2. 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.
3. • 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.
4. 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
5. 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.
6. 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
7. 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.
8. 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.
9. 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.
10. 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
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
18. VI. Separate Section in the Company’s Annual
Report on Corporate Governance
VII. Compliance certificate from Auditors or
practicing Company Secretaries
