The document outlines the mandatory requirements of Clause 49 of the listing agreement with the National Stock Exchange regarding corporate governance practices. It discusses requirements for board composition, audit committees, remuneration of directors, board procedures, management discussion and analysis, shareholder rights, and reporting. Key points include mandatory minimum board independence levels, audit committee composition and meeting rules, and disclosure of related party transactions and directors' remuneration in annual reports. Amendments to Clause 49 in 2005 and 2008 tightened independent director qualifications and audit committee responsibilities.

1. Corporate Governance
Listing Agreement of NSE : Clause 49
Mandatory requirements of clause 49

Board of Directors
If chairman is executive- at least 50% of the Board should comprise of Independent Directors /NEDs
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If chairman is Non-executive at least 1/3rd of of the Board should comprise of Independent
directors /NEDs
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Disclosure of pecuniary relationship or transactions of the Non-executive Directors

Audit Committee a must

It shall have minimum of three non-executive Directors, majority of whom should be
Independent with at least one Director having financial and accounting knowledge.
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It shall meet thrice a year with one meeting to be held before finalisation of accounts and one
every six months.
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Remuneration of Directors
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Remuneration of non-executive directors to be decided by board.
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Disclosure of Directors’ remuneration in the Corporate Governance section of annual reports
Board Procedures

Board to meet at least four times a year with a maximum time gap of 4 months between
meetings.
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Minimum prescribed information to be given to the Board
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Annual Operating plans and budgets

Quarterly Report
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Minutes of the meetings of the Audit & other committees.
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Director not to be member of more than 10 companies or act as chairman of more than 5
committees.
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Management Discussion and analysis

Discussion to cover specified items, which should either be part of Directors’ report or as an
addition thereto.
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Industry structure and developments
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Opportunities and threats
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Segment-wise / product-wise performance
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Shareholders
Dissemination of certain information to shareholders
Appointment of Directors
Redressal of grievances - transfer of share
Share Transfer
Report on Corporate Governance
Disclosure of specific items as per SEBI Code
Philosophy on code of Corporate Governance
Disclosure of related party transactions
General shareholders information
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2. 

Issuance of Compliance Certificate
Statutory auditors to issue compliance certificate which has to be annexed to the Directors’
report

A non-executive Chairman should be entitled to maintain a Chairman’s office at the company’s
expense.

Remuneration Committee

Shareholder Rights / grievances committee is a must.

Postal Ballot
Amended Clause 49 wef April 2005
New clause issued by SEBI on Oct. 29, 2004

Tighter qualification criteria for independent director ;
• disqualifies material suppliers and customer from being I.D’s.
• Disallows a shareholder with more than 2% stake in the company
• Former Executive director who left the company less than three yrs ago
• Partners of current legal, audit and consulting firms as well as partners of such firms that had
worked in the co. in the preceding three years can’t be I.D’s.
• A relative of a promoter or ED or a senior executive one level below an ED too cannot be an
I.D.

The maximum time gap between two board meetings should not be more than three months.

It is mandatory for the Audit committee to meet minimum four times in a year, once before the
finalisation of the a/c, with a max time gap of four months.

All members of the Audit committee should be “financially literate” and at least one should
have “financial or accounting management expertise “and gives a definition of the two terms, also
strengthens and widens the role and responsibility of the Audit committee.

Nominee Directors shall be deemed independent directors.

Major new provisions added are;
1. The board will lay down a code of conduct for all board members and the senior management
of the company to compulsorily follow.
2. The CEO and CFO will certify the financial statements and the cash flow statements of the co.
3. At least one independent director of the holding company will be a member of the board of a
material non listed subsidiary.
4. The audit committee of the listed company shall review the financial statements of the unlisted
subsidiary in particular its investment.
5. If, while preparing financial statements, the company follows a treatment that is different from
that prescribed in the accounting standards, it must disclose this in the financial statements and
the management should also provide an explanation for doing so in the corporate governance
section of the annual report.
6. The company will have to lay down procedures for informing the board members about the risk
management and minimisation procedures.
7. Where money is raised through public issues, rights issues etc the company will have to
disclose the uses/application of funds according to major categories( capital expenditure,
working capital, marketing cost etc ) as part of quarterly disclosure of financial statements.
8. On an annual base the company will prepare a statement of funds utilised for purpose other
than those specified in the offer document/ prospectus and place it before the Audit committee.
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3. 9. The company will have to publish its criteria for making its payment to non executive directors
in its annual report.
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4. SEBI has issued a circular (Circular No: SEBI/CFD/DIL/CG/1/2008/08/04 dated 8 April 2008)
modifying certain provisions of Clause 49 of the listing agreement. The key modifications to the
Mandatory and Non Mandatory provisions of Clause 49 are:
Mandatory Provisions
Composition of Board: The new provision states that if the Non-Executive Chairman is a promoter or
is related to promoters or persons occupying management positions at the board level or at one level
below the board; then at least one-half of the board should consist of independent directors.
Minimum age of an independent director: The minimum age for independent directors shall be 21
years.
Maximum lead time for appointment of independent director: The gap between resignation/removal of
an independent director and appointment of another independent director in his place should not
exceed 180 days. However, this provision would not apply in case the company fulfils the minimum
requirement of independent directors in its Board (i.e., one-third or one-half as the case may be, even
without filling the vacancy created by such resignation/removal).
Disclosures on relationships between directors: Disclosures of relationships between directors inter-se
now have to be made in the Annual Report. The notice of appointment of director, prospectus and
letter of offer for issuances and any related filings made to the stock exchanges where the company is
listed.
Non Mandatory Provisions
Independent Director to have requisite qualifications and experience: The Company shall ensure that
the Independent Director being appointed has the requisite qualifications and experience which would
be of use to the company and which, in the opinion of the company, would enable him/her contribute
effectively in his/her capacity as an independent director.
Tenure of the Independent Director: The aggregate tenure of the Independent Directors may not
exceed nine years, on the Board of the company.
Reimbursement of Non executive Chairman's expenses: 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.
Applicability
These amendments will be applicable with immediate effect and stock exchanges have been advised to
communicate (to SEBI) the status of implementation of these requirements in the next Monthly
Development Report.
Compiled by Anita Chouhan
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