Clause 49 of the Listing Agreement, as amended by SEBI, establishes corporate governance standards for listed companies, including requirements for board composition, audit committees, related party transactions, and other disclosures. It aims to align corporate governance practices with the Companies Act, 2013 and requires listed companies to have independent directors, audit committees, and establish policies around risk management, internal controls, and remuneration. Non-compliance can result in penalties from SEBI.
Clause 49 of the Listing Agreement, as amended by SEBI, establishes corporate governance standards for listed companies, including requirements for board composition, audit committees, related party transactions, and other disclosures. It aims to align corporate governance practices with the Companies Act, 2013 and requires listed companies to have independent directors, audit committees, and establish policies around risk management, internal controls, and remuneration. Non-compliance can result in penalties from SEBI.
Clause 49 of the Listing Agreement, as amended by SEBI, establishes corporate governance standards for listed companies, including requirements for board composition, audit committees, related party transactions, and other disclosures. It aims to align corporate governance practices with the Companies Act, 2013 and requires listed companies to have independent directors, audit committees, and establish policies around risk management, internal controls, and remuneration. Non-compliance can result in penalties from SEBI.
Clause 49 • Inserted into the standard listing agreement after the recommendations of Kumar Managalam Birla Committee in 2000.
• Capital Market Regulator, SEBI has amended Clause
49 of Listing Agreement to align its provisions with the Companies Act, 2013. The said amendments were made effective from 1st October 2014. • Clause 49 of the Listing Agreement by Securities Exchange Board of India elaborates on the issue of Corporate Governance and prescribes the norms under which the Companies are mandated to operate. Objectives • Alignment with Companies Act, 2013 • Adoption of leading Industry Practices on Corporate Governance • Making framework of CG more effective • Disclosure and transparency on all material matters • Responsibilities of the Board more stringent Provisions under Clause 49 of the Listing Agreement
I. Board of Directors: (Sec 149 of CA 2013)
Composition of the Board, Definition of Independent directors and proportion of Independent Directors in the total board strength, Compensation of non‐executive directors and disclosures, Board meetings, Information to be made available to the Board, membership of Board level committees by the directors , Code of Conduct, Whistle Blower mechanism, training of board members. Board composition • Not less than fifty percent of the board of directors comprising non-executive directors • At least one woman director. • Where the chairman of the Board is: – Non-executive, at least one-third of the Directors to be IDs – Executive, at least half of the Directors to be IDs Independent directors • Training of Independent directors • Formal letter of appointment to IDs • Term of IDs • The Nomination Committee shall lay down the performance evaluation criteria and the Company to disclose the same in its Annual Report. • Separate meetings of IDs • Limit on the number of Independent directorships. Limit on Number of Directorships
The Companies Act, 2013 does not provide any specific limit on the number of independent directorships. As per the provisions of section 165 of the Companies Act, 2013, the maximum number of directorships:
(a) Maximum directorships in aggregate (including alternate directorships) is
Twenty companies;
(b) Maximum directorship in public companies is 10 companies. This includes
directorship in private companies that are either holding or subsidiary company of a public company. Limit on Membership in Board Committees
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. For the purpose of reckoning this limit, Chairmanship/ Membership of Audit Committee and stakeholders’ Relationship Committee alone will be considered. II. Audit Committee • At-least three members, two-thirds of which shall be IDs • All the members must be financially literate and one member must be an expert in accounting or related financial management • The Chairman of the Audit Committee must be an Independent Director • Meeting at-least four times a year and not more than four months gaps between meetings Sec 177 of the Companies Act 2013 The Board of directors of every listed companies and the following classes of companies shall constitute an Audit Committee of the Board- (i) all public companies with a paid up capital of ten crore rupees or more; (ii) all public companies having turnover of one hundred crore rupees or more; (iii) all public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding fifty crore rupees or more. II. Audit Committee (role) • Recommending to the Board, the appointment, re-appointment and, if required, the replacement or removal of the external auditor and the fixation of audit fees. • Reviewing, with the management, the annual financial statements before submission to the board for approval • Reviewing, with the management, the quarterly financial statements before submission to the board for approval • Reviewing, with the management, external and internal auditors, adequacy of the internal control systems. • Reviewing the company’s financial and risk management policies. • 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. Nomination and Remuneration Committee
• The Company shall set up a Nomination and
Remuneration Committee which shall comprise at least 3 directors, all of whom shall be non-executive directors and at least 1/2 shall be independent. • Chairman of the committee shall be an independent director. III. Subsidiary companies • At-least one ID of the company should be a director on the Board of a material non-listed Indian subsidiary. • The audit committee should review financial statements of and investments made by the unlisted subsidiary. • No company can dispose of shares in the material subsidiary, reducing its shareholding below 50%, without passing a special resolution in its general meeting. • Selling, disposing or leasing of more than 20% of assets of the material subsidiary will require approval of shareholders by way of special resolution. IV. Disclosures: These include a series of mandatory disclosures like basis of Related Party Transactions, Accounting treatment, Risk management, Utilization of proceeds of public issues, Remuneration of Directors, Management Discussion and Analysis Report in the company’s Annual Report, setting up of Shareholders/Investors Grievances committee and other items to be reported to the shareholders. Other Disclosures • Directorial Resignation: Disclosure of letter of resignation of directors along with reasons, on the company website and stock exchange, within one working day of receipt of the letter. • Letter of Appointment: Disclosure of letter of appointment of an ID along with detailed profile, on the company website and stock exchange, within one working day of date of appointment. • Disclosure of training imparted to IDs, in the Annual Report. • Disclosure of details of establishment of vigil mechanism, in company website and Board’s report. • Disclosure of the remuneration policy and the evaluation criteria in the Annual Report. V. CEO/CFO Certification: This certification relates to the review of financial statements and cash flow statements by the CFO, compliance with existing accounting standards, laws and regulations, responsibility for maintaining internal controls, etc. VI. Separate Section in the Company’s Annual Report on Corporate Governance