CS M. Kurthalanathan

Introduction: To make the listed companies more transparent and to align the provisions related to listing agreement with the Companies Act 2013 ,Capital Markets Regulator, SEBI has amended Clause 49 of Listing Agreement The said amendments will be effective from 1st October 2014.

S.No Particulars Clause 49 CA2013 & Rules,2014
1 Partition of Nominee Director and IDs Clause 49(II)(B)-Nominee director is excluded from the definition of IDs. Section 149(6)An independent director in relation to a company, means a director other than a MDor a WTD or a nominee director
2 Modified   definition of IDs Clause 49(II)(B):SEBI has amended the definition of Independent Director in align with the provisions of CA2013. Section 149(6)of the Companies act 2013 defines the term Independent Director..
3 Qualification of IDs The qualifications of IDs are not specified in the amended clause 49 of the listing agreement Companies (Appointment and Qualification of Directors) Rules, 2014:,an independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

 

 

 

 

 

4 Whistle- Blowing mechanism Clause49(II)(F)—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.

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.

 

 

 

The details of establishment of such mechanism shall be disclosed by the company on its website and in the Board’s report.

 

Section 177(9)Every listed company and other classes of companies to establish a Vigil mechanism for directors and employees to report genuine concern.

 

 

It provide adequate safeguards against victimization of employees and directors who avail of the Vigil mechanism and also provide for direct access to the chairperson of the Audit committee or the director nominated to play the role of audit committee, as the case may be, in exceptional cases

 

Once established, the existence of the mechanism may be appropriately communicated within the organization. The details of establishment of Vigil mechanism shall be disclosed by the company in the website, if any, and in the Board’s Report.

 

 

 

5 Prohibited     Stock options for IDs Clause 49(II)(C)-IDs shall not be entitled to any stock options. Section 197(7)IDs shall not entitled to any stock option.
6 Separate meeting of IDs Clause49(II)(B)(6)-The IDs of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management.All the independent directors of the company shall strive to be present at such meeting.

 

Section 149 read with Schedule IV:IDs of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management.

All the independent directors of the company shall strive to be present at such meeting.

7 Training of IDs Clause 49(II)(B)The company shall provide suitable training to independent directors to familiarize them with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc.The details of such training imparted shall be disclosed in the Annual Report The Companies Act 2013 did not specify any training of IDs and Board of Directors.
8 Liability of IDs Clause49(II)(E)-An independent director shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently with respect of the provisions contained in the Listing Agreement. Section 149(12)An independent director; a NED not being promoter or KMP, shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently
9 Stakeholders Relationship Committee Clause 49(VIII)(E)-A committee under the Chairmanship of a non-executive director and such other members as may be decided by the Board of the company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. This Committee shall be designated as ‘Stakeholders Relationship Committee’ and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends. Section- 178(5)-The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board

The SRC shall consider and resolve the grievances of security holders of the company

 

10 Disclosure policy   for Remuneration Clause 49(VIII)(C):1. All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report.

 

2. In addition to the disclosures required under the Companies Act, 2013, 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.

d. Stock option details, if any – and whether issued at a discount as well as the period over which accrued and over which exercisable.

3. 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.

4. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report.

5. 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

Sec.197(12) and Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:1) Every listed company shall disclose in the Board’s report-

(i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;

 

(ii) the percentage increase in remuneration of each director, C FO, CEO, CS or Manager, if any, in the financial year;

 

(iii) the percentage increase in the median remuneration of employees in the financial year;

 

(iv) the number of permanent employees on the rolls of company;

 

(v) the explanation on the relationship between average increase in remuneration and company performance;

 

(vi) comparison of the remuneration of the KMP against the performance of the company;

 

(vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;

(viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;

(ix) the key parameters for any variable component of remuneration availed by the directors;

(x) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and

(xi) affirmation that the remuneration is as per the remuneration policy of the company.

11 Performance evaluation of IDs Clause 49(II)(B)(5):a. The Nomination Committee shall lay down the evaluation criteria for performance evaluation of independent directors.b. The company shall disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report.

c. The performance evaluation of independent directors shall be done by the entire Board of Directors (excluding the director being evaluated).

d. On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director

Section 178(2) read with Schedule IV:The Nomination and Remuneration Committee shall identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director’s performance.The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated.

On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.

12 Related Party Transaction(RPT) Clause 49 (VII)  A RPT is a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged.

 

A ‘related party’ is a person or entity that is related to the company. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes the following:

1. A person or a close member of that person’s family is related to a company if that person:

a. is a related party under Section 2(76) of the Companies Act, 2013;or

b. has control or joint control or significant influence over the company; or

c. is a KMP of the company or of a parent of the company; or

2. An entity is related to a company if any of the following conditions applies:

a. The entity is a related party under Section 2(76) of the Companies Act, 2013; or

b. The entity and the company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); or

c. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); or

d. Both entities are joint ventures of the same third party; or

e. One entity is a joint venture of a third entity and the other entity is an associate of the third entity; or

f. The entity is a post-employment benefit plan for the benefit of employees of either the company or an entity related to the company. If the company is itself such a plan, the sponsoring employers are also related to the company; or

g. The entity is controlled or jointly controlled by a person identified in (1).

 

h. A person identified in (1)(b) has significant influence over the entity (or of a parent of the entity); or

 

The company shall formulate a policy on materiality of RPTs and also on dealing with RPTs.

 

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 5% of the annual turnover or
  • 20% of the net worth of the company as per the last audited financial statements of the company.

whichever is higher.

All RPTs shall require prior approval of the Audit Committee.

All material RPTs shall require approval of the shareholders through special resolution and the related parties shall abstain from voting on such resolutions

 

Section 2 (76) & 188“related party”, with reference to a company, means—(i) a director or his relative

(ii) a KMP or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up share capital;

(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or

instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act

(viii) any company which is—

(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary

“Related party” means a director or key managerial personnel of the holding company or his relative with reference to a company, shall be deemed to be a related party.

No company shall enter into any contract or arrangement with a related party, except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions

A a company having a paid-up share capital of Rs.10 Crores or more shall not entered into a contract or arrangement, except with the prior approval of the company by a special resolution.

A company shall not enter into any contract or arrangement with related party subject to conditions;

  • sale, purchase or supply of any goods or materials directly or through appointment of agents exceeding 25%. of the annual turnover

 

  • selling or otherwise disposing of, or buying, property of any kind directly or through appointment of agents exceeding 10% of Net Worth

 

  • leasing of property of any kind exceeding 10% of the net worth or exceeding 10% of turnover.

 

  • availing or rendering of any services directly or through appointment of agents exceeding 10% of Net Worth.
  • appointment to any office or place of profit in the company, its subsidiary company or associate company at a monthly remuneration exceeding Rs.2,50,000/-
  • remuneration for underwriting the subscription of any securities or derivatives thereof of the company exceeding 1% of the net worth.

Turnover or Net Worth shall be on the basis of the Audited Financial statements of the preceding Financial Year.

In case of wholly owned subsidiary, the special resolution passed by the holding company shall be sufficient for the purpose of entering into the transactions between wholly owned subsidiary and holding company

No member of the company shall vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party:

Where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement.

Every contract or arrangement entered into, shall be referred to in the Board’s report to the shareholders along with the justification for entering into such contract or arrangement.

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a special resolution in the general meeting and if it is not ratified by the Board or, as the case may be, by the shareholders at a meeting within three months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board and if the contract or arrangement is with a related party to any director, or is authorised by any other director, the directors concerned shall indemnify the company against any loss incurred by it.

13 Disclosure of RPTs Clause 49(VIII)(A)-Details of all material transactions with related parties shall be disclosed quarterly along with the compliance report on corporate governance.The company shall disclose the policy on dealing with RPTs on its website and also in the Annual Report. No such Provision.
14 Disclosure of different Accounting standard Clause 49(VIII)(B)-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. Section-129(5)-Where the financial statements of a company do not comply with the accounting standards ,the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation

 

15 Constitution of Nomination & Remuneration Committee Clause 49(IV)- The company shall set up a nomination and remuneration committee which shall comprise at least 3 directors, all of whom shall be NEDs and at least ½ 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 independence of a director and recommend to the Board a policy, relating to the remuneration of the directors, KMP and other employees;

2. Formulation of criteria for evaluation of IDs and the Board;

3. Devising a policy on Board diversity;

4. Identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.

C. The Chairman of the nomination and remuneration committee could be present at the AGM, to answer the shareholders’ queries. However, it would be up to the Chairman to decide who should answer the queries

 

Section 178 and Companies (Meetings of Board and its Powers) Rules, 2014:
The Nomination and Remuneration Committee is applicable to the following classes of Companies

  • Every listed Company
  • Every other Public company-

o   Having Paid up capital of Rs.10crores or more; or

o   Having turnover of Rs.100 Crores

o   Which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs.50 Crores.

The paid up share capital or turnover or outstanding loans, or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited Financial Statements shall be taken into account for the purposes of this rule.

The above mentioned classes of companies shall constitute the Nomination and Remuneration Committee consisting of –

3 or more NEDs out of which not less than one half shall be IDs.

The chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

The Nomination and Remuneration Committee shall-

  • Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down,
  • Recommend to the Board their appointment and removal,
  • Carry out evaluation of every director’s performance.
  • Formulate the criteria for determining   qualifications, positive attributes and independence of a director and
  • Recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

The Nomination and Remuneration Committee shall ensure that—

(a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully;

(b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

(c) remuneration to directors, KMPs and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals:

The policy shall be disclosed in the Board’s report.

16 Appointment of one Woman Director Clause 49 (II)(A)-The Board of Directors of the company shall have an optimum combination of executive and non-executive directors with at least one woman director and not less than fifty percent of the Board of Directors comprising non-executive directors

 

Section 149(1) and Companies (Appointment and Qualification of Directors) Rules, 2014:(i) every listed company;(ii) every other public company having –

(a) paid–up share capital of Rs.100 Crores or more; or

(b) turnover of Rs.300 Crore or more

Shall appoint at least one woman director.

A company shall comply with provisions within a period of six months from the date of its incorporation

Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later

17 Max.No. of directorship of IDs. Clause 49 (II)(B)(3)A person shall not serve as an independent director in more than seven listed companies.

Any person who is serving as a whole time director in any listed company shall serve as an independent director in not more than three listed companies.

Section 165:A person shall hold not office as a director, including any alternate directorship in more than 20 companiesThe max no..of public companies in which a person can b eappointed as a director shall not exceed 10.
18 Max. tenure of IDs Clause 49(II)(B): 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.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.

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

Section 149:An independent director shall hold office for a term up to five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board’s report. 

 

 

 

 

 

No independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director.

 

 

19 Risk management Clause 49 (VI):The company shall lay down procedures to inform Board members about the risk assessment and minimization procedures
The Board shall be responsible for framing, implementing and monitoring the risk management plan for the company
The company shall also constitute a Risk Management Committee. The Board shall define the roles and responsibilities of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit.
Section 134(3): A statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company.
20 e-Voting Clause 35B:The issuer agrees to provide e-voting facility to its shareholders, in respect of all shareholders’ resolutions, to be passed at General Meetings or through postal ballot.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

e-voting facility shall be kept open for not less than one day and not more than three days for shareholders to send their assent or dissent.

Section 108 &Companies (Management and Administration) Rules, 2014:
Every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means.
 As per the Rules, the e-voting shall remain open for not less than one day and not more than three days.

In all such cases, such voting period shall be completed three days prior to the date of the general meeting

 

 

 

 

   The Company shall mention the Internet link of such e-voting platform in the notice to their shareholdersIt is applicable to all listed companies, w.e.f October 1, 2014 and the modalities would be governed by the provisions of Companies (Management and Administration) Rules, 2014The Company 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. The Company shall place the notice on the website of the company, if any and of the agency forthwith after it is sent to the members.The relevant Section 108, voting by electronic means and corresponding rules are notified and effective from April 01,2014.

There is no such provision

 

21 Succession planning Clause 49 (II)(D)(6):The Board of the company shall satisfy itself that plans are in place for orderly succession for appointments to the Board and to senior management
There is no such provision.

 

 

 

22 Filing of Casual Vacancy of IDs Clause 49 (II)(D):
An independent director who resigns or is removed from the Board of the Company shall be replaced by a new independent director at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy, whichever is laterWhere 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 shall not apply.
Schedule 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 one hundred and eighty days from the date of such resignation or removal, as the case may be.

 

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 shall not apply.

23 Code of Conduct of BoD &Senior Management Clause 49(II)(E):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.

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.

 

The Code of Conduct shall suitably incorporate the duties of Independent Directors as laid down in the Companies Act, 2013.

 

Section 149 & Part III of Schedule –IV:The independent directors shall—(1) undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company;

(2) seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company;

(3) strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member;

(4) participate constructively and actively in the committees of the Board in which they are chairpersons or members;

(5) strive to attend the general meetings of the company;

(6) where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting;

(7) keep themselves well informed about the company and the external environment in which it operates;

(8) not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board;

(9) pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company;

(10) ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use;

(11) report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy;

(12) acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees;

(13) not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law

24 Disclosure of Appointment of Director Clause 49(VIII)(G):
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 
 A return containing the particulars of appointment of director or key managerial personnel and changes therein, shall be filed with the Registrar in Form DIR-12 along with such fee as may be provided in the Companies (Registration Offices and Fees) Rules, 2014 within thirty days of such appointment or change, as the case may be.
25 Disclosure of Resignation of Director Clause 49(VIII)(F):
The company shall disclose the letter of resignation along with the detailed reasons of resignation provided by the director of the company on its website not later than one working day from the date of receipt of the letter of resignation.The company shall also forward a copy of the letter of 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 
Section 169:A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within 30 days in form DIR-12 and shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company.Where a director resigns from his office, he shall within a period of thirty days from the date of resignation, forward to the Registrar a copy of his resignation along with reasons for the resignation in Form DIR-11 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014

 Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly cross-check the corresponding SEBI’s circular and relevant sections, rules under the Companies Act,2013.

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