Clause 49 :- Corporate Governance & It's different Committees

1. CLAUSE49:CORPORA
TEG
OVERNANCE Team :- 4

2. V
ARIOU
SSEC
T
ION
SU
N
DERC
LAU
SE49
 Board of Directors
 Audit Committee
 Subsidiary Companies
 Disclosures
 CEO/CFO Certification
 R
eport on Corporate Governance
 Compliance

3. I.BO
ARDOFDIREC
T
ORS
A.Composition of Board
B.Non executive directors’ compensation and
disclosures
C.Other provisions as to Board and Committees
D.Code of Conduct

4. A.)C
O
MPO
SIT
IO
NO
FBO
ARD
iii.
i. TheBoard of directors of thecompanyshallhaveanoptimumcombinationof
executive and non-executive directors with atleast 50% non-executive directors.
ii. Where theChairman of theBoard isa non-executive director, at least one-third
of theBoard shouldcompriseof independentdirectors and incaseheisan
executive director, at least half of theBoard shouldcompriseof independent
directors.
If thenon-executiveChairmanisa promoter of thecompanyor isrelated to any
promoter or personoccupyingmanagementpositionsat theBoard level or at one
level below the Board, at least one-half of the Board of the company shall consist
of independent directors.

5. B)N
ONEXEC
U
T
IV
EDIREC
T
ORS’
C
OMPEN
SAT
ION ANDDISC
L
OSU
R
ES
i. All fees/compensation, if any paid to non-executivedirectors,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.

6. C
)O
TH
ERPR
O
VISION
SAST
OBO
ARD
AN
D COMMITTEES
iii.
i. The board shall meet at least four times a year, with a maximum time gap of four
monthsbetween any two meetings.
ii. A director shall not be a member in more than 10 committees or act as Chairman
of morethanfive committeesacrossall companiesinwhichheisa director.
Furthermore, the director should intimate the board of any change in the above.
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. Anindependentdirector whoresignsor isremoved 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 suchresignation or removal.

7. D)C
ODEOFC
ON
DU
C
T
i. TheBoard shall lay downa code of conductfor all Board membersand senior
management of the company. The code of conduct shall be posted on the website
of the company.
ii. All Board membersand seniormanagement 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.

8. II.AU
DITC
OMMIT
T
EE
A.Qualified and Independent Audit Committee
B.Meeting of Audit Committee
C
. P
owers of Audit Committee
D
. R
ole of Audit Committee
E
. R
eview of information by Audit Committee

9. A)Q
U
ALIFIEDAN
DIN
DEPEN
DEN
T
AU
DITCOMMITTEE
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.

10. B)MEET
IN
GOFAU
DITC
OMMIT
T
EE
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 quorumshall be either two members or one third of
the members of the audit committee whichever is
greater, but there should be a minimumof two
independent members present.

11. C
)PO
W
ERSOFAU
DITC
OMMIT
T
EE
The audit committee shall have powers, which should include the following:
i. Toinvestigate any activity within its terms of reference.
i
i
. T
o seek information from any employee.
i
i
i
. T
o obtain outside legal or other professional advice.
iv. Tosecure attendance of outsiders with relevant expertise, if it considers
necessary.

12. D)R
OLEOFAU
DITC
OMMIT
T
EE
i. Act requires each listed company and suchother 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-à-vis the draft
rules.
ii. Criteria for constitution of Audit Committee:
Company Board Rules Draft Rules
Listed companies All companies All companies
Non-listed public companies meeting either of the following criteria
Paid-up share capital `10 crores or more `100 crores or more
Turnover `100 crores or more No such criterion
Aggregate outstanding loans, or borrowings,
or
debentures or deposits
`50 crores or more `200 crores or more

13. E)REV
IEWOFIN
FORMAT
IONBY
AU
DITCOMMITTEE
The Audit Committee shall mandatorily review the following information:
iii.
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.
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.

14. III.SU
BSIDIAR
YC
OMP
AN
IES
iii.
i. At least oneindependent director ontheBoard of Directorsof theholding
companyshall be a director ontheBoard of Directorsof a material nonlisted
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
The minutes of the Board meetings of the unlisted subsidiary company shall be
placed at the Board meeting of the listed holding company.
iv. Themanagementshouldperiodically bring to theattention of theBoard of
Directors of the listed holding company, a statement of all significant transactions
and arrangements entered into by the unlisted subsidiary company.

15. IV
.DISC
L
OSU
R
ES
A. Basis of related party transactions
B. Disclosure of Accounting T
reatment
C. Board Disclosures – Risk management
D. Proceeds from public issues, rights issues, preferential issues etc.
E
. R
emuneration of Directors
F. Management
G. Shareholders

16. V
.C
EO/
C
FOC
ER
T
IFIC
AT
ION
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:
iii.
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 company’s code
of conduct
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.

17. V
I.REPOR
TONC
ORPORAT
EG
O
VERN
AN
C
E
i. Thereshall be a separate sectiononCorporate GovernanceintheAnnual
Reportsof company,with a detailed compliancereport onCorporate
Governance. Noncompliance of any mandatory requirement of this clause with
reasonsthereof and theextent to whichthenon-mandatory requirements have
been adopted should be specifically highlighted.
ii. Thecompaniesshallsubmita quarterly compliancereport to thestockexchanges
within 15 days from the close of quarter as per the format given. The report shall
be signedeither by theComplianceOfficer or theChief ExecutiveOfficer of the
company

18. V
II.C
OMPLIAN
C
E
i. The company shall obtain a certificate from either the auditors
or practicing companysecretaries regarding complianceof
conditions of corporate governance.
ii. Thenon-mandatory requirements given maybe implemented as
per thediscretion of thecompany. However, the disclosures of
the compliance with mandatory requirements and adoption
(and compliance)/ non-adoption of the nonmandatory
requirements shallbe made inthe sectiononcorporate
governance of the Annual Report.

19. REV
ISEDC
LAU
SE49
iii.
i. Securitiesand ExchangeBoard of India (“SEBI”)hasoverhauled theexisting
Clause 49 of the Listing Agreement and replaced it with a revised Clause 49.
ii. TheNew Clause,whichcameinto effect from 1 October 2014 serves the
following objectives: align the provisions of Listing Agreement with the provisions
of thenewly enacted CompaniesAct,2013 and alsoprovide additional
requirements to strengthenthecorporate governanceframework for listed
companies in India.
The New Clause goes a step further and imposes more stringent requirements of
corporate governance to listed companies.

20. KEYASPEC
T
SOFT
H
EN
EWC
LAU
SE
i. Independent Directors
The New Clause confers greater power and responsibility on the independent
directors to on matters relating to corporate governance.
•T
enure 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

21. KEYASPEC
T
SOFT
H
EN
EWC
LAU
SE
ii. Subsidiary Company
The New Clause extends certain principle of corporate governance to material
subsidiaries of listed companies.
•TheClausemandatesthat at least oneIndependentDirector ontheboard 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, disposingand leasing of assets amounting to more thantwenty percent
of the assets of a material subsidiary shall require prior approval of shareholders by
way of special resolution.

22. KEYASPEC
T
SOFT
H
EN
EWC
LAU
SE
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.
•TheAudit Committee has been given a significant role regarding theappointment
and monitoring of auditors, financial reporting of theCompany,monitoring inter
corporate loans, RPTs,reviewing the functioning of the whistle blower mechanism, etc.

23. KEYASPEC
T
SOFT
H
EN
EWC
LAU
SE
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. Inthelight of the growing corporate scamsand scandals,
development of a legislative framework for adequate whistle blower mechanism is a
move towards the right direction.

24. KEYASPEC
T
SOFT
H
EN
EWC
LAU
SE
v. Nomination and Remuneration Committee
TheNewClausemakesit mandatory for companiesto setupa 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.