CLAUSE 35B & 49 OF LISTING AGREEMENT OF SEBI

CORPORATE GOVERNANCE
IN LISTED ENTITIES –
AMENDMENTS
CLAUSES 35B & 49
OF THE EQUITY LISTING
AGREEMENT
DATE OF CIRCULAR : April 17, 2014
APPLICABLE W.E.F. : October 1st, 2014

NEED TO AMEND THE PROVISIONS
 To align the provisions of the
listing agreement with the
provisions of the newly enacted
Companies Act, 2013 and its
notified Rules in March, 2014.
 To provide additional
requirements to strengthen
the Corporate Governance
framework for the listed
companies in India.

CLAUSE 35B
 Applicable to all listed companies.
 Governed by Companies (Management and Administration)
Rules, 2014
 The issuer company has to provide e-voting facility to its
shareholders for all Shareholders Resolution to be passed at
General meeting or through Postal Ballot.
 Such e-voting facility shall be kept open for such period
specified under the rules.
 For those shareholders who do not have access to e-voting
facility, the issuer should enable them to cast their vote in
writing on Postal Ballot as per the Rules specified.

Provisions w.r.t. e-voting under Companies
(Management and Administration) Rules, 2014
 A member may exercise his right to vote at any general meeting by
electronic means and company may pass any resolution by
electronic voting system .
 A company which opts to provide the facility to its members to
exercise their votes at any general meeting by electronic voting
system shall follow the following procedure :-
 the notices of the meeting shall be sent to all the members, auditors of the
company, or directors either by POST / Registered e-mail i.d. / Courier.
 the notice shall also be placed on the website of the company
 the notice of the meeting shall clearly mention that the business may be
transacted through electronic voting system and the company is providing
facility for voting by electronic means;

 the notice shall clearly indicate the process and manner for voting by
electronic means and the time schedule including the time period during
which the votes may be cast and shall also provide the login ID and create a
facility for generating password and for keeping security and casting of
vote in a secure manner
 the e-voting shall remain open for not less than one day and not more
than three days. Provided that in all such cases, such voting period shall be
completed three days prior to the date of the general meeting.
 during the e-voting period, shareholders of the company, holding shares either
in physical form or in dematerialized form, as on the record date, may cast
their vote electronically. Provided that once the vote on a resolution is cast by
the shareholder, he shall not be allowed to change it subsequently.

 the Board of directors shall appoint one scrutinizer, who may be chartered
Accountant in practice, Cost Accountant in practice, or Company Secretary in
practice or an advocate, but not in employment of the company and is a
person of repute who, in the opinion of the Board can scrutinize the e-voting
process in a fair and transparent manner
 the results declared along with the scrutinizer’s report shall be placed on the
website of the company within two days of passing of the resolution at the
relevant general meeting of members
 subject to receipt of sufficient votes, the resolution shall be deemed to be
passed on the date of the relevant general meeting of members
 Issuer shall utilize the services of any one of the agencies providing e-voting
platform which is in compliance with conditions specified by MCA from time to
time.

CLAUSE 49: Corporate Governance
 Applicable to all listed companies w.e.f. October 1st, 2014
 For other listed entities which are not companies but are
body corporate or subject to regulations under other
statues (e.g. banks, financial institutions, insurance
companies, etc.) Clause 49 will apply to the extent it does
not violate their respective statues.
 Provisions of Clause 49 (VI)(C) of Part B relating to Risk
Management would be applicable only to Top 100 listed
companies by market capitalization as at the end of the
immediate previous year.
 Clause 49 is not applicable to Mutual Funds.

 The New Clause 49 is divided into 11 major Sub clauses
containing the provisions of compliances under Corporate
Governance Norms.
 Enhanced disclosures are required to be made in the
Annual Report.
 Separate Report on Corporate Governance to be part of
Annual Report .
 Certificate is to be obtained by the company from the
Auditor or Practicing Company Secretary.

 Increased participation in the decision making.
 Right to place items on the agenda of the general meeting &
propose resolutions subject to reasonable limitations.
 Exercise of ownership rights by all shareholders including
institutional investors.
 Adequate mechanism to be maintained by the company to address
the grievances of the shareholders.
 Protection to minority shareholders from the abusive actions of
controlling shareholders directly or indirectly.
SHAREHOLDERS

 Right to be timely informed about the date, location and
agenda of meeting & issues to be discussed.
 Right to be informed about the capital structures &
arrangements.
ALL INVESTORS CAN OBTAIN INFORMATION ABOUT THE
RIGHTS ATTACHED TO ALL SERIES & CLASSES OF SHARES
BEFORE THEY PURCHASE.
SHAREHOLDERS

 Effective redress for the violation
of their rights.
 Encouraged mechanism for
employee participation.
 Participation of Stakeholders in
the Corporate Governance
Process
STAKEHOLDERS ROLE

COMPULSORY WHISTLE BLOWER MECHANISM

Person who makes public the following
• MISCONDUCT
• FRAUD
• ILLEGAL ACTIVITY
• MISAPPROPRIATION
happening within the organization.

 Disclosure related to all
material matters: Financial
situation
, performance, ownership and
governance.
 Compliance and Disclosure of
Accounting Standards.
 Maintenance of minutes of
meeting “explicitly recording
dissenting opinion”
DISCLOSURES

 Disclosure of material interest , if any (directly or indirectly)
 KEY FUNCTIONS OF BOARD :-
 Reviewing and guiding corporate strategy, major plans.
 Monitoring the effectiveness of the company’s governance practices.
 Selecting, compensating, monitoring and when necessary, replacing key
executives and overseeing succession planning.

 Aligning key executive and board remuneration with the longer term
interest of the company and its shareholders.
 Ensuring a transparent board nomination process.
 Monitoring and managing potential conflicts of interest amongst Board
and stakeholder.
 Compliance with the law and relevant standards applicable while
preparing Financial Statement.
 Overseeing the process of disclosure and communications.
 Monitoring and reviewing Board Evaluation framework.

COMPOSITION OF BOARD
 At least one Women Director .
 At least fifty percent of the Board should be comprised of Non-
Executive Directors.
 If the chairman of the Board is Executive Director or
Promoter, then at least half of the Board should be comprised of
Independent Directors.
 If the Chairman of the Board of Board is Non – Executive Director
then at least one – third of the Board should be comprised of
Independent Director.

BOARD MEETINGS
 At least FOUR times a year with a
maximum time gap of one
hundred and twenty days
between any two meetings.
 Director – maximum membership
in TEN committees.
 Director – maximum Chairmanship
in maximum FIVE COMMITTEES.

INDEPENDENT DIRECTOR
 Nominee Director is excluded from
definition of Independent Director.
 who, in the opinion of the Board, is a
person of integrity and possesses
relevant expertise and experience
 who is or was not a promoter of the
company or its holding, subsidiary or
associate company.
 who is not related to promoters or
directors in the company, its
holding, subsidiary or associate
company

 apart from receiving director's
remuneration, has or had no pecuniary
relationship with the company, its
holding, subsidiary or associate
company, or their promoters, or
directors, during the two immediately
preceding financial years or during the
current financial year
 Who is not less than 21 years of age.

 No. of DIRECTORSHIPS:
 The SEBI recommendation are more
stringent, where the maximum
number of Boards an independent
director can serve on listed
companies be restricted to 7.
 Maximum number of directorship
serving as Whole Time Director is
maximum 3.

TERM OF INDEPENDENT DIRECTOR
 As per Companies Act, 2013, an independent director can hold up to two
5 year terms after which there needs to be a 3 year cooling off period.
 The change made in Companies Act is PROSPECTIVELY (i.e. it doesn’t count
the time served already).
 The change proposed by SEBI takes into consideration the previous terms
( if a person has served as independent director on a board for 5 years or
more, starting October 1st he shall be eligible to only one term of 5 years)
SEBI HAS IMPOSED
STRINGENT
PROVISIONS
WITH REGARD TO
INDEPENDENT
DIRECTOR.

 Formal Letter of appointment
should be issued to the
appointment of Independent
Director as per Companies
Act, 2013.
 Detailed profile of the Independent
Director should be disclosed on the
Website of the company .
 Intimate the Concerned Stock
Exchange within ONE working day
from the date of such appointment.

 Evaluation Criteria as per
Nomination Committee.
 Disclosure of Criteria in the
Annual Report.
 Evaluation to be done by
the Board excluding the
director being evaluated.
 Further term of
employment to be decided
on the basis of performance
evaluation report.

SEPARATE MEETING OF INDEPENDENT DIRECTORS
 at least one meeting in a year.
 All the independent directors of the
company shall strive to be present at
such meeting.
 to review the performance of non-
independent directors and the Board
as a whole.
 to review the performance of the
Chairperson of the company.
 to assess the quality, quantity and
timeliness of flow of information
between the company management
and the Board that is necessary for
the Board to effectively and
reasonably perform their duties.

Compensation & Disclosures
to Non-Executive Directors
 Fixed by the Board Of Directors
 Prior Shareholders approval in General Meeting
 Not Applicable for the payment of sitting fees to Non – Executive
Directors.
 PROHIBITION ON ISSUE OF STOCK OPTION TO INDEPENDENT
DIRECTORS.

VACANCY OF
Any Vacancy arising in the office of
any Independent Director whether
due to :
i. Resignation, or
ii. Removal by Board
Should be replaced at earliest BUT
Not later than the immediate next
Board Meeting OR three months
from the date of such vacancy (
whichever is earlier )

CODE OF CONDUCT
 For all the Board members &
Senior management.
 Post he code of conduct on the
website of the company
 All Board members and senior
management should affirm its
compliance and Annual report
should contain a declaration to this
effect duly signed by the CEO.
 Incorporate the duties of
Independent Directors as per
Companies Act, 2013

LIABILITY OF
 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 .
 LIABLE : When he had not acted
diligently with respect to the
provisions contained in the Listing
Agreement.

AUDIT COMMITTEE
 Constitution of a Qualified and Independent Audit Committee.
 MINIMUM : THREE DIRECTORS as members and Two – Third of the members
should be independent.
 All Members of Audit Committee shall be financially literate and at least one
members shall have accounting or related financial management expertise.
 CHAIRMAN OF AUDIT COMMITTEE should be INDEPENDENT DIRECTOR.
 CHAIRMAN should be present at the A.G.M. to answer shareholder queries.
 Company Secretary shall act as the Secretary to the committee.
 MEETING OF AUDIT COMMITTEE :
 At least FOUR times in a year
 Maximum gap between two meeting : Four months
 QUORUM :
 TWO members OR one third of the members of the audit committee ( whichever is greater)
 Minimum TWO INDEPENDENT DIRECTOR must be present.

POWER OF AUDIT COMMITTEE
 To investigate any activity within its terms of reference.
 To seek information from any employee.
 To obtain outside legal or other professional advice.
 To secure attendance of outsiders with relevant expertise, if it
considers necessary.

EXPANDED ROLE OF AUDIT COMMITTEE

ROLE OF AUDIT COMMITTEE
 Review company’s financial reporting process and
the disclosure of its financial information.
 Recommendation for appointment, remuneration
and terms of appointment of auditors of the
company.
 Approval of payment to statutory auditors for any
other services rendered by the statutory auditors.
 Review the annual financial statements and
auditor's report thereon before submission to the
board for approval.
 Review the quarterly financial statements before
submission to the board for approval.
 Review the application or end use of the
proceeds from Public issue.

 Review & monitor the independence &
performance of the auditor.
 Approval of the Related Party Transactions and its
conditions.
 Scrutiny of Inter Corporate Investments and
Loans (u/s 186 of the Companies Act, 2013)
 Evaluation of the Internal Control & Risk
Management System.
 Review he adequacy of the Internal Audit
function.
 Discussion with the Internal Auditor and
reviewing the findings of any suspected fraud &
irregularities.
 Review the WHISTLE BLOWER MECHANISM.

 Discussion with the Statutory Auditors of the
Company before the audit commences about the
Nature & Scope of his Audit.
 Look in to the reasons behind the defaults in the
payment to the depositors, debenture
holders, shareholders (if any).
 Approval of the appointment of CFO.

SPECIAL FOCUS ON FOLLOWING ITEMS OF
FINANCIAL STATEMENTS :-
 Matters required to be included in the Director’s
Responsibility Statement to be included in the
Board Report.
 Changes & Reason for any changes in the
accounting policies.
 Accounting entries requiring accounting
estimates.
 Significant adjustments made in the financial
statement arising out of audit findings.
 Compliance with applicable Financial Reporting
Framework and Listing Agreement.
 Disclosures w.r.t. Related Party Transactions.
 Any Qualification in the draft Audit Report.

MANDATORILY REVIEW THE FOLLOWING:-
 Management Discussion and Analysis of
Financial Condition & Results of Operation.
 Statement of Significant Related Party
Transactions.
 Management letters / letters of internal
control weaknesses issued by the statutory
auditors.
 Internal audit reports relating to internal
control weaknesses.
 The appointment, removal and terms of
remuneration of the Chief internal auditor

NOMINATION & REMUNERATION COMMITTEE
 MINIMUM STRENGHT : at least THREE Directors.
 All the members should be of Non – Executive Category.
 At least half of them should be Independent.
 CHAIRMAN OF THE COMMITTEE should be INDEPENDENT DIRECTOR.

RESPONSIBILITIES W.R.T. SUBSIDIARY COMPANIES
 Minutes of the Board meetings of the unlisted subsidiary company
shall be placed at the Board meeting of the listed holding company
for review.
 The company shall formulate a policy for determining ‘material’
subsidiaries and such policy shall be disclosed to Stock Exchanges and
in the Annual Report.

 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.
 Audit Committee of the listed holding company shall also review the
financial statements, in particular, the investments made by the
unlisted subsidiary company.

 CONCEPT OF MATERIAL SUBSIDIARY :
A subsidiary shall be considered as material
If the investment of the company in the subsidiary exceeds twenty per cent of its
consolidated net worth as per the audited balance sheet of the previous financial year
OR
If the Subsidiary has generated twenty per cent of the consolidated income of the
company during the previous financial year.

Prior SPECIAL RESOLUTION is to be passed in following cases:-
 Disposal of shares of material subsidiary which would reduce its
consolidated shareholding to less than 50% or cease its
controlling rights over the subsidiary company.
 Selling / Disposing / Leasing of assets amounting to more than
20% of the assets of the material subsidiary.

RISK MANAGEMENT Applicable to the TOP 100 Companies by
Market Capitalization as at the closing of
the immediate previous year.
 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

MEANING :
 RELATED PARTY TRANSACTION
Transfer of resources, services or
obligations between a company and
a related party, regardless of
whether a price is charged.
 RELATED PARTY - If one party has
the ability to control the other party
or exercise significant influence over
the other party, directly or indirectly
OR a related party under section
2(76) of the Companies Act, 2013.

MATERIAL RELATED PARTY
TRANSACTION
 If the transaction / transactions
to be entered into individually or
taken together with previous
transactions during a financial
year, exceeds FIVE PERCENT OF
THE ANNUAL TURNOVER OR
TWENTY PERCENT OF THE NET
WORTH OF THE COMPANY AS PER
THE LAST AUDITED FINANCIAL
STATEMENTS OF THE COMPANY,
whichever is higher.

MATERIAL RELATED PARTY
TRANSACTION
 PRIOR APPROVAL OF AUDIT
COMMITTEE.
 APPROVAL OF SHAREHOLDERS
THROUGH Special Resolution.
 All existing material related party
contracts or arrangements as on the
date of this circular which are likely
to continue beyond March 31, 2015
shall be placed for approval of the
shareholders in the first General
Meeting subsequent to October
01, 2014 OR before that.

DISCLOSURES
 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 Related
Party Transactions on its website
and also in the Annual Report

DISCLOSURES
 Any Deviation / Different
treatment from the prescribed
Accounting Standard while
preparing the Financial
Statements.
 Reasons for such Deviation
 Does such treatment represents
a True & Fair View of the
transaction or item of Balance -
Sheet.

DISCLOSURES
 Details of all the elements of the remuneration packages of
Directors including bonuses, stock options, performance linked
incentives, etc.
 Disclosure of criteria of making payment to non- executive
directors.

DISCLOSURES
 All pecuniary relationship or transactions of the non-
executive directors vis-à-vis the company shall be
disclosed in the Annual Report.
 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

DISCLOSURES
 Management Discussion and Analysis report should form
part of the Annual Report to the shareholders.
 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.
 Disclosure to the Shareholders about the particulars of
the Director being appointment, his
shareholding, qualification, no. of directorships etc.

DISCLOSURES
 Disclosure of relationships between directors inter-se
shall be made in the Annual Report, notice of
appointment of a director, prospectus and letter of offer
for issuances and any related filings made to the stock
exchanges where the company is listed.
 Quarterly Results and presentations made by the
company on the company’s website.
 Disclose the letter of resignation along with the detailed
reasons of resignation not later than one working day
from the date of receipt of the letter of resignation.

DISCLOSURES
 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.
 The details of training imparted to Independent Directors
shall be disclosed in the Annual Report.
 Proceeds of the issue.

 Under the chairmanship of
Non – Executive
Director, Stakeholders
Relationship Committee should
be constituted to 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.
CONSTITUTION OF
STAKEHOLDERS RELATIONSHIP COMMITTEE

 That they have reviewed the Financial Statements.
 That the Financial Statements do not contain any materially
untrue statement or omit any material fact or contain statements
that might be misleading.
 That to the best of their knowledge and belief, no transactions
entered into by the company during the year which are
fraudulent, illegal or violate of the company’s code of conduct.
 That they have indicated to the auditors and the Audit Committee
the significant changes in the internal control and accounting
policies during the year and have reported the instances of the
significant suspected frauds and material weaknesses in the
Internal Control System.

REPORT ON CORPORATE GOVERNANCE
 There shall be a separate section on Corporate Governance in the
Annual Reports of company, with a detailed compliance report on
Corporate Governance.
 Non-compliance 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.
 The companies shall submit a quarterly compliance report to the
stock exchanges within 15 days from the close of quarter
 The report shall be signed either by the Compliance Officer or the
Chief Executive Officer of the company.

COMPLIANCE CERTIFICATE
ON CORPORATE GOVERNANCE
 To be obtained by the
company from the Auditor of
the Company or from a
Practicing Company Secretary.
 Such certificate shall become
the part of Annual Report.
 Certificate is also to be
submitted to Stock Exchange
along with the Annual Report.

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.
2. 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.
3. Audit qualifications : Company may move towards a regime of
unqualified financial statements.
4. Separate posts of Chairman and CEO : The company may appoint
separate persons to the post of Chairman and Managing
Director/CEO.
5. Reporting of Internal Auditor : The Internal auditor may report
directly to the Audit Committee.

ANANND KANKNI
+91-9707056733
COMPANY SECRETARY & DIRECTOR
BUDDING PROFESSIONALS Pvt. Ltd.

CLAUSE 35B & 49 OF LISTING AGREEMENT OF SEBI

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CLAUSE 35B & 49 OF LISTING AGREEMENT OF SEBI