Project report corporate governance

Project Report
CORPORATE GOVERNANCE
SUBMITTED BY Pankaj Sharma

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Introduction
Corporate Governance (CG)
The heart of corporate governance is transparency, disclosure, accountability and integrity.
Legal andRegulatory framework of corporate governance in India is mainly covered under
the SEBI guidelines, ListingAgreement and Companies Act, 2013, however, it is not
restricted to only SEBI Guidelines and theCompanies Act, 2013. A gamut of legislations like
The Competition Act, the Consumer Protection laws, theLabour laws, the Environment
laws, the Anti-Money Laundering Laws, etc. seeks to ensure good governancepractices
among the corporates.
It is to be borne in mind that mere legislation does not ensure good governance. Good
governance flowsfrom ethical business practices even when there is no legislation.
Corporate governance is not just a legalconcept but it is a governance concept, it is
something which has to come from within. However, one cannothave abstract concepts
applicable to corporates at large and there lies the need for a legislative framework.
In Indian context, there is no single apex regulatory body which can be said to be the
regulator of corporates but there exists a coordination mechanism among various
functional regulators. For example, in India, we have different regulators for the
following—
— Corporates (MCA)
— Capital Market and Stock Exchanges (SEBI)
— Money Market and Banking (RBI)
— Insurance – Life and Non-Life Insurance (IRDA)
— Communication (TRAI)
— Foreign business (FIPB/SIA)
— Imports and Exports (FEMA, DGFT)
— Intermediaries, Banking Companies and Insurance business (FIU-India)
— Listed companies, Stock brokers (Stock Exchanges)
— Professions (Professional Institutes like ICSI, ICAI, ICAI (CMA) etc.)
The success of regulation rests on the intention and integrity of the regulator and the
regulated.
A common law system operates in India. Entities are incorporated as companies in terms of
the Companies Act, 2013 and governed by the Companies Act, 2013 (as amended from time
to time). The Companies Act is administered by the Ministry of Corporate Affairs.

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The Securities and Exchange Board of India (SEBI) is the prime regulatory authority which
regulates allaspects of securities market enforces the Securities Contracts (Regulation) Act
including the stockexchanges. Companies that are listed on the stock exchanges are
required to comply with the ListingAgreement.
BOARD STRUCTURE AND SIZE
The board structure in India is unitary.
Section 149 of the Companies Act, 2013 stipulates that every Public Company shall have
minimum threedirectors and in the case of a private company which is a subsidiary of a
public companythe minimum number of directors stipulated is 2.
Every company shall have a Board of Directors consisting of individuals as directors and
shall have a maximum of fifteen directors.
Provided further that such class or classes of companies as may be prescribed shall have at
least one woman director.
In case a companywishes to increase the number of directorship beyond fifteen, it would
require the approval of the Shareholders by passing special resolution.
The Listing Agreement does not stipulate on the size of the board.
COMPOSITION OF BOARD
Section 196 of the Companies Act, 2013 stipulates that every public company and a private
company, whichis a subsidiary of a public company, must have a Managing Director or a
whole-time Director, if the paid upshare capital is Rs.5 crores or more.
IN TERMS OF CLAUSE 49 OF THE LISTING AGREEMENT
(i) The Board of directors of the company shall have an optimum combination of executive
and non-executive directors with not less than fifty percent of the board of directors
comprising of non-executivedirectors.
(ii) Where the Chairman of the Board is a non-executive director, at least one-third of the
Board shouldcomprise of independent directors and in case he is an executive director, at
least half of the Boardshould comprise of independent directors."Provided that where 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-halfof the Board of the company shall consist of independent directors."The
expression ‘independent director’ shall mean a non-executive director of the company
who:
a) Apart from receiving director’s remuneration, does not have any material pecuniary
relationships ortransactions with the company, its promoters, its directors, its
senior management or its holdingcompany, its subsidiaries and associates which
may affect independence of the director;
b) Is not related to promoters or persons occupying management positions at the
board level or at onelevel below the board;
c) Has not been an executive of the company in the immediately preceding three
financial years;

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d) Is not a partner or an executive or was not partner or an executive during the
preceding three years,of any of the following:
a. The Statutory audit firm or the internal audit firm that is associated with the
company, and
b. The legal firm(s) and consulting firm(s) that have a material association with
the company.
e) Is not a material supplier, service provider or customer or a lessor or lessee of the
company, whichmay affect independence of the director;
f) Does not a substantial shareholder of the company i.e. own two percent or more of
the block ofvoting rights (shares).
g) Is not less than 21 years of age.
SEPARATION OF ROLE OF CHAIRMAN AND CHIEF EXECUTIVE
In India there is no legal requirement contemplating separation of the role of chairman and
chief executive, however, separation of their roles will be instrumental in determining the
composition of the Board in terms of the Listing Agreement, depending upon executive or
non-executive chairman.
The Listing Agreement provides that a non-executive Chairman may be entitled to maintain
a Chairman'soffice at the company's expense and also allowed reimbursement of expenses
incurred in performance of his duties.
NUMBER OF DIRECTORSHIP
Section 165(I) of the Companies Act, 2013 stipulates that a person cannot hold office at the
same time as aDirector in more than twenty companies.Provided that the
maximumnumber of public companies in which a person can be appointed as a director
shall not exceed ten.
Subject to the provisions of sub-section (1), the members of a company may, by special
resolution, specify any lesser number of companies in which a director of the company may
act as directors.
However, in computing this number of fifteen Directorships, the Directorships of the
following will be omitted:
a) private companies [other than subsidiaries or holding companies of public
company(ies)];
b) unlimited companies;
c) associations, not carrying on business for profit or, which prohibit payment of a
dividend;
d) Alternate directorships, (i.e. he is appointed to act as a Director, only during the
absence orincapacity of some other director).
In terms of the Listing Agreement, a director shall not be a member in more than ten
committees or act asChairman of more than five committees across all companies in which
he is a director.
For the purpose of considering the limit of the committees on which a director can serve,
all public limitedcompanies, whether listed or not, shall be included and all other

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companies including private limitedcompanies, foreign companies and companies under
Section 25 of the Companies Act shall be excluded.
For the purpose of reckoning the limit under this sub-clause, Chairmanship/Membership of
the AuditCommittee and the Shareholders Grievance Committee alone shall be considered.

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BOARD MEETING
As per Section 173 of the Companies Act, 2013, in every company, a meeting of its Board of
directors shouldbe held at least once in every three months and at least four such meetings
shall be held in every year.Notice of every meeting of the Board of directors of a company
should be given in writing to every director forthe time being in India, and at his usual
address in India to every other director.
The quorum for a meeting of the Board of directors of a company shall be one-third of its
total strength (anyfraction contained in that one-third being rounded off as one), or two
directors, whichever is higher.
Provided that where at any time the number of interested directors exceeds or is equal to
two-thirds of thetotal strength, the number of the remaining directors, that is to say, the
number of the directors who are notinterested [present at the meeting being not less than
two], shall be the quorum during such time.
Clause 49 of the Listing Agreement requires that the Board shall meet at least four times a
year, with amaximum gap of four months between any two meetings. It also specifies the
minimum information which is to be made available to the Board.
POWER OF THE BOARD
In terms section 179 Companies Act, 2013;
(1) ofProvided further that the Board shall not exercise any power or do any act or
thing which is directed or required, whether under this Act or by the memorandum
or articles of the company or otherwise, to be exercised or done by the company in
general meeting.
(2) No regulation made by the company in general meeting shall invalidate any prior act
of the Board which would have been valid if that regulation had not been made.
(3) The Board of Directors of a company shall exercise the following powers on behalfof
the company by means of resolutions passed at meetings of the Board, namely:
a) to make calls on shareholders in respect of money unpaid on their shares;
b) to authorize buy-back of securities under section 68;
c) to issue securities, including debentures, whether in or outside India;
d) to borrow monies;
e) to invest the funds of the company;
f) to grant loans or give guarantee or provide security in respect of loans;
g) to approve financial statement and the Board’s report;
h) to diversify the business of the company;
i) to approve amalgamation, merger or reconstruction;
j) to take over a company or acquire a controlling or substantial stake in
another company;
k) any other matter which may be prescribed:
Provided that the Board may, by a resolution passed at a meeting, delegate to any
committee of directors, the managing director, the manager or any other principal officer of
the company or in the case of a branch office of the company, the principal officer of the
branch office, the powers specified in clauses (d) to (f) on such conditions as it may specify:

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Provided further that the acceptance by a banking company in the ordinary course of its
business of deposits of money from the public repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise, or the placing of monies on deposit by a
banking company with another banking company on such conditions as the Board may
prescribe, shall not be deemed to be a borrowing of monies or, as the case may be, a
makingof loans by a banking company within the meaning of this section.
COMMITTEE
Audit Committee
A key element in the corporate governance process of any organization is its audit
committee.
Shareholders/Investors Grievance Committee:
A board committee under the chairmanship of a non-executive director shall be formed to
specifically lookinto the redressed of shareholder and investors complaints like transfer of
shares, non-receipt of balancesheet, non-receipt of declared dividends etc.
The number of meetings of the Shareholders/Investors Grievance Committee should be in
accordance withthe exigencies of business requirements.
The Listing Agreement recommends that a company constitute
Remuneration/Compensation Committeealthough it is not mandatory.
III. DISCLOSURE AND TRANSPARENCY
1. IN TERMS OF COMPANIES ACT, 2013
In terms of Companies Act, 2013 the aspect of disclosure and transparency spans over
several sections.
With the e-filing of forms with the Registrar of Companies, The Ministry of Corporate
Affairs has put in placea mechanism that is imaginative, technologically savvy and
stakeholder friendly. Through the application ofInformation Technology to the
Government functioning in order to bring about Simple, Moral, Accountable,Responsive
and Transparent (SMART) Governance, the MCA aims at moving from paper based to
nearlypaperless environment.
The filing that a company is required to make under the Companies Act includes:
I. Company Registration
All the forms required for the purpose of incorporating companies in India.
II. Compliance Related Filing
All the statutory filing of e-Forms, whether annually or event based is grouped under
compliance related filingservices. The filing requirements include the following:
(i) Annual returns by companies having share capital; Annual returns by companies not
having share capital;
(ii) Balance Sheet and Profit & Loss Account; Return of allotment including details of shares
issued forconsideration other than cash; Return of buy back of securities, Return of
deposits by the company whichhas accepted public deposits during the year; Return of

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appointment of Managing Director, whole time Director; Notice of appointment of auditor;
Statutory report; Cost audit report.
III. Change Services
Change services cover matters in respect of Indian companies, especially those pertaining
to any change inthe capital structure, increase in authorized capital, and increase in the
number of members, the change ofsituation of registered office of the company and change
of Directors, Manager and Secretary. Foreigncompanies are required to intimate the ROC
about the changes in the charter statutes or any instrumentgoverning the company,
changes in the registered office, principal place of business or the personsappointed as
Director, Secretaries and authorized representatives.
IV. Charge management
Companies are required to file particulars for registration of charge created or modified
and the satisfaction of charge with the concerned ROC.
V. Investor Services
An e-Form has been prescribed for complaints with respect to each company. The nature of
complaint mayrelate to any of the following aspects:
o Share/Dividend;
o Debenture/Bond;
o Fixed Deposits;
o Miscellaneous.
VI. Provisions Relating to Managerial Personnel
This includes applications pertaining to the following:
(a) Increase in the number of Directors
(b) Appointment or reappointment of Managing Director (MD)/Whole time Director
(WTD)/Manager
(c) Fixing/increasing the remuneration or waiving off excess/overpayment to the
concerned managingauthority
(d) Payment of commission to Directors
(e) Modification of the terms and conditions for the appointment of Managing Directors,
Whole-time Directors and Non Rotational Director
(f) Removing disqualification of directors.
VII. Approval Services – Head Quarters
Approval from MCA (Headquarters) is inter alia required in the following cases:
(a) Exemption from attaching annual accounts of subsidiary(s),
(b) Exemption or extension time for repayment of deposits,
(c) Recognition as a Nidhi company,
(d) Appointment of sole selling agent
(e) Appointment of sole buying agent
(f) Declaration of dividend out of reserves
(g) Exemption from providing depreciation
(h) Consent for holding office or place of profit
(i) Providing loan or guarantee or security in connection with the loan to or by specified
category ofpersons
(j) Modification of the form and content of Balance Sheet and Profit and Loss Account
(k) Appointment of Cost Auditor

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VIII. Approval Services – Regional Director
The approval of the Regional Director is required in respect of the following matters:
(a) Issue of license under Section 25 to an existing company.
(b) Issue of license under Section 25 to a new association.
(d) Rectification of name of company.
(e) Appointment/Removal of auditor.
(f) Shifting of registered office of the company from the jurisdiction of one ROC to another
within thesame State.
(g) Opening of new branches by a Nidhi Company.
IX. Approval Services – ROCs
ROCs are empowered to accord approval, or to give any direction in relation to the matters
pertaining to thechange of name of an existing company and the conversion of a public
company into private company. Inaddition, ROC approval is required in following cases:
(a) Extension of time period for holding AGM
(b) Holding AGM at place other than registered address
(c) Declaring of company as defunct
(d) Extension of the period of annual accounts
(e) Amalgamation of companies
(f) Compounding of offences
X. Informational Services
Informational services cover those forms, which are to be filed with ROC for informational
purposes, in compliance with the provisions of the Companies Act. In following cases, forms
relating to following informational services are required to be filed:
(a) Consent and withdrawal of consent of persons charged as officers in default,
(b) Declaration of solvency in case company decides to buy back its shares,
(c) Resolutions and agreements,
(d) Notice of address of place where books of accounts are kept,
(e) Information in relation to transfer of shares by a company to another company,
(f) Order received from Court or Company Law Board,
The inspection of public document relating to a company is allowed and can be done online
from anywhere on payment of the prescribed fee.
A copy of balance sheet (including the profit and loss account, the auditor’s report,
directors report and everyother document required by law to be annexed or attached, as
the case may be, to the balance sheet) which is to be laid before a company in general
meeting shall, not less than twenty-one days before the date of the meeting, be sent to
every member of the company.
After the balance sheet and the profit and loss account have been laid before a company at
an annualgeneral meeting as aforesaid, these shall be filed with the Registrar within thirty
days from the date on whichthe balance sheet and the profit and loss account were so laid.
2. The listing agreement contemplates the following disclosures:
Clause 19
A company is required:
— to give prior intimation to the Stock Exchange about the Board Meeting at which
proposal forBuyback of Securities, declaration/recommendation of Dividend or Rights or

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issue of convertibledebentures or of debentures carrying a right to subscribe to equity
shares or the passing over ofdividend is due to be considered at least 2 working days in
advance;
—to give notice simultaneously to the Stock Exchanges in case the proposal for declaration
of bonusis communicated to the Board of Directors of the company as part of the agenda
papers.
Clause 20
The company will, immediately on the date of the meeting of its Board of Directors held to
consider or decide the same, intimate to the Stock Exchange within 15 minutes of the
closure of the Board Meetings byphone/fax/e-mail.
— all dividends and/or cash bonuses recommended or declared or the decision to pass any
dividendor interest payment;
— the total turnover, gross profit/loss, provision for depreciation, tax provisions and net
profits for theyear (with comparison with the previous year) and the amounts
appropriated from reserves, capitalprofits, accumulated profits of past years or other
special source to provide wholly or partly for thedividend, even if this calls for qualification
that such information is provisional or subject to audit.
— the decision on Buyback of Securities.
Clause 22
The Company will, immediately on the date of the meeting of its Board of Directors held to
consider or decide the same, intimate to the Stock Exchange within 15 minutes of the
closure of the Board Meetings byLetter/fax:
— short particulars of any increase of capital whether by issue of bonus shares through
capitalization,or by way of right shares to be offered to the shareholders or debenture
holders, or in any otherway;
— short particulars of the reissue of forfeited shares or securities, or the issue of shares or
securitiesheld in reserve for future issue or the creation in any form or manner of new
shares or securities orany other rights, privileges or benefits to subscribe to;
— short particulars of any other alterations of capital, including calls;
— any other information necessary to enable the holders of the listed securities of the
Company toappraise its position and to avoid the establishment of a false market in such
listed securities.
Clause 29
The Company will promptly notify the Stock Exchange of any proposed change in the
general character ornature of its business.
Clause 30
The Company will promptly notify the Stock Exchange:
(a) of any change in the Company’s directorate by death, resignation, removal or otherwise;
(b) of any change of Managing Director, Managing Agents or Secretaries and Treasures;
(c) of any change of Auditors appointed to audit the books and accounts of the Company.

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Clause 31
The Company will forward to the Stock Exchange promptly and without application:
— six copies of the Statutory and Directors Annual Reports, Balance Sheets and Profit and
Loss
Accounts and of all periodical and special reports as soon as they are issued and one copy
each toall the recognized stock exchanges in India;
— six copies of all notices, resolutions and circulars relating to new issue of capital prior to
theirdispatch to the shareholders;
— three copies of all the notices, call letters or any other circulars including notices of
meetingsconvened u/s 391 or section 394 read with section 391 of the Companies Act,
2013 together with
Annexures thereto, at the same time as they are sent to the shareholders, debenture
holders orcreditors or any class of them or advertised in the Press.
— copy of the proceedings at all Annual and Extraordinary General Meetings of the
Company;
— three copies of all notices, circulars, etc., issued or advertised in the press either by the
company, orby any company which it proposes to absorb or with which the Company
proposes to merge oramalgamate, or under orders of the court or any other statutory
authority in connection with anymerger, amalgamation, re-construction, reduction of
capital, scheme or arrangement, includingnotices, circulars, etc. issued or advertised in the
press in regard to meetings of shareholders ordebenture holders or creditors or any class
of them and copies of the proceedings at all suchmeetings.
Clause 32
The Company shall supply:
(i) Soft copies of full annual reports containing its Balance Sheet, Profit & Loss account and
DirectorsReport to all those shareholder(s) who have registered their email address(es) for
the purpose;
(ii) Hard copy of statement containing the salient features of all the documents, as
prescribed in sub-clause
(iv) of clause (b) of proviso to section 219 of the Companies Act, 2013 to those
shareholder(s) who have not so registered;
(iii) Hard copies of full annual reports to those shareholders, who request for the same.The
Company will also give a Cash Flow Statement along with Balance Sheet and Profit and Loss
Account.
The Cash Flow Statement will be prepared in accordance with the Accounting Standard on
Cash FlowStatement (AS-3) issued by the Institute of Chartered Accountants of India, and
the Cash Flow Statementshall be presented only under the Indirect Method as given in AS-
3.The company will mandatorily publish Consolidated Financial Statements in its Annual
Report in addition tothe individual financial statements. The company will have to get its
Consolidated Financial Statementsaudited by the statutory auditors of the company and file
the same with the Stock Exchange. Companiesshall be required to make disclosures in
compliance with the Accounting Standard or “Related PartyDisclosures” in the Annual
Report.

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Clause 35
The company will file the Shareholding Pattern including of promoters group with the
exchange, separately for each class of equity shares/security in the specified formats, in
compliance with the following timelines:-
(a) One day prior to listing of its securities on the stock exchanges.
(b) On a quarterly basis, within 21 days from the end of each quarter.
(c) Within 10 days of any capital restructuring of the company resulting in a change
exceeding + -2% ofthe total paid-up share capital.
Clause 35A
The company will submit to the stock exchange, within 48 hours of conclusion of its
General Meeting, details regarding the voting results in the prescribed format.
Clause 35B
The company will provide e-voting facility to its shareholders, in respect of those
businesses, which aretransacted through postal ballot. The Company shall utilize the
service of any one of the agencies providing e-voting platform, which is in compliance with
conditions specified by the Ministry of Corporate Affairs,Government of India, from time to
time. The company shall mention the Internet link of such e-voting platform in the notice to
their shareholders.
The company shall continue to enable those shareholders, who do not have access to e-
voting facility, tosend their assent or dissent in writing on a postal ballot pursuant to the
provisions of the Companies (Passing of the Resolution by Postal Ballot) Rules, 2011 or
amendments made thereto.
Clause 36
The Company will keep the Exchange informed of events such as strikes, lock-outs, closure
on account of power cuts, etc. and all events which will have a bearing on the performance
/ operations of the company as well as price sensitive information both at the time of
occurrence of the event and subsequently after thecessation of the event in order to enable
the shareholders and the public to appraise the position of thecompany and to avoid the
establishment of a false market in its securities.
Clause 41
The company has an option either to submit audited or unaudited quarterly and year to
date financial results to the stock exchange within forty-five days of end of each quarter
(other than the last quarter). If the company decided to submit the unaudited quarterly
results then it shall be subjected to limited review by the statutory auditors of the company
(or in case of public sector undertakings, by any practicing CharteredAccountant) and such
limited reviewed results (financial results accompanied by the limited review report)shall
be submitted to the exchange within forty-five days from the end of the quarter.
In respect of the last quarter, the company shall submit audited financial results for the
entire financial yearwithin sixty days of the end of the financial year.
The quarterly financial results shall be approved by the Board of Directors of the company
or by a committee thereof, other than the audit committee. The committee shall consist of
not less than one third of the directorsand shall include the managing director and at least

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one independent director. When the financial results areapproved by the Committee, they
shall be placed before the Board at its next meeting.
The financial results shall be submitted to the stock exchange within fifteen minutes of
conclusion of themeeting of the Board or Committee in which results were approved,
through such mode as may be specified by the stock exchange.
The financial results submitted to the stock exchange shall be signed by the Chairman or
Managing Director,or a Whole Time Director. In the absence of all of them, it shall be signed
by any other director of thecompany who is duly authorized by the Board to sign the
financial results.
The company shall give prior intimation of the date and purpose of meetings of the Board
or Committee in which the financial results will be considered at least seven clear calendar
days prior to the meeting (excluding the date of the intimation and date of the meeting) to
the stock exchange.
The company shall also simultaneously issue a public notice in at least in one English daily
newspapercirculating in the whole or substantially the whole of India and in one daily
newspaper published in thelanguage of the region, where the registered office of the
company is situated.
The company shall, within 48 hours of conclusion of the Board or Committee meeting at
which the financialresults were approved, publish a copy of the financial results which
were submitted to the stock exchange in atleast in one English daily newspaper circulating
in the whole or substantially the whole of India and in one dailynewspaper published in the
language of the region, where the registered office of the company is situated. ‘quarter’
means the period of three months commencing on the first day of April, July, October or
January of a financial year.
Clause 49 – Corporate Governance
SEBI requires the Listed companies to include a separate report on Corporate Governance
in their Annual Report by including Clause 49 in the Listing Agreement (Text of Clause 49
is placed as Annexure). Thedisclosures about Corporate Governance to be made in the
Annual Report are as under:
(1) Disclosures on mandatory requirements
(2) Disclosure on non-mandatory requirements
Disclosures about Mandatory Requirements
Disclosure on Remuneration of Directors
As per Clause 49-I(B), all fees, compensation, if any, paid to non-executive directors
includingindependent directors shall be fixed by the Board of Directors and shall require
previous approval of shareholders in thegeneral meeting. The shareholders’ resolution
shall specify the limits for the maximum number of stockoptions that can be granted to
non-executive directors including independent directors in any financial yearand in
aggregate.
However, the requirement of obtaining prior approval of shareholders in general meeting
shall not apply topayment of sitting fees to non-executive directors, if made within the

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limits prescribed under the CompaniesAct, 2013 for payment of sitting fees without
approval of the Central Government.
As per Clause 49-IV(E), all pecuniary relationships or transactions of non-executive
directors vis-a-vis thecompany should be disclosed in the Annual Report. “Pecuniary
relationship or transaction” refers to any relationship or transaction of a director with the
company which gets him any monetary benefit, reward,
remuneration including remuneration for directorship in whatever form (e.g. salary, fees,
commission, sittingfee, charges for professional services irrespective of whether or not
these are exempt under the CompaniesAct for the purpose of computation of managerial
remuneration).
Further the following disclosures on the remuneration of directors shall be made in the
section on thecorporate governance of the Annual Report:
(i) All elements of remuneration package of individual directors summarized under major
groups, suchas salary, benefits, bonuses, stock options, pension etc.
(ii) Details of fixed component and performance linked incentives, along with the
performance criteria.
(iii) Service contracts, notice period, severance fees.
(iv) Stock option details, if any – and whether issued at a discount as well as the period
over whichaccrued and over which exercisable.
(v) The company shall publish its criteria of making payments to non-executive directors in
its annual report. Alternatively, this may be put up on the company’s website and reference
drawn thereto in the annual report.
(vi) The company shall disclose the number of shares and convertible instruments held by
nonexecutive directors in the annual report.
(vii) 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
Disclosure of Basis of related party transactions
Clause 49-IV(A) states that a statement in summary form of transactions with related
parties in the ordinary course of business shall be placed periodically before the audit
committee. Further details of materialindividual transactions with related parties which
are not in the normal course of business shall be placedbefore the audit committee. Details
of material individual transactions with related parties or others, whichare not on an arm’s
length basis, should be placed before the audit committee, together with
Management’sjustification for the same.
As the sub-clause does not specify frequency of placing the transactions before the Audit
Committee, itwould be sufficient compliance if transactions are placed at periodic intervals
decided by the Committee. TheCommittee would thus be free to decide the periodicity. It is
however inferred from sub-clause IID(4) that theCommittee would review the transactions
annually while submitting annual financial statements for approvalof the Board.

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Disclosure of Accounting Treatment
As per clause 49-IV(B), where in the preparation of financial statements, a treatment
different from that prescribed in an Accounting Standard has been followed, the fact shall
be disclosed in the financial statements, together with the managements explanation as to
why it believes such alternative treatment is more representative of the true and fair view
of the underlying business transaction in the Corporate Governance Report.
Under section 211(3B) of the Act, Companies are required to disclose in their profit and
loss account andbalance sheet if any deviation from accounting standards have been made
along with reasons for such deviation and the financial effect, if any, arising due to such
deviation.
Board Disclosures - Risk Management
Clause 49-IV(C) provides that the company shall lay down procedures to inform Board
members about the risk assessment and minimization procedures. These procedures shall
be periodically reviewed to ensure that executive management controls risk through
means of a properly defined framework.
Under aforesaid sub-clause, every company must have a system to inform the Board about
the riskassessment and minimization procedures. Such a system should be periodically
reviewed to ensure that the management has been taking measures to control and
minimize the risks.
Risk management involves handling appropriately risks that are likely to harm an
organization. The various types of risk associated with conducting business among others
may be credit risks, market risks, operational risks, etc. If risk is one that can be described
sufficiently accurately for a calculation to be made of the probability of its happening, on
the basis of past records, it can be insured. Fire, theft, accidents etc.are all insurable risks.
Some of the advantages of implementing risk management policies are effective strategic
planning; better cost control; enhancing shareholders value by minimizing losses and
maximizing opportunities; increased knowledge and understanding of exposure to risk; a
systematic, well-informed and thorough method of decision making; increased
preparedness for outside review; minimized disruptions; better utilization of resources;
strengthening culture for continued improvement; creating best practices and quality
organization.
Proceeds from public issues, rights issues, preferential issues, etc.
As per clause 49-IV(D), when money is raised through an issue (public issues, rights issues,
preferential issues etc.) it shall disclose to the Audit Committee the uses/application of
funds by major category (capital expenditure, sales and marketing, working capital etc.) on
a quarterly basis as a part of their quarterly declaration of financial results. Further on an
annual basis, the company shall prepare a statement of funds utilized for purposes other
than those stated in the offer document/prospectus/notice and place it before theaudit
committee. Such disclosure shall be made only till such time that the full money raised
through theissue has been fully spent. This statement shall be certified by the statutory
auditors of the company.
Furthermore, where the company has appointed a monitoring agency to monitor the
utilization of proceeds ofa public or rights issue, it should place before the Audit Committee

pg. 15
the monitoring report of such agency,upon receipt, without any delay. The Audit
Committee shall make appropriate recommendations to the Boardto take up steps in this
matter. As per section 292A, the Audit Committee recommendations on any matterrelating
to financial management shall be binding upon the Board.
As per Clause 43, every listed Company shall furnish to the stock exchanges on a quarterly
basis, astatement indicating the variations between projected utilization of funds and/ or
projected profitabilitystatement made by it in its prospectus or letter of offer or object/s
stated in the explanatory statement to the notice for the general meeting for considering
preferential issue of securities and the actual utilization of funds and/ or actual
profitability.
Management
As part of the directors report or as an addition thereto, a Management Discussion and
Analysis report should form part of the Annual Report to the shareholders. This
Management Discussion & Analysis should include discussion on the following matters
within the limits set by the company’s competitive position:
1. Industry structure and developments.
2. Opportunities and Threats.
3. Segment–wise or product-wise performance.
4. Outlook
5. Risks and concerns.
6. Internal control systems and their adequacy.
7. Discussion on financial performance with respect to operational performance.
8. Material developments in Human Resources / Industrial Relations front, including
number of people employed. Senior management shall make disclosures to the board
relating to all material financial and commercialtransactions, where they have personal
interest, that may have a potential conflict with the interest of thecompany at large (for e.g.
dealing in company shares, commercial dealings with bodies, which haveshareholding of
management and their relatives etc.)
Explanation: the term “senior management” shall mean personnel of the company who are
members of itscore management team excluding the Board of Directors. This would also
include all members of management one level below the executive directors including all
functional heads.
Disclosure to Shareholders
As per Clause 49-IV(G)(i), the following information relating to appointment of a new
director or reappointment of a director must be provided to the shareholders:
(a) A brief resume of the director;
(b) Nature of his expertise in specific functional areas;
(c) Names of companies in which the person also holds directorship and the membership of
Committees of the Board; and
(d) Shareholding of non-executive directors.
The aforesaid information should be disclosed in the form of an explanatory statement
annexed to the Notice of the general meeting (Companies Act, 2013) at which

pg. 16
theappointment or reappointment is proposed. The information should be disclosed even
where the explanatorystatement is not required to be annexed to the notice such as in case
of reappointment of a director retiringby rotation at the AGM pursuant to section 196 of
the Companies Act, 2013.
The company should disclose in its Annual Report details of officer or committee or the
Registrar and ShareTransfer Agents to whom request can be made for transfer of shares.
Disclosure of Relationships between Directors
As per Clause 49-IV(G)(ia), 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.
Disclosure of certain Information on Website
As per Clause 49-IV(G)(ii), the company should place the following information on its
website :
(a) Quarterly results.
(b) Presentation made by the company to analysts.
Alternatively, the details shall be sent in such a form so as to enable the stock exchange on
which the company is listed to put it on its own website.
As per Clause 54 of the listing agreement the company shall maintain a functional website
containingbasic information about the company e.g. details of its business, financial
information, shareholding pattern,compliance with corporate governance, contact
information of the designated officials of the company who are responsible for assisting
and handling investor grievances, details of agreements entered into with the media
companies and/or their associates, etc. The company also ensures that the contents of the
said website are updated at any given point of time.
Report on Corporate Governance
Clause 49-VI provides that there shall be a separate section on Corporate Governance in the
AnnualReports 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 in prescribed format to the
stock exchanges within15 days from the close of quarter. The report shall be signed either
by the Compliance Officer or the Chief Executive Officer of the company.
Non-Mandatory Requirements
These requirements may be implemented at the discretion of the company. However, the
disclosures of the compliance with mandatory requirements and adoption (and
compliance)/non-adoption of the non-mandatory requirements shall be made in the
section on corporate governance of the Annual Report.

pg. 17
Disclosures relating to Non-Mandatory Requirements
1. 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.Independent Directors may have a tenure not exceeding, in the aggregate, a
period of nine years,on the Board of a company. The company may ensure that the person
who is being appointed asan independent director has the requisite qualifications and
experience which would be of use to thecompany and which, in the opinion of the company,
would enable him to contribute effectively to thecompany in his capacity as an independent
director."
2. Board may set up a Remuneration Committee to determine on their behalf and on behalf
of the shareholders with agreed terms of reference, the company’s policy on specific
remuneration packages for executive directors including pension rights and any
compensation payment.
3. 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.
Companies generally post their half-yearly and quarterly results on their websites and
advertisethrough newspapers. Some companies send half-yearly results to each household
of shareholders.
In practice, it may not be feasible for companies to send quarterly results because of
administrative,financial and other constraints, but companies should send the half-yearly
report to each household of the shareholders for following reasons:
(i) Many shareholders may not have access to the website of the company, or may not be
computer savvy;
(ii) All shareholders may not be subscribing to the particular newspaper in which half-
yearly results are published.
(iii) The company should disclose in the Report on Corporate Governance whether it has
sent to each household of shareholders half-yearly report on financial performance
including summary of the significant events which occurred in the last six months.
(iv) Company may move towards a regime of unqualified financial statements.
(v) A company may train its Board members in the business model of the company as well
as the risk profile of the business parameters of the company, their responsibilities as
directors, and the best ways to discharge them.
(vii) Mechanism for evaluating non-executive Board Members
(vii) Whistle Blower Policy
Clause 52
Corporate Filing and Dissemination System (CFDS), viz., www.corpfiling.co.in to file on the
CDFS, such information, statements and reports as may be specified by the Participating
Stock Exchanges in this regard within the time limit specified in the respective clause of the
listing agreement.
Clause 55
Securities Exchange Board of India (SEBI) videcircular CIR/CFD/DIL/8/2012 dated August
13, 2012 inserted a new Clause 55 in the listing agreement by mandating inclusion of
Business Responsibility (BR)Reports as part of the Annual Reports for listed entities.
As per the circular the requirement to include BR Reports as part of the Annual Reports

pg. 18
shall be mandatory for top 100 listed entities based on marketcapitalization at BSE and
NSE as on March 31, 2012. Other listed entities may voluntarily disclose BR Reports as part
of their Annual Reports.
The Clause 55 prescribed that listed entities shall submit, as part of their Annual Reports,
Business Responsibility Reports, describing the initiatives taken by them from an
environmental, social and governance perspective, in the prescribed format.
C. Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992Disclosure of interest or holding by directors and officers and
substantial shareholders in listedcompanies - Initial Disclosure. (Regulation 13)
(1) Any person who holds more than 5% shares or voting rights in any listed company shall
disclose to the company in the prescribed form, the number of shares or voting rights held
by such person, on becoming such holder, within 4 working days of:—
(a) the receipt of intimation of allotment of shares; or
(b) the acquisition of shares or voting rights, as the case may be.
(2) Any person who is a director or officer of a listed company shall disclose to the
company in the prescribed form, the number of shares or voting rights held and positions
taken in derivatives by such person and hisdependents, within 2 working days of becoming
a director or officer of the company.
Continual disclosure
Any person who holds more than 5% shares for voting rights in any listed company shall
disclose to the company in the prescribed form the number of shares or voting rights held
and change in shareholding or voting rights, even if such change results in shareholding
falling below 5%, if there has been change in such holdings from the last disclosure made
and such change exceeds 2% of total shareholding or voting rights in the company.
Any person who is a director or officer of a listed company, shall disclose to the company
and the stock exchange where the securities of the company are listed, in the prescribed
form, the total number of shares or voting rights held and change in shareholding or voting
rights, if there has been a change in such holdings of such person and his dependents from
the last disclosure made and the change exceeds Rs. 5 lakh invalue or 25,000 shares or 1%
of total shareholding or voting rights, whichever is lower.
These disclosures shall be made within 2 working days of:
(a) the receipts of intimation of allotment of shares, or
(b) the acquisition or sale of shares or voting rights, as the case may be.
Disclosure by company to stock exchanges
Every listed Company shall disclose to all stock exchanges on which the company is listed,
the information received under these regulation, within 2 working days of receipt.
Code of internal procedures and conduct for listed companies and other entities.
(Regulation 12)
All listed companies and organizations associated with securities markets including:
— the intermediaries as mentioned in Section 12 of the SEBI Act, asset management
company andtrustees of mutual funds;
— the self-regulatory organizations recognized or authorized by the Board;

pg. 19
— the recognized stock exchanges and clearing house or corporations;
— the public financial institutions as defined in Section 4A of the Companies Act, 2013; and
— the professional firms such as auditors, accountancy firms, law firms, analysts,
consultants, etc., assisting or advising listed companies, shall frame a code of internal
procedures and conduct as near thereto the Model Code specifiedunder these regulation
without diluting it in any manner and ensure compliance of the same.
The aforesaid entities shall abide by the code of Corporate Disclosure Practices as specified
under these regulations and are required to adopt appropriate mechanisms and
procedures to enforce the codes specified.
ANNEXURE
LISTING AGREEMENT
Applicability of Clause 49:
(i) Entities seeking listing for the first time, at the time of seeking in-principle approval for
listing.
(ii) Existing listed entities having a paid-up share capital of Rs. 3 croreand above or
networth of Rs. 25 crore or more at any time in the history of the company.
The company agrees to comply with the following provisions:
I. BOARD OF DIRECTORS
(A) Composition of Board
(i) The Board of directors of the company shall have an optimum combination of executive
and nonexecutive directors with not less than fifty percent of the board of directors
comprising of nonexecutivedirectors.
(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.
Provided that where 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.
Explanation-For the purpose of the expression “related to any promoter” referred to in sub-
clause (ii):
a. If the promoter is a listed entity, its directors other than the independent directors, its
employees orits nominees shall be deemed to be related to it;
b. If the promoter is an unlisted entity, its directors, its employees or its nominees shall be
deemed to be related to it.”
(i) For the purpose of the sub-clause (ii), the expression ‘independent director’ shall mean a
non-executivedirector of the company who:
(a) apart from receiving director’s remuneration, does not have any material pecuniary
relationships or transactions with the company, its promoters, its directors, its senior
management or its holding company, its subsidiaries and associates which may affect
independence of the director;

pg. 20
(b) is not related to promoters or persons occupying management positions at the board
level or at one level below the board;
(c) has not been an executive of the company in the immediately preceding three financial
years;
(d) is not a partner or an executive or was not partner or an executive during the preceding
three years,of any of the following:
(i) the statutory audit firm or the internal audit firm that is associated with the company,
and
(ii) the legal firm(s) and consulting firm(s) that have a material association with the
company.
(a) is not a material supplier, service provider or customer or a lessor or lessee of
thecompany, which may affect independence of the director;
(b) is not a substantial shareholder of the company i.e. owning two percent or more of the
block of voting shares.
(c) is not less than 21 years of age
(B) Non executive directors’ compensation and disclosures
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. Theshareholders’ resolution shall specify the limits for
the maximum number of stock options that can be grantedto non-executive directors,
including independent directors, in any financial year and in aggregate.
Provided that the requirement of obtaining prior approval of shareholders in general
meeting shall not applyto payment of sitting fees to non-executive directors, if made within
the limits prescribed under the Companies Act, 2013 for payment of sitting fees without
approval of the Central Government.
(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. The minimum information to be made available to the
board is given inAnnexure – IA.
(ii) A director shall not be a member in more than 10 committees or act as Chairman of
more than fivecommittees across all companies in which he is a director. Furthermore it
should be a mandatory annual requirement for every director to inform the company about
the committee positions he occupies in other companies and notify changes as and when
they take place.
(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.

pg. 21
II. 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 audit committee may invite such of the executives, as it considers appropriate (and
particularly the head of the finance function) to be present at the meetings of the
committee, but on occasions it may also meet without the presence of any executives of the
company. The finance director, headof internal audit and a representative of the statutory
auditor may be present as invitees for themeetings of the audit committee;
(vi) The Company Secretary shall act as the secretary to the committee.
(B) Meeting of Audit Committee
The audit committee should meet at least four times in a year and not more than four
months shall elapse between two meetings. 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:
1. To investigate any activity within its terms of reference.
2. To seek information from any employee.
3. To obtain outside legal or other professional advice.
4. To secure attendance of outsiders with relevant expertise, if it considers necessary.
(D) Role of Audit Committee
The role of the audit committee shall include the following:
1. Oversight of the company’s financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
2. Recommending to the Board, the appointment, re-appointment and, if required, the
replacement orremoval of the statutory auditor and the fixation of audit fees.
3. Approval of payment to statutory auditors for any other services rendered by the
statutory auditors.
4. Reviewing, with the management, the annual financial statements before submission to
the board for approval, with particular reference to:
(a) Matters required to be included in the Director’s Responsibility Statement to be
included in the Board’s report in terms of clause (2AA) of section 173 of the Companies Act,
2013.

pg. 22
(b) Changes, if any, in accounting policies and practices and reasons for the same
(c) Major accounting entries involving estimates based on the exercise of judgment by
management
(d) Significant adjustments made in the financial statements arising out of audit findings
(e) Compliance with listing and other legal requirements relating to financial statements
(f) Disclosure of any related party transactions
(e) Qualifications in the draft audit report.
5. Reviewing, with the management, the quarterly financial statements before submission
to the board for approval
5A. Reviewing, with the management, the statement of uses/application of funds raised
through anissue (public issue, rights issue, preferential issue, etc.), the statement of funds
utilized for purpose other than those stated in the offer document/prospectus/notice and
the report submitted by themonitoring agency monitoring the utilization of proceeds of a
public or rights issue, and makingappropriate recommendations to the Board to take up
steps in this matter.
6. Reviewing, with the management, performance of statutory and internal auditors, and
adequacy of the internal control systems.
7. Reviewing the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing and seniority of the official heading the department,
reporting structure coverage and frequency of internal audit
8. Discussion with internal auditors any significant findings and follow up there on.
9. Reviewing the findings of any internal investigations by the internal auditors into
matters wherethere is suspected fraud or irregularity or a failure of internal control
systems of a material nature and reporting the matter to the board.
10. Discussion with statutory auditors before the audit commences, about the nature and
scope of auditas well as post-audit discussion to ascertain any area of concern.
11. 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.
12. To review the functioning of the Whistle Blower mechanism, in case the same is
existing.
12A. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other
person headingthe finance function or discharging that function) after assessing the
qualifications, experience &background, etc. of the candidate.
13. Carrying out any other function as mentioned in the terms of reference of the Audit
Committee.
(E) Review of information by Audit Committee
The Audit Committee shall mandatorily review the following information:
1. Management discussion and analysis of financial condition and results of operations;
2. Statement of significant related party transactions (as defined by the audit committee),
submitted by management;
3. Management letters / letters of internal control weaknesses issued by the statutory
auditors;
4. Internal audit reports relating to internal control weaknesses; and

pg. 23
5. 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 adirector 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, inparticular, 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. The management should periodically
bring to the attention of the Board of Directors of the listed holding company, a statement
of all significant transactions andarrangements entered into by the unlisted subsidiary
company.
IV. DISCLOSURES
(A) Basis of related party transactions
(i) A statement in summary form of transactions with related parties in the ordinary course
of businessshall be placed periodically before the audit committee.
(ii) Details of material individual transactions with related parties which are not in the
normal course ofbusiness shall be placed before the audit committee.
(iii) Details of material individual transactions with related parties or others, which are not
on an arm’slength basis should be placed before the audit committee, together with
Management’s justificationfor the same.
(B) Disclosure of Accounting Treatment
Where in the preparation of financial statements, a treatment different from that
prescribed in an AccountingStandard has been followed, the fact shall be disclosed in the
financial statements, together with theManagement’s explanation as to why it believes such
alternative treatment is more representative of the trueand fair view of the underlying
business transaction in the Corporate Governance Report.
(C) Board Disclosures – Risk management
The company shall lay down procedures to inform Board members about the risk
assessment andminimization procedures. These procedures shall be periodically reviewed
to ensure that executivemanagement controls risk through means of a properly defined
framework.
(D) Proceeds from public issues, rights issues, preferential issues etc.
When money is raised through an issue (public issues, rights issues, preferential issues
etc.), it shall discloseto the Audit Committee, the uses / applications of funds by major
category (capital expenditure, sales andmarketing, working capital, etc), on a quarterly
basis as a part of their quarterly declaration of financialresults. Further, on an annual basis,
the company shall prepare a statement of funds utilized for purposesother than those
stated in the offer document/prospectus/notice and place it before the audit committee.
Such disclosure shall be made only till such time that the full money raised through the
issue has been fullyspent. This statement shall be certified by the statutory auditors of the
company. Furthermore, where thecompany has appointed a monitoring agency to monitor
the utilization of proceeds of a public or rights issue,it shall place before the Audit

pg. 24
Committee the monitoring report of such agency, upon receipt, without anydelay. The audit
committee shall make appropriate recommendations to the Board to take up steps in
thismatter.
(E) Remuneration of Directors
(i) All pecuniary relationship or transactions of the non-executive directors vis-à-vis the
company shallbe disclosed in the Annual Report.
(ii) Further the following disclosures on the remuneration of directors shall be made in the
section onthe corporate governance of the Annual Report:
a. All elements of remuneration package of individual directors summarized under major
groups,such as salary, benefits, bonuses, stock options, pension etc.
b. Details of fixed component and performance linked incentives, along with the
performancecriteria.
c. Service contracts, notice period, severance fees.
d. Stock option details, if any – and whether issued at a discount as well as the period over
whichaccrued and over which exercisable.
(iii) The company shall publish its criteria of making payments to non-executive directors
in its annualreport. Alternatively, this may be put up on the company’s website and
reference drawn thereto inthe Annual Report.
(iv) The company shall disclose the number of shares and convertible instruments held by
nonexecutivedirectors in the Annual Report.
(v) Non-executive directors shall be required to disclose their shareholding (both own or
held by / forother persons on a beneficial basis) in the listed company in which they are
proposed to beappointed as directors, prior to their appointment. These details should be
disclosed in the notice tothe general meeting called for appointment of such director.
(F) Management
(i) As part of the director’s report or as an addition thereto, a Management Discussion and
Analysisreport should form part of the Annual Report to the shareholders. This
Management Discussion &Analysis should include discussion on the following matters
within the limits set by the company’scompetitive position:
1. Industry structure and developments.
2. Opportunities and Threats.
3. Segment–wise or product-wise performance.
4. Outlook
5. Risks and concerns.
6. Internal control systems and their adequacy.
7. Discussion on financial performance with respect to operational performance.
8. Material developments in Human Resources / Industrial Relations front, including
number ofpeople employed.
(ii) Senior management shall make disclosures to the board relating to all material financial
andcommercial transactions, where they have personal interest, that may have a potential
conflict withthe interest of the company at large (for e.g. dealing in company shares,
commercial dealings withbodies, which have shareholding of management and their
relatives etc.).

pg. 25
(G) Shareholders
(i) In case of the appointment of a new director or re-appointment of a director the
shareholders mustbe provided with the following information:
a. A brief resume of the director;
b. Nature of his expertise in specific functional areas;
c. Names of companies in which the person also holds the directorship and the membership
ofCommittees of the Board; and
d. Shareholding of non-executive directors as stated in Clause 49 (IV) (E) (v) above.
(ia) Disclosure of relationships between directors inter-se shall be made in the Annual
Report, noticeof appointment of a director, prospectus and letter of offer for issuances and
any related filingsmade to the stock exchanges where the company is listed.
(ii) Quarterly results and presentations made by the company to analysts shall be put on
company’sweb-site, or shall be sent in such a form so as to enable the stock exchange on
which the companyis listed to put it on its own web-site.
(iii) A board committee under the chairmanship of a non-executive director shall be formed
tospecifically look into the redressal of shareholder and investors complaints like transfer
of shares,non-receipt of balance sheet, non-receipt of declared dividends etc. This
Committee shall bedesignated as ‘Shareholders/Investors Grievance Committee’.
(iv) To expedite the process of share transfers, the Board of the company shall delegate the
power ofshare transfer to an officer or a committee or to the registrar and share transfer
agents. Thedelegated authority shall attend to share transfer formalities at least once in a
fortnight.
V. CEO/CFO certification
The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act,
2013 and theCFO i.e. the whole-time Finance Director or any other person heading the
finance function discharging thatfunction shall certify to the Board that:
(a) They have reviewed financial statements and the cash flow statement for the year and
that to thebest of their knowledge and belief:
i. these statements do not contain any materially untrue statement or omit any material
fact orcontain statements that might be misleading;
ii. These statements together present a true and fair view of the company’s affairs and are
incompliance with existing accounting standards, applicable laws and regulations.
(b) There are, to the best of their knowledge and belief, no transactions entered into by the
companyduring the year which are fraudulent, illegal or violative of the company’s code of
conduct.
(c) They accept responsibility for establishing and maintaining internal controls for
financial reportingand that they have evaluated the effectiveness of internal control
systems of the companypertaining to financial reporting and they have disclosed to the
auditors and the Audit Committee,deficiencies in the design or operation of such internal
controls, if any, of which they are aware andthe steps they have taken or propose to take to
rectify these deficiencies.
(d) They have indicated to the auditors and the Audit committee
i. significant changes in internal control over financial reporting during the year;
ii. Significant changes in accounting policies during the year and that the same have
beendisclosed in the notes to the financial statements; and

pg. 26
iii. Instances of significant fraud of which they have become aware and the involvement
therein, ifany, of the management or an employee having a significant role in the company’s
internalcontrol system over financial reporting.
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. Non-compliance of
any mandatoryrequirement of this clause with reasons thereof and the extent to which the
non-mandatoryrequirements have been adopted should be specifically highlighted. The
suggested list of items tobe included in this report is given in Annexure- IC and list of non-
mandatory requirements is givenin Annexure – ID.
(ii) The companies shall submit a quarterly compliance report to the stock exchanges
within 15 daysfrom the close of quarter as per the format given in Annexure IB. The report
shall be signed eitherby the Compliance Officer or the Chief Executive Officer of the
company,
VII. Compliance
1. The company shall obtain a certificate from either the auditors or practicing company
secretariesregarding compliance of conditions of corporate governance as stipulated in this
clause and annexthe certificate with the director’s report, which is sent annually to all the
shareholders of thecompany. The same certificate shall also be sent to the Stock Exchanges
along with the annualreport filed by the company.
2. The non-mandatory requirements given in Annexure – ID may be implemented as per
the discretion of the company. However, the disclosures of the compliance with
mandatoryrequirements and adoption (and compliance) / non-adoption of the non-
mandatory requirementsshall be made in the section on corporate governance of the
Annual Report.

pg. 27
CORPORATE GOVERNANCE ANDSHAREHOLDER RIGHTS
Protection of shareholder rights is sacrosanct for good corporate governance. It is one of
the pillars ofcorporate governance. For the efficient functioning of the capital market, the
fundamental requirement is thatthe investor rights are well protected. The Preamble to
Securities and Exchange Board of India Act, 1992reads as under:
“An Act to provide for the establishment of a Board to protect the interests of investors in
securities and topromote the development of, and to regulate the securities market and for
matters connected there with orincidental thereto.”
The central element in corporate governance is the challenges arising out of separation of
ownership andcontrol. The shareholders are the true owners of a corporate and the
governance function controls theoperations of the corporate. There is a strong likelihood
that there is a mismatch between the expectations ofthe shareholders and the actions of
the management. Therefore there is a need to lay down clearly the rightsof the
shareholders and that of the management.
In the Indian context, the SEBI Act, 1992, the various SEBI Regulations and Guidelines and
the CompaniesAct, 2013 enables the empowerment of shareholder rights.
In the international context, the OECD Principles on Corporate Governance which serves as
an internationalbenchmark for policy makers, investors, corporations and other
stakeholders worldwide also has madeextensive recommendations as to the shareholder
rights.
RIGHTS OF SHAREHOLDERS:
Shareholders generally enjoy the following types of rights:
 Voting rights on issues that affect the corporation as a whole
 Rights related to the assets of the corporation
 Rights related to the transfer of stock
 Rights to receive dividends as declared by the board of directors of the corporation
 Right to receive financial statements
 Rights to inspect the records and books of the corporation
 Rights to bring suit against the corporation for wrongful acts by the directors and
officers of thecorporation
 Rights to share in the proceeds recovered when the corporation liquidates its
assetsThe OECD Principles on Corporate Governance, which broadly recommends
six principles. Recommendsthe following two principles with regard to
shareholders:
 The corporate governance framework should protect and facilitate the exercise of
shareholders’rights. (Principle II).
 The corporate governance framework should ensure the equitable treatment of all
shareholders,including minority and foreign shareholders. All shareholders should
have the opportunity to obtaineffective redress for violation of their rights
(Principle III).
The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights. (Principle II)

pg. 28
These Principles propound basic shareholder rights should include the right to:
(i) Secure methods of ownership registration: that is mechanism whereby the names of the
shareholders and their shareholdings are properly registered. Section 150 of the
Companies Act, 2013 which requires companies to maintain a Register of members ensures
this right.
(ii) Convey or transfer shares: similarly the laws should be in place for free transferability
of shares.Section 108 of the Companies Act, 2013 with regard to transfer of shares ensures
this right.
(iii) Shareholders should obtain relevant and material information on the corporation on a
timely and regular basis. This right is enabled under the companies Act as well as the
Listing Agreement, in case of listed companies.
(iv) Shareholders should be empowered to participate and vote in general shareholder
meetings.
(iv)Shareholders should be empowered to elect and remove members of the board; and
(v) Shareholders will have a right to a share in the profits of the corporation.
It further provides that shareholders should have the right to participate in, and to be
sufficiently informed on, decisions concerning fundamental corporate changes such as:
(1) Amendments to the statutes, or articles of incorporation or similar governing
documents of the company;
(2) The authorization of additional shares; and
(3) Extraordinary transactions, including the transfer of all or substantially all assets, that
in effect result in the sale of the company.
The Companies Act, 2013 requires that such businesses be approved by shareholders by
special resolution.
Further, Section 192A of the Companies Act, 2013 requires a listed public company that
resolutions relatingto certain businesses should be got passed only by postal ballot. This is
to allow all the shareholders to havetheir say on important matters. The postal Ballot Rules
list out the businesses which may be passed bypostal ballot.
The principles also recommend that shareholders should have the opportunity to
participate effectively andvote in general shareholder meetings and be furnished with
sufficient and timely information concerning thedate, location and agenda of general
meetings, as well as full and timely information regarding the issues tobe decided at the
meeting. Shareholders should have the opportunity to ask questions to the board.
Effectiveshareholder participation in key corporate governance decisions, such as the
nomination and election ofboard members, should be facilitated. Shareholders should be
able to make their views known on theremuneration policy for board members and key
executives. Shareholders should be able to vote in personor in absentia, and equal effect
should be given to votes whether cast in person or in absentia.
Other Recommendations
 Capital structures and arrangements that enable certain shareholders to obtain a
degree of control disproportionate to their equity ownership should be disclosed.
 Markets for corporate control should be allowed to function in an efficient and
transparentmanner.

pg. 29
i. The rules and procedures governing the acquisition of corporate control in the
capital markets, and extraordinary transactions such as mergers, and sales of
substantial portions of corporateassets, should be clearly articulated and
disclosed so that investors understand their rights andrecourse. Transactions
should occur at transparent prices and under fair conditions that protectthe
rights of all shareholders according to their class.
ii. Anti-take-over devices should not be used to shield management and the board
from accountability.
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 cover these
aspects.
 The exercise of ownership rights by all shareholders, including institutional
investors, should be facilitated.
i. Institutional investors acting in a fiduciary capacity should disclose their overall
corporate governance and voting policies with respect to their investments,
including the procedures thatthey have in place for deciding on the use of their
voting rights.
ii. Institutional investors acting in a fiduciary capacity should disclose how they
manage materialconflicts of interest that may affect the exercise of key
ownership rights regarding theirinvestments.
 Shareholders, including institutional shareholders, should be allowed to consult
with each other on issues concerning their basic shareholder rights as defined in the
Principles, subject to exceptions to prevent abuse.
Shareholder rights enshrined in the Companies Act, 2013
These rights can be categorized as under:
(1) Right to receive copies of the following documents from the company:
(i) Abridged balance-sheet and profit and loss account in the case of a listed company and
balance-sheet and profit and loss account otherwise.
(ii) Report of the Cost Auditor, if so directed by the Government.
(iii) Contract for the appointment of the managing director/manager.
(iv) Notice of the general meetings of the company.
(2) Right to inspect statutory registers/returns and get copies thereof on payment of
prescribed fee.
The members have been given right to inspect the following registers etc.:
(i) Debenture trust deed;
(ii) Register of Charges;
(iii) Register of Members, and Debenture holders and Index Registers, Annual Returns;
(iv) Minutes Book of General Meetings;
(v) Register of Contracts;
(vi) Register of Directors’;
(vii) Register of Directors’ Shareholdings; and
(viii) Copy of agreement of appointment of the managing director/manager.
The members can also get the copies of the aforesaid registers/returns on payment of
prescribedfee except those of Register of Directors and Register of Directors’

pg. 30
Shareholdings. Members can also get copies of memorandum and articles of association on
payment of a fee of Re. One.
(3) Right to attend meetings of the shareholders and exercise voting rights at these
meetings eitherpersonally or through proxy.
(4) Other rights.
Over and above the rights enumerated at Item Nos. 1 to 3 above, the members have the
following rights:
(i) To receive share certificates as title of their holdings.
(ii) To transfer shares.
(iii) To resist and safeguard against increase in his liability without his written consent.
(iv) To receive dividend when declared.
(v) To have rights shares.
(vi) To appoint directors.
(vii) To share the surplus assets on winding up.
(viii) Right of dissentient shareholders to apply to court.
(ix) Right to be exercised collectively in respect of making application to the Central
Government forinvestigation of the affairs of the company, and for appointment of
Government directors.
(x) Right to make application collectively to the Company Law Board/Tribunal for
oppression andmismanagement.
(xi) Right of Nomination.
(xii) Act provides that every member of a public company limited by shares, holding equity
shares, shall have votes in proportion to his share of the paid-up equity sharecapital of the
company.
(xiii) Preference shareholders ordinarily vote only on matters directly relating to rights
attached topreference share capital. A resolution for winding up of the company or for the
reduction of the share capital, will be deemed to affect directly the rights attached to
preference share and sothey can vote on such resolutions.
(xiv) Section 106 of the Companies Act, 2013 lays down that the rights attached to the
shares of any class can be varied with the consent in writing of the holders of not less than
three-fourths of the issued shares of that class or with the sanction of a special resolution
passed at a separatemeeting of the holders of the issued shares of the class. Further, the
variation of rights ofshareholders can be effected only:
(i) if provision with respect to such variation is contained in the Memorandum or Articles
ofassociation of the company; or
(ii) in the absence of any such provision in a Memorandum or Articles of association of
thecompany, if such a variation is not prohibited by the terms of issue of the shares of
thatclass.
According to this section, where the rights of any class of shares are varied, the holders of
notless than ten per cent of the shares of that class, being persons who did not consent to
or votein favor of the resolution for the variation, can apply to the Court/ Tribunal to have
the variationcancelled. Where any such application is made to the Court/Tribunal, the
variation will not beeffective unless and until it is confirmed by the Court.
Annual General Meeting (AGM)

pg. 31
In terms of Section 96, every company including One Person Company shall in each year
hold in addition to any other meetings a generalmeeting as its annual general meeting and
shall specify the meeting as such in the notices calling it; and notmore than fifteen months
shall elapse between the date of one annual general meeting of a company and that of the
next.
Power and duty to acquire shares of shareholders dissenting from scheme or
contract approved by majority;
Where a scheme or contract involving the transfer of shares or its class in a company to
another companyhas, within four months after the making of the offer in that behalf by the
transferee company, been approved by the holders of not less than nine-tenths in value of
the shares whose transfer is involved, the transfereecompany may, at any time within two
months after the expiry of the said four months, give notice to anydissenting shareholder,
that it desires to acquire his shares; and when such a notice is given, the
transfereecompany shall, unless, on an application made by the dissenting shareholder
within one month from the dateon which the notice was given, unless the CLB/Tribunal
thinks fit to order otherwise, be entitled and bound to acquire those shares. "Dissenting
shareholder" includes a shareholder who has not assented to the scheme or contract and
anyshareholder who has failed or refused to transfer his shares to the transferee company
in accordance withthe scheme or contract;
Application to Tribunal* for relief in case of oppression;
Any member of a company who complain that the affairs of the company are being
conducted in a mannerprejudicial to public interest or in a manner oppressive to any
member or members may apply to the Tribunalfor an order.
If the Tribunal is of opinion that the company's affairs are being conducted in a manner
prejudicial to publicinterest or in a manner oppressive to any member or members; and
that to wind up the company wouldunfairly prejudice such member or members but that
otherwise the facts would justify the making of awinding up order on the ground that it
was just and equitable that the company should be wound up; Tribunal may, with a view to
bringing to an end the matters complained of, make such order as it thinks fit.
Application to Tribunal* for relief in cases of mismanagement;
Any members of a company who complain that the affairs of the company are being
conducted in a mannerprejudicial to public interest or to the interests of the company; or
that a material change of the company hastaken place in the management or control of the
company, whether by an alteration in its Board of directorsor manager or in the ownership
of the company's shares, and that by reason of such change, it is likely thatthe affairs of the
company [will be conducted in a manner prejudicial to public interest or] in a
mannerprejudicial to the interests of the company; may apply to the Tribunal for an order.
If Tribunal is of opinion that the affairs of the company are being conducted as aforesaid
the Tribunal may,with a view to bringing to an end or preventing the matters complained
of, make such order as it thinks fit.
The following persons have a right to apply under the above sections:
(i) in the case of a company having a share capital, not less than one hundred members of
the company or not less than one-tenth of the total number of its members, whichever is
less, or anymember or members holding not less than one-tenth of the issued share capital

pg. 32
of the company,provided that the applicant or applicants have paid all calls and other sums
due on their shares;
(ii) in the case of a company not having a share capital, not less than one-fifth of the total
number of itsmembers.
The Central Government may, if in its opinion circumstances exist which make it just and
equitable so to do, authorize any member or members of the company to apply to the
Tribunal under section 397 or 398, notwithstanding the requirements of such number of
members are not fulfilled.
Pending the making by it of a final order the Tribunal may, on the application of any party
to the proceeding, make any interim order which it thinks fit for regulating the conduct of
the company's affairs; upon such terms and conditions as appear to it to be just and
equitable.
Investor Protection in India
Securities and Exchange Board of India (SEBI) is the capital market regulator and nodal
agency in India who regulates the security market. One of the objectives of the SEBI is to
provide a degree of protection to the investors and to safeguard their rights, steady flow of
savings into market and to promote the development of and regulate the securities market.
Investors should be safeguarded not only against frauds and cheating but also against the
losses arising out of unfair practices. Such practices may include:
o Deliberate misstatement in offer statements to investors
o Price manipulations
o Insider trading.
SEBI has issued many guidelines and regulations to regulate the capital market and to
protect the investors. Some of the guidelines are
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009;
SEBI (Ombudsman) Regulation 2003 – designed to redress the investor’s grievance against
listed companies or intermediaries or both for amicable settlement;
SEBI (Prohibition of fraudulent and unfair Trade Practices relating to securities market)
Regulations 2003 – to prohibit any fraudulent and unfair Trade Practices relating to
securities market;SEBI (Prohibition of Insider Trading) Regulations 1992 and amended in
2002. The basic objective is to prohibit persons who have more access to company’s
information which can be used to benefit the individual or group of individual or agency.
In addition to the above, SEBI has set up a separate cell to address the grievances of
investors – SEBI Complaints RedressalSytem (SCORES).
Insider Trading
Insider Trading, in general parlance, means dealing in the securities of a company based on
certain information which is not publicly disclosed (the recipient has access to such
information due to his proximity to the source) and such information is likely to have an
influence on the price of the securities.
The Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992, say, "Insider" is any person, who is or was connected with the
company, and who is reasonably expected to haveaccess to unpublished price-sensitive

pg. 33
information about the stock of that particular company, or who hasaccess to such
unpublished price sensitive information.
Information that could be price sensitive includes;
o Periodical financial results of a company,
o Intended declaration of dividend,
o Issue or buyback of securities,
o any major expansion plans or execution of new projects, amalgamation, merger,
takeovers,disposal of the whole or substantial part of the undertaking and any other
significant changes inpolicies, plans or operations of the company.
Modus Operandi
Insider buys the stock (he might also already own it). He then releases price-sensitive
information to a smallgroup of people close to him, who buy the stock based on it, and
spread the information further. This results in an increase in volumes and prices of the
stock. The inside information has now become known to a largergroup of people which
further pushes up volumes and prices of the stock.
After a certain price has been reached, which the insider knows about, he exits, as do the ones
close to him,and the stock's price falls. Those who had inside information are safe while the
ordinary retail investor isstuck holding a white elephant as, in many cases, the 'tip' reaches
him only when the stock is already on aboil.
The regular investor gets on the bandwagon rather late in the day as he is away from the
buzz with no directconnection to the 'real' source. He buys the overvalued stock due to
imbalance in the information flow.
However, insider trading isn't always illegal. Trading by a company insider in its shares is
not violation per seand is legal. What is illegal is the trading by an insider on the basis of
unpublished price-sensitive information. Insider trading violations may also include
'tipping' such information and the person using it.
Rules against insider trading on material non-public information exist in most jurisdictions
around the world, though the details and the efforts to enforce them vary considerably. The
United States is generally viewedas having the strictest laws against illegal insider trading,
and makes the most serious efforts to enforcethem.
CASE STUDY
A recent case in the United States of America serves as a good case study on Insider
Trading Rajratnam and Rajat Gupta CaseRajaratnamwas the Sri-Lankan manager of
the hedge fund Galleon Group, which managed $6.5 billion at its height.Rajat Gupta is
a former director at Goldman Sachs and head of McKinsey consulting. He also served
onthe board of Procter & Gamble.Warren Buffet is the CEO of Berkshire Hathaway, an
investment company.
Facts and Claims
Facts
On September 23, 2008, Warren Buffet agreed to pay $5 billion for preferred shares of
Goldman Sachs.This information was not announced until 6 p.m., after the NYSE closed
on that day. Before the announcement, Raj Rajaratnam bought 175,000 shares of
Goldman Sachs.

pg. 34
The next day, by which time the infusion was public knowledge, Rajaratnam sold his
shares, for a profitof $900,000. In the same period of time financial stocks as a whole
fell.
Claims
Rajat Gupta had called Rajaratnam immediately after the board meeting at which Warren
Buffet’s infusion had been announced, and told him of the money Goldman expected to
receive.
This information was material to the price of Goldman stock, thus inciting Rajaratnam to
make the trade, something he would otherwise not have done.
Conviction
Rajaratnam was sentenced to 11 years in prison and fined a criminal and civil penalty of
over $150 million combined. Rajat Gupta was convicted on insider trading charges
stemming from the Raj Rajaratnam/GalleonGroup insider trading cases on four criminal
felony counts of conspiracy and securities fraud. He wassentenced to two years in prison,
an additional year on supervised release and ordered to pay $5 millionin fines
Indian Scenario
Tata Finance Limited
SEBI has passed an order dated January 11, 2008 in the matter of M/s. Tata Finance
Limited (TFL)restraining Mr. D.S. Pendse, Mrs. AnuradhaPendse, Dr. Anjali Beke and M/s.
Nalini Properties Pvt. Ltd. from accessing the securities market and prohibiting them from
buying, selling or otherwise dealing or associating with the securities market in any
manner whatsoever, for a period of five years.
Upon receiving a complaint from TFL, a copy of which was also received from Joint
Parliamentary Committee, SEBI initiated an investigation inter alia into the alleged insider
trading by Mr. Pendse and hisrelatives/associates/friends.
It was alleged that Mrs. AnuradhaPendse, Dr. Anjali Beke and Nalini Properties (P) Ltd. had
sold shares of TFL on 28th March 2001 on the basis of a unpublished price sensitive
information relating to the financial position of TFL which was not in public domain. The
unpublished price sensitive information was alleged tohave been provided to them by Mr.
DilipPendse who at the relevant point of time, was the ManagingDirector of TFL. The price
sensitive information was pertaining to the loss of Rs.79.37 crores suffered byNishkalp
Investment and Trading Co Ltd, a wholly owned subsidiary of TFL. This information was
madepublic only on 30th April 2001. Mr. DilipPendse, besides being MD of TFL was also the
Director of Nishkapat the relevant time. It is alleged that Mr. Pendse was aware of the poor
financial position of TFL on accountof the losses incurred by Nishkap before the
information was made public on 30.04.2001. Accordingly, hisassociates/ relatives sold
2,90,000 shares of TFL during March 2001, before the information became public.
40,000 shares of TFL were sold by Mrs. AnuradhaPendse and Nalini Properties, Dr. Anjali
Beke a close friend and associate of Mr. Pendse for several years, also sold 2,30,000 shares
in the name of AnjudiProperties & Investment Pvt. Ltd., a company associated/ connected
with Mr. Pendse and controlled by Dr. Anjali Beke and her husband Dr. Beke. It was alleged
that on account of the sale, unjust profit accrued to the entities.

pg. 35
Investor Education &Protection Fund (IEPF)
Investor Education and Protection Fund (IEPF) has been established under Section 125 of
the Companies Act, 2013.
Investor Education and Protection Fund (awareness and protection of investors)
Rules, 2001 stipulate the activities related to investors’ education, awareness and
protection for which the financialsanction can be provided under IEPF.
An initiative of Ministry pursues following activities as stipulated under Rules
o Investor Education programme through Media
o Organizing Seminars and Symposia
o Proposals for registration of Voluntary Associations or Institution or other
organizations engaged inInvestor Education and Protection activities,
o Proposals for projects for Investors’ Education and Protection including research
activities and proposals for financing such projects
o Coordinating with institutions engaged in Investor Education, awareness and
protection activities.
The Securities and Exchange Board of India (SEBI) also notified SEBI (Investor Protection
and Education Fund) Regulations, 2009 according to which SEBI will establish an
Investor Protection and Education Fund which will be used inter-alia, for “aiding
investors’ associations recognized by the Board to undertake legal proceedings in the
interest of investors in securities that are listed or proposed to be listed” – clause 5 (2) (d)
of the Regulations. This amendment is a path-breaking one and is believed to set
shareholder activism inIndia. Through this an attempt is being made to provide incentive
to class action litigations. Though a regime has started yet much is needed to make such
litigations successful in India.
PROTECTION OF RIGHTS OF MINORITY SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
Accounting Standard 18 defines Related Party and Related Party Transactions as under:
10.1 Related party - parties are considered to be related if at any time during the reporting
period one partyhas the ability to control the other party or exercise significant influence
over the other party in makingfinancial and/or operating decisions.
10.2 Related party transaction - a transfer of resources or obligations between related
parties, regardless ofwhether or not a price is charged.
Related Party Transaction is a critical issue in any organization. They are not necessarily
wrong; in fact transactions with related parties happen across all jurisdictions and in the
normal course of business.
However, because of their delicate nature and the risk of abuse or fraud, they must be
carefully scrutinized and fully disclosed.
The Asian Corporate Governance Association’s white paper on Corporate Governance in
India alludes thataccording to domestic Indian fund managers, typical transactions that
listed companies engage in include:
o Spinning off valuable assets from listed companies to unlisted private entities for
the benefit of promoters.

pg. 36
o Spinning off investments in group companies to a holding company, valuing the
investments at a large discount to fair value, then buying back the shares of the
holding company from the market.
o Shifting new business to unlisted private entities and letting an affiliated listed
company pay for branding and distribution costs.
It is very apparent that these types of transactions are detrimental to the interests of the
minority shareholders. Therefore related party transactions need to be monitored properly
to prevent abuse.
Role of Audit Committee
The audit committee has an important role in monitoring related party transactions. In
most jurisdictions the first level monitoring of the related party transactions is done by the
audit committee.
As per Clause 49 of the Listing Agreement, the term "related party transactions" shall have
the samemeaning as contained in the Accounting Standard 18, issued by The Institute of
Chartered Accountants of India.
Clause 49(II)(D) of Listing Agreement requires Audit Committee to review, with the
management, the annualfinancial statements before submission to the board for approval,
with particular reference to Disclosure of any related party transactions.
Sub-Clause IIE of Clause 49 of Listing Agreement requires Audit Committee to mandatorily
review the information related to Statement of significant related party transactions (as
defined by the audit committee), submitted by management. Sub-Clause IV of Clause 49 of
Listing Agreement requires the following disclosures about the basis of related party
transactions:
(i) A statement in summary form of transactions with related parties in the ordinary course
of business shall be placed periodically before the audit committee.
(ii) Details of material individual transactions with related parties which are not in the
normal course of business shall be placed before the audit committee.
(iii) Details of material individual transactions with related parties or others, which are not
on an arm’s length basis should be placed before the audit committee, together with
Management’s justification for the same.
Related party transactions are many times made through complex transactions between
the company and itsmanagers, directors, subsidiaries, and major shareholders; it is hard
for outsiders to discover questionable orfraudulent transactions, if any. Therefore it
becomes imperative for the Internal Control Processes within thecompany to be robust
enough to identify the related party transactions, determine whether they are at
arm’slength and that these are not used as a means of manipulation.
The audit committee can ensure that adequate checks and balances are placed to ensure
that minimumconflict of interest situation arises. Some of the basic measures that can be
adopted is to have clear and well laid down policies with regard to purchases, engagement
of vendors, appointments at key levels, openbidding for material contracts and a well-
functioning whistle-blower mechanism.
Role of Internal Auditors
The internal auditors have a key role to play in actually ensuring that the systems of checks
and balances are functioning effectively. The internal auditor should directly report to the

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