal auditors, reviewing the findings of
any internal investigations by the internal auditors, discussions with external auditors.
· The audit committee will re view the company’s financial and risk management policies and
will look into the reasons for substantial de faults in the payment to the depositors,
debenture h older, shareholders (in case of non-payment of declared dividends) and
creditors.
· The committee has recommended that remuneration of directors including non-executive
directors will be decided by the board of directors.
· A director shall not be a member in more than 10 companies or act as chairman of more
than 5 companies in which he is a director. He will keep inform e d the company about the
committee positions he occupies in other companies.
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· As part of the directors’ report or as an addition there to, a Management Discussion and
Analysis Report should form part of the annual report to the share h older. The management
discussion and analysis will include industry structure and developments, opportunities and
threats, segment–wise or product-wise performance, outlook, risks and concerns, internal
control systems and the adequacy, discussion on financial performance with respect to
operational performance, material developments in human resources / industrial relations
front, including number of people employed.
· Disclosures must be made by the management to the board relating to all important
financial and commercial transactions.
· In case of the appointment of a new director or re -appointment of a director, the
shareholder be provided with a brie f resume of the director; nature of his expertise in
specific function are as; and names of companies in w h ich the proposed directors h olds
directorship and the membership of committees of the board.
· Information like quarterly results and presentation made by companies to analysts, shall be
put on company’s web-site, or shall be in such a forms o as to enable the stock exchange on
w h ich the company is listed, to put it on its own web-site.
· To expedite the process of s h are transfers, the board of the company s h all de le gate the pow e r
of share transfer to an office r or a committee or to the registrar and s h are transfer agents
· A company will have to include separate sections on corporate governance in its annual report
with de tails on compliance, non-compliance of any mandatory requirement. The company will have
to obtain a certificate from the auditors of the company regarding compliance of conditions of
corporate governance.
· Almost all the companies listed on stock exchanges or seeking listing for the first time will have to
complete all mandatory corporate governance requirements in a phased manner by March 31, 2003.
The companies seeking listing for the first time will have to complete corporate governance at the
time of listing.
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Annual Report2001-2002
Vide Circular dated 10th July 2000, amendment to the Listing Agreement was made in
connection with the recommendation of Shri Kumar Mangalam Birla Committee on
corporate governance as under Except in the case of Government companies,
institutional directors on the Boards of Companies should be considered as independent
directors whether the institution is an investment institution or a lending institution. For
the purpose of considering the limit on committees of which a director can serve public
limited companies whether listed or not shall be included all other companies i.e.
private limited companies or foreign companies shall be excluded. Further, 3
committees i.e. audit committee, the shareholder grievance committee and the
remuneration committees shall be considered for this purpose. Clause 43 of the Listing
Agreement amended vide circular dated 10th August 2000 to provide that the funds
raised through preferential offers and their actual utilisation as per the objects of the
preferential offer shall also be made part of the same provision of disclosure as are
applicable in case of raising of funds through public or rights issues.
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Vide Circular dated 2nd September 2001, SEBI advised setting up of a separate
monitoring cell to monitor compliance with provisions of corporate governance and the
companies to submit a quarterly compliance report to the stock exchanges within 15
days from the under of the quarter.
Annual Report2002-2003
SEBI constituted a new committee on corporate governance under the chairmanship
Shri N.R. Narayana Murthy to have a fresh look on the corporate governance with a view
to further improving the corporate governance standards, to review the adequacy of the
existing requirements of the corporate governance and suggest revisions /
improvements, wherever necessary. The Committee has submitted its report to SEBI
which is under consideration. Meanwhile, SEBI has worked with the credit rating
agencies to prepare “Corporate Governance Index” as a measure of wealth creation,
management and its distribution by the corporates. Some companies have already been
rated on this index. At present the index is voluntary. It is expected that over time, as
more and more companies will get themselves rated voluntarily and the rating
methodology is refined. This index would be regarded as a valuable indicator of
corporate governance of companies and will be widely used by the market.
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The basic intention of establishing the Regional Stock Exchanges (RSEs) was to
enable regional companies to raise capital and to spread the awareness about stock
market investment amongst investors across the country. However, with emergence
of competition among exchanges aided by globalisation and technological change,
the survival of RSEs was threatened. One central problem with the RSEs was that
there are very few liquid shares traded on these Exchanges. With the extension of
screenbased trading network of NSE and BSE across the country, majority of the
RSEs became redundant. Moreover, with a view to enhancing corporate governance,
all stock exchanges have been undergoing the process of corporatisation and
demutualisation.
Self-listing should be permitted, either through the IPO route or by way of listing
with appropriate exemptions from Rule 19(2)(b) of Securities Contracts (Regulation)
Rules, in case, a stock exchange does not make a public offer. The regulatory
conflicts, which are likely to arise, will have to be dealt with by suitable provisions in
the listing agreement of the stock exchanges. The stock exchanges will have to fully
comply with the provisions of corporate governance incorporated in clause 49 of the
listing agreement. Overseas listing will also be permitted after the exchange has
been listed on the domestic exchange
Proposed Ammendments-
Board composition and Disclosures: It is proposed that a provision be added stating
that if the non-executive Chairman is a promoter or is related to promoters or
persons occupying management positions at the Board level or at one level below
the Board, he would not be treated as independent director and the company in
such a case, would be required to have 50% independent directors on its Board.
Time gap between the resignation /removal of an independent director and the
appointment of another in his place: It is proposed to stipulate that an independent
director who resigns or is removed from the Board shall be replaced by a new
independent director within a time-gap of not more than 90 days from such
resignation / removal. Without any time limit, a company may continue to remain
non-compliant and may take a plea that it has not been able to find an independent
director.
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maximum age or qualifications for an independent director since it would differ from
company to company based on the line of activities it is engaged in. Further, the
Companies Act does not specify the experience/ qualifications/ age limit for a
director.
NISM, along with the Global Corporate Governance Forum and the Confederation of
Indian Industries, organised a number of events on corporate governance. Two
workshops on “Reporting on Corporate Governance in India” were held for media
persons in New Delhi and Mumbai. A roundtable conference on “Corporate
Governance in India: A Reality Check” was organised in Mumbai on April 16, 2009.
“Directors’ Colloquia” was held in Mumbai, Kolkata and New Delhi. 61 participants
(including eight women participants) representing 47 companies participated in the
three colloquia. In addition, one “Board Leadership Workshops Toolkit: Training the
Trainers” programme was offered. 20 participants from 13 organisations
participated in this Training of Trainers (ToT).
(Source Companies Bill 2009 -) During their discussions on the Bill, the Committee
have been stressing on Corporate Governance norms and its statutory recognition.
The Corporate Governance Voluntary Guidelines 2009 were issued by the Central
Government (Ministry of Corporate Affairs) in December, 2009 for voluntary
adoption by the Companies. Pursuant to the Committee‘s suggestion that the
substantive matters covered in these guidelines may be appropriately included in
the Bill itself, the Ministry while agreeing to this suggestion in principle, has
proposed that the following matters may be included in the Bill :- (i) Separation of
Offices of Chairman & Chief Executive Officer (ii) Nomination Committee to consider
proposals for searching, evaluating, and recommending appropriate Independent
Directors and Non-Executive and Executive Directors (iii) Number of Companies in
which an Individual may become a Director (iv) Attributes for Independent Directors
All Independent Directors to provide a detailed Certificate of Independence. (v)
Tenure for Independent Director (vi) Independent Directors expected to act as
‗whistle blower.‘ (vii) Remuneration Committee to determine, recommend and
monitor principles, criteria and the basis of remuneration policy of the company
(viii) Risk Management The Board to affirm and disclose in its report to members
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about critical risk management policy for the company. (ix) Evaluation of
Performance of Board of Directors, Committees thereof and of Individual Directors
(x) Board to place Systems to ensure Compliance with Laws (xi) More specific role
and responsibilities for audit committee to be provided specifically in respect of
related Party Transactions. A statement in a prescribed/structured format about all
related party transactions to be included in the Board‘s report. (xii) Appointment of
Auditors: Audit Committee to examine eligibility, independence etc of the auditor
recommend his/its appointment to the Board (xiii) Certificate of Independence of
the auditor to be obtained by the company :- The Certificate of Independence
should certify that the auditor together with its consulting and specialized services
affiliates, subsidiaries and associated companies or network or group entities has
not/have not undertaken any prohibited non-audit assignments for the company
and are independent vis-àvis the client company. (xiv) Rotation of Audit Partners
and Firms. (xv) Need for clarity on information to be sought by auditor and/or
provided by the company to him/it. (xvi) Appointment of Internal Auditor. 17.
Corporate Governance Guidelines issued by the Ministry of Corporate Affairs are
presently voluntary. The Committee are happy to note that the Ministry have acted
upon the suggestions of the Committee and have also agreed to include these
guidelines appropriately in the Bill. In addition to the afore-mentioned aspects
impinging on Corporate governance, the Committee desire that other significant and
substantive matters included in the Guidelines and the Listing Agreement prescribed
by SEBI may also be mandated for listed companies and considered for inclusion
appropriately in the Bill. For unlisted companies, the Guidelines may remain
voluntary.
NISM, in collaboration with the Global Corporate Governance Forum (GCGF) of IFC
Washington and Confederation of Indian Industries (CII), has delivered a series of
programmes on corporate governance. These include: (1) Workshop for Media
Persons; (2) Directors Toolkit Workshops; (3) Directors’ Colloquium; and (4) Risk
Management workshop for Board of Directors. During 2010-11, NISM organized two
media workshops, one each in Mumbai and Delhi, one risk management workshop
for Board of Directors, two directors toolkit workshops in Mumbai and one alumni
meet. Training of trainers (TOT) programme for corporate governance board
leadership was conducted twice in 2010-11: July 22 to 25, 2010 and March 9 to 12,
2011. An alumni meet of TOT was conducted on July 22, 2010 to take feedback from
the participants of earlier TOT participants. A two-day workshop on “Risk
Management and Board of Directors” was held in Grand Hyatt, Mumbai, during
September 7 to 8, 2010. Also, two media workshops “Reporting on Corporate
Governance in India” were conducted, one each in Mumbai and Delhi, in March
2011.
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The SECC Regulations provide for methods to promote good corporate governance.
For example oversight committees to deal with issues of conflict of interest are
mandated. Also, provisions for appointment of compliance officer are mandated.
Further, clearing corporations and stock exchanges are mandated to ensure equal,
unrestricted, transparent and fair access to all persons without any bias towards
associates and related entities.
The Companies Act, 2013 was enacted on August 30, 2013 which provides for a
major overhaul in the corporate governance norms for all companies. SEBI has also
revised the existing Corporate Governance framework (Clause 49 of Listing
agreement) which would be applicable with effect from October 01, 2014 to align
with the provisions of the Companies Act, 2013, adopt best practices on corporate
governance and to make the corporate governance framework more effective.
NISM has entered into an MoU with ICSI for undertaking various activities in capacity
building for securities market. One of the initiatives in this regard is to organise
conference on ‘ ethics and Corporate Governance ‘ at strategic centres. During The
year , four conferences were organised at Mumbai , Delhi , Chennai and Kolkaata in
association with ICSI . The deliberations at these conferences focused on three
aspects of the topic – Ethics and Corporate Governance viz. Regulatory Perspective,
Practitioners’ Perspective and Academic Perspective. Senior functionaries from the
industry spoke on these occasions.
SEBI reviewed the extant regulatory framework for corporate governance in India.
Towards this end, a discussion paper was put up on SEBI’s website for public
comments on January 4, 2013. The proposals were further discussed in several
meetings of the PMAC. Final norms were approved by the SEBI board on February
13, 2014. Subsequently, Clause 49 of the Listing Agreement was revised by aligning
the provisions with the Companies Act, 2013 and also prescribing additional
conditions in this regard. The major changes are: a. Principles on corporate
governance have been incorporated based on OECD principles. b. At least one
woman director on the board of every listed company. c. Exclusion of nominee
director from the definition of independent director. d. Prohibition of stock options
to independent directors. e. Maximum tenure of independent directors restricted to
two terms of up to five years each. f. Performance evaluation of independent
directors by the entire board of directors. g. Limit on number of directorships for
independent directors to seven. h. Definition of ‘related party’ extended to cover
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Amendments were carried out to clause 49 of the equity listing agreement to revise
norms on corporate governance in listed entities.
Stock exchanges were advised to step up monitoring of compliance by listed entities
with the principles of corporate governance.
Further amendments were carried out to clause 49 of the equity listing agreement
on corporate governance in listed entities.
The Listing Regulations provide the broad principles (in line with the IOSCO
Objectives and Principles of Securities Regulation) for periodic disclosures by listed
entities and also incorporate the principles for corporate governance (in line with
the G20/OECD Principles of Corporate Governance). These principles underlie the
specific requirements prescribed in the different chapters of the Listing Regulations.
In the event of the absence of any specific requirement or if there is ambiguity,
these principles will serve to guide the listed entities.
NISM conducts workshops and round table conferences on matters pertaining to
corporate governance. NISM, in association with the IL&FS Academy of Applied
Development (IAAD), organised a training programme on ‘Integrating Environment,
Social and Governance Perspectives in Investment Decisions’ and a workshop on
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‘Proposed Clause 36 and Revised Clause 49 of the Listing Agreements’ jointly with
ICSI during 2015-16.
Development Research Centre of China’s State Council and CFFEX A joint delegation
of officials of the Development Research Centre of China State Council and the China
Financial Futures Exchange (CFFEX) visited SEBI for a study tour in June 2015. The
study focused on corporate governance for listed companies in India and regulatory
aspects related to capital market infrastructure institutions.
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SEBI set up a committee under the Chairmanship of Shri Uday Kotak to advise SEBI
on issues relating to corporate governance in India. The terms of reference of the
Committee included making recommendations to SEBI on the following issues: 1.
Ensuring independence in spirit of Independent Directors and their active
participation in functioning of the company.
2. Improving safeguards and disclosures pertaining to Related Party Transactions; 3.
Issues in accounting and auditing practices by listed companies; 4. Improving
effectiveness of Board Evaluation practices; 5. Addressing issues faced by investors
on voting and participation in general meetings; 6. Disclosure and transparency
related issues, if any 7. Any other matter, as the Committee deems fit pertaining to
corporate governance in India. The Committee was represented by diversified
stakeholders including the Government, industry, stock exchanges, academicians,
proxy advisors, professional bodies, lawyers, etc. The Committee analysed the issues
in corporate governance in India and submitted its report in October 2017, which
was placed on SEBI website for public comments. The report includes more than 80
recommendations for improving corporate governance for listed entities in India.
The SEBI Board in its meeting held on March 28, 2018 considered the
recommendations of the Committee and the public comments thereon and
approved actions to be taken on the recommendations. SEBI accepted most of the
recommendations of the Committee without any modifications, some of which are
mentioned below: i. Reduction in the maximum number of listed entity directorships
from 10 to 8 by April 01, 2019 and to 7 by April 1, 2020, ii. Expanding the eligibility
criteria for independent directors, iii. Enhanced role of the Audit Committee,
Nomination and Remuneration Committee and Risk Management Committee, iv.
Disclosure of utilization of funds from QIP/ preferential issue, v. Disclosures of
auditor credentials, audit fee, reasons for resignation of auditors, etc., vi. Disclosure
of expertise/ skills of directors, vii. Enhanced disclosure of related party transactions
(RPTs) and related parties to be permitted to vote against RPTs, viii. Mandatory
disclosure of consolidated quarterly results with effect from FY 2019-20, ix.
Enhanced obligations on the listed entities with respect to subsidiaries. x. Secretarial
Audit to be mandatory for listed entities and their material unlisted subsidiaries
under SEBI LODR Regulations. SEBI accepted several recommendations with
modifications, some of which included the following: i. Minimum 6 directors in the
top 1000 listed entities by market capitalization by Apr 1, 2019 and in the top 2000
listed entities, by Apr 1, 2020, ii. At least one woman independent director in the top
500 listed entities by market capitalization by Apr 1, 2019 and in the top 1000 listed
entities, by Apr 1, 2020, iii. Separation of CEO/MD and Chairperson (to be initially
made applicable to the top 100 listed entities by market capitalization w.e.f. April 1,
2019), iv. Quorum for Board meetings (1/3rd of the size of the Board or 3 members,
whichever is higher) in the top 1000 listed entities by market capitalization by Apr 1,
2019 and in the top 2000 listed entities, by Apr 1, 2020.
v. Top 100 entities to hold AGMs within 5 months after the end of FY 2018-19 i.e. by
August 31, 2019. vi. Webcast of AGMs will be compulsory for top 100 entities by
market capitalization w.e.f. FY 2018-19, i. Shareholder approval (majority of
minority) for Royalty/brand payments to related party exceeding 2 per cent of
consolidated turnover (instead of the proposed 5 per cent). SEBI referred certain
recommendations to various agencies (i.e. government, other regulators,
professional bodies, etc.), considering that the matters involved relate to them. Such
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1. Stewardship Code for all Mutual Funds and all categories of Alternative Investment Funds, in
relation to their investment in listed equities The importance of institutional investors in capital
markets is increasing the world over; they are expected to shoulder greater responsibility towards
their clients / beneficiaries by enhancing monitoring and engagement with their investee companies.
Such activities are commonly referred to as ‘Stewardship Responsibilities’ of the institutional
investors and are intended to protect their clients’ wealth. Such increased engagement is also seen
as an important step towards improved corporate governance in the investee companies and gives a
greater fillip to the protection of the interest of investors in such companies. SEBI has already
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implemented principles on voting for Mutual Funds, which prescribed detailed mandatory
requirements for mutual funds in India to disclose their voting policies and actual voting by mutual
funds on different resolutions of investee companies. Subsequently a proposal for introducing
stewardship principles in India was approved by a sub-committee of the Financial Stability and
Development Council (FSDC-SC). In view of the above, SEBI prescribed a Stewardship Code for all
mutual funds and all categories of Alternative Investment Funds (AIFs) in relation to their investment
in listed equities. These entities are mandatorily required to follow the Stewardship Code.
Filing of quarterly corporate governance report for which due date was April 15, 2020 was extended
by one month to May 15, 2020.
Applicability of Corporate Governance Provisions to Listed Entities Regulation 15 (2)(b) of the LODR
Regulations contains a proviso which provides a special dispensation to listed entities which are not
companies but are body corporates or are subject to regulation under other statutes, thereby
limiting the applicability of the corporate governance provisions of the LODR Regulations to such
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entities. With a view to ensure uniform applicability of the minimum standards of corporate
governance as specified in the LODR Regulations to all listed entities, SEBI in its Board meeting dated
March 25, 2021 decided to delete this proviso, with effect from September 01, 2021.
INITIATIVES TAKEN BY SEBI FOR ENHANCING TRANSPARENCY AND IMPROVING GOVERNANCE The
following measures were taken by SEBI for enhancing transparency and improving governance of
listed entities.
In view of the disruptions arising from the COVID-19 pandemic, during the year, SEBI had provided a
number of relaxations to listed entities including extensions for submission of financial results and
other reports (details given at Chapter 3) for the quarter / year ended March 30, 2020. It was
observed that over 90 per cent of listed entities submitted financial results while more than 93 per
cent of listed entities submitted other reports, (viz. shareholding pattern, quarterly corporate
governance report and investor grievance report) within the extended timelines. • In light of the
uncertainty resulting from the COVID-19 pandemic, SEBI had issued an advisory on disclosure of
material impact of the pandemic on listed entities (as detailed at Chapter 3). Prior to issuing the
advisory on disclosure of material information, SEBI had observed that listed entities had made
disclosures under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,
primarily intimating shutdown of operations owing to the pandemic and resultant lockdowns, but
not the impact of the COVID-19 pandemic on its financials. Pursuant to issuance of the said advisory,
it was observed that out of the top 500 listed entities, 254 entities had made disclosures on the
impact of the COVID-19 pandemic on the business as per the indicative list given in the advisory. •
SEBI had mandated listed entities to make disclosures regarding forensic audit, as detailed at
Chapter 3. Pursuant to the said mandate, seven entities have made disclosures regarding fact of
initiation of audit, of which two entities have also submitted the final forensic report.
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