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    Clause 49

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    nicoz2792
    This document summarizes the key sections of Clause 49 on corporate governance for listed companies in India. It outlines the requirements for boards of directors, audit committees, dealings with subsidiary companies, disclosures, CEO/CFO certification, and compliance reporting. Some of the main provisions include having a majority of independent directors, setting qualifications for audit committee members, reviewing subsidiary company transactions, and certifications from CEOs and CFOs regarding financial statements and internal controls. The revised Clause 49 of 2014 aimed to strengthen corporate governance by aligning with new Companies Act provisions and imposing more stringent independent director requirements.

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    Clause 49

    Uploaded by

    nicoz2792
    492 views25 pages
    This document summarizes the key sections of Clause 49 on corporate governance for listed companies in India. It outlines the requirements for boards of directors, audit committees, dealings with subsidiary companies, disclosures, CEO/CFO certification, and compliance reporting. Some of the main provisions include having a majority of independent directors, setting qualifications for audit committee members, reviewing subsidiary company transactions, and certifications from CEOs and CFOs regarding financial statements and internal controls. The revised Clause 49 of 2014 aimed to strengthen corporate governance by aligning with new Companies Act provisions and imposing more stringent independent director requirements.

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    This document summarizes the key sections of Clause 49 on corporate governance for listed companies in India. It outlines the requirements for boards of directors, audit committees, dealings with subsidiary companies, disclosures, CEO/CFO certification, and compliance reporting. Some of the main provisions include having a majority of independent directors, setting qualifications for audit committee members, reviewing subsidiary company transactions, and certifications from CEOs and CFOs regarding financial statements and internal controls. The revised Clause 49 of 2014 aimed to strengthen corporate governance by aligning with new Companies Act provisions and imposing more stringent independent director requirements.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    492 views25 pages

    Clause 49

    Uploaded by

    nicoz2792
    This document summarizes the key sections of Clause 49 on corporate governance for listed companies in India. It outlines the requirements for boards of directors, audit committees, dealings with subsidiary companies, disclosures, CEO/CFO certification, and compliance reporting. Some of the main provisions include having a majority of independent directors, setting qualifications for audit committee members, reviewing subsidiary company transactions, and certifications from CEOs and CFOs regarding financial statements and internal controls. The revised Clause 49 of 2014 aimed to strengthen corporate governance by aligning with new Companies Act provisions and imposing more stringent independent director requirements.

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    of 25

    CLAUSE 49:CORPORATE GOVERNANCE

    - KANIKA GOEL (14DM107)

    VARIOUS SECTIONS UNDER CLAUSE 49


    Board of Directors
    Audit Committee
    Subsidiary Companies
    Disclosures

    CEO/CFO Certification
    Report on Corporate Governance
    Compliance

    I. BOARD OF DIRECTORS
    A. Composition of Board
    B. Non executive directors compensation and
    disclosures
    C. Other provisions as to Board and Committees
    D. Code of Conduct

    A.) COMPOSITION OF BOARD


    i.

    The Board of directors of the company shall have an optimum combination of


    executive and non-executive directors with atleast 50% 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. If the non-executive Chairman is a promoter of the company or is related to any


    promoter or person occupying management positions at the Board level or at one
    level below the Board, at least one-half of the Board of the company shall consist
    of independent directors.

    B) NON EXECUTIVE DIRECTORS COMPENSATION


    AND DISCLOSURES
    i.

    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

    ii.

    The shareholders shall also 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, the director should intimate the board of any change in the above.

    iii. The Board shall periodically review compliance reports of all laws applicable to
    the company, prepared by the company as well as steps taken by the company to
    rectify instances of non-compliances.
    iv. An independent director who resigns or is removed from the Board of the
    Company shall be replaced by a new independent director within a period of not
    more than 180 days from the day of such resignation or removal.

    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.

    II. AUDIT COMMITTEE


    A. Qualified and Independent Audit Committee
    B. Meeting of Audit Committee
    C. Powers of Audit Committee
    D. Role of Audit Committee
    E. Review of information by Audit Committee

    A) QUALIFIED AND INDEPENDENT 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. Two-thirds 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.

    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 Company Secretary shall act as the secretary to the committee.

    B) MEETING OF AUDIT COMMITTEE


    i. The audit committee should meet at least four times in a
    year and not more than four months shall elapse
    between two meetings.
    ii. 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:
    i.

    To investigate any activity within its terms of reference.

    ii.

    To seek information from any employee.

    iii. To obtain outside legal or other professional advice.


    iv. To secure attendance of outsiders with relevant expertise, if it considers
    necessary.

    D) ROLE OF AUDIT COMMITTEE


    i.

    Act requires each listed company and such other class of companies, as may be
    prescribed, to constitute the Audit Committee. In the Board Rules, thresholds for
    constitution of the committee have been made more stringent vis--vis the draft
    rules.

    ii.

    Criteria for constitution of Audit Committee:


    Company

    Board Rules
    Listed companies
    All companies
    Non-listed public companies meeting either of the following criteria
    Paid-up share capital
    `10 crores or more
    Turnover
    `100 crores or more
    Aggregate outstanding loans, or borrowings, or
    `50 crores or more
    debentures or deposits

    Draft Rules
    All companies
    `100 crores or more
    No such criterion
    `200 crores or more

    E) REVIEW OF INFORMATION BY AUDIT


    COMMITTEE
    The Audit Committee shall mandatorily review the following information:
    i.

    Management discussion and analysis of financial condition and results of


    operations.

    ii.

    Statement of significant related party transactions (as defined by the audit


    committee), submitted by management.

    iii. Management letters / letters of internal control weaknesses issued by the


    statutory auditors.
    iv. Internal audit reports relating to internal control weaknesses.
    v.

    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 Committee 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.
    iv. 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.

    IV. DISCLOSURES
    A. Basis of related party transactions
    B. Disclosure of Accounting Treatment
    C. Board Disclosures Risk management
    D. Proceeds from public issues, rights issues, preferential issues etc.

    E. Remuneration of Directors
    F. Management
    G. Shareholders

    V. CEO/CFO CERTIFICATION
    The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act,
    1956 and the CFO i.e. the whole-time Finance Director or any other person heading the
    finance function discharging that function shall certify to the Board that:

    i.

    They have reviewed financial statements and the cash flow statement for the year and
    that to the best of their knowledge and belief.

    ii.

    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 companys code
    of conduct

    iii.

    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

    iv.

    They have indicated to the auditors and the Audit committee of any significant changes.

    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 non-mandatory requirements have
    been adopted should be specifically highlighted.

    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. The report shall
    be signed either by the Compliance Officer or the Chief Executive Officer of the
    company

    VII. COMPLIANCE
    i.

    The company shall obtain a certificate from either the auditors


    or practicing company secretaries regarding compliance of
    conditions of corporate governance.

    ii. The non-mandatory requirements given 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.

    REVISED CLAUSE 49
    i.

    Securities and Exchange Board of India (SEBI) has overhauled the existing
    Clause 49 of the Listing Agreement and replaced it with a revised Clause 49.

    ii.

    The New Clause, which came into effect from 1 October 2014 serves the
    following objectives: align the provisions of Listing Agreement with the provisions
    of the newly enacted Companies Act, 2013 and also provide additional
    requirements to strengthen the corporate governance framework for listed
    companies in India.

    iii. The New Clause goes a step further and imposes more stringent requirements of
    corporate governance to listed companies.

    KEY ASPECTS OF THE NEW CLAUSE


    i.

    Independent Directors

    The New Clause confers greater power and responsibility on the independent
    directors to on matters relating to corporate governance.
    Tenure of Independent Directors
    Restriction on the number of Boards Independent Directors can serve
    Separate Meeting of independent directors

    Performance Evaluation of Independent Directors


    Prohibition of Stock Option to Independent Directors
    Exclusion of Nominee Directors from the definition of Independent Director

    KEY ASPECTS OF THE NEW CLAUSE


    ii. Subsidiary Company
    The New Clause extends certain principle of corporate governance to material
    subsidiaries of listed companies.
    The Clause mandates that at least one Independent Director on the board of the
    holding company shall be a director on the board of the material non-listed Indian
    subsidiaries also.
    The Audit Committee of the listed holding company shall also review the financial
    statements of the unlisted subsidiary company
    Also, selling, disposing and leasing of assets amounting to more than twenty percent
    of the assets of a material subsidiary shall require prior approval of shareholders by
    way of special resolution.

    KEY ASPECTS OF THE NEW CLAUSE


    iii. Audit Committee
    The New Clause significantly enhances the power of the Audit Committee entrusting it
    with various responsibility to ensure corporate governance standards.
    Clause requires Audit Committee to have minimum three directors as members and
    two third of members shall be independent directors.
    The Audit Committee has been given a significant role regarding the appointment
    and monitoring of auditors, financial reporting of the Company, monitoring inter
    corporate loans, RPTs, reviewing the functioning of the whistle blower mechanism, etc.

    KEY ASPECTS OF THE NEW CLAUSE


    iv. Compulsory Whistle Blower Mechanism
    The New Clause makes it mandatory for companies to establish a vigil mechanism to
    enable directors and employees to report unethical behaviour and frauds.
    The mechanism should also provide adequate safeguards to prevent victimisation of
    the whistle blower. In the light of the growing corporate scams and scandals,
    development of a legislative framework for adequate whistle blower mechanism is a
    move towards the right direction.

    KEY ASPECTS OF THE NEW CLAUSE


    v. Nomination and Remuneration Committee
    The New Clause makes it mandatory for companies to set up a Nomination and
    Remuneration Committee to formulate criteria for determining qualifications, positive
    attributes and independence of a director and recommend a policy relating to the
    remuneration of the directors, key managerial personnel and other employees.

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