A HAND CHART ON REVISED CLAUSE 49 OF
THE LISTING AGREEMENT
Part - 1
By
CS K VINOTH AND CS D HEM SENTHIL RAJ
By
CS K VINOTH AND CS D HEM SENTHIL RAJ
Overview
Revised
Clause 49 of the Equity Listing Agreement is issued by the Securities Exchange
Board of India (SEBI) with an objective to align with the provisions of the
Companies Act, 2013, in order to make the concept of Corporate Governance
framework more effective.
Applicability
èAll Listed Companies
with effect from 01st
October, 2014.
èIn case of listed entities which
are not Companies like Banks, Insurance Companies etc will apply to the extent
the clause does not violate the rules, regulation, guidelines etc issued by the
relevant regulatory authorities.
Monitoring
Cell
As
per the circular issued by the SEBI, every stock exchange are required to
constitute a monitoring cell to monitor the compliance of revised clause 49 and
they are required to submit a consolidated compliance report to SEBI within 60
days from the end of each quarter.
Clause
49 of the Listing Agreement specifies that its main objective is to achieve the
set of principles which are listed below:
1.
To
protect the rights of Shareholders.
2. To
recognise the rights of stakeholders and to encourage co-operation between the
company and the stakeholders.
3.
To
ensure Disclosure and Transparency.
4.
Specifies
the responsibility of the Board.
CLAUSE
49 (II) (A) – MINIMUM COMPOSITION OF BOARD
Clause
II (A)
|
Composition of Board
|
||
Chairman
|
Non-Executive
Director
|
Independent Director
|
Woman Director
|
Non-Executive
|
Half
|
One
Third
|
One
|
Executive
|
Half
|
Half
|
One
|
Non-Executive
Promoter
|
Half
|
Half
|
One
|
Note: There should be an optimum combination of both Executive and
Non-Executive Directors
CLAUSE
49 (II) (B) – INDEPENDENT DIRECTORS:
1.
Independent Director :
A Non-Executive
Director other than a Nominee Director who is neither a relative nor any of
promoter’s relatives, whose age is not less than 21 years. The Clause also
specifies a set of criteria for the purpose of declaring personnel as an
Independent Director in an entity.
2.
Limit of Independent
Director Membership :
Maximum – 7 Listed
Companies
In
case of Person who is a Whole time Director in a Listed Company
Maximum – 3 Listed
Companies
Note:
A person can become an
Independent Director in a Public Unlisted Companies up to a maximum of 10 Companies.
3.
Maximum Tenure of
Independent Director:
Two Consecutive Term of 10 Years as detailed below:
1st Term –
Max up to 5 Years
2nd Term –
Max up to 5 Years by passing Special Resolution
In
case of Independent Directors who has already served as an Independent Director
for a period of five years or more in a company as on 01st October, 2014, he shall
be eligible for only one more consecutive term up to five years on completion of his
present tenure.
4.
Formal Letter of
Appointment to Independent Director :
Letter of appointment
to be prepared as per the Schedule IV of the CA, 2013.
Letter of appointment
along with detailed profile of Independent Director to be disclosed in
1.
Company's Website and
2.
Stock
Exchanges
Within one working day
from the date of such appointment.
5.
Performance Evaluation
of Independent Director :
Evaluation criteria to
be laid down by the Nomination & Remuneration Committee and the same is required to be
included in the Annual Report.
The performance evaluation shall be done by all the Board of Directors (except the director being evaluated).
The performance evaluation shall be done by all the Board of Directors (except the director being evaluated).
6.
Independent Director
Meeting:
At least one meeting
to be held in a year without the presence of non-Independent Directors and all the Independent Directors of the Company to be
present for the meeting.
7. Training
to Independent Director :
Training to be given
to the Independent Directors to familiarize them with the company roles, rights and responsibilities
etc and nature of industry in which the company operates, business model etc and the same to be disclosed in Annual Report.
CLAUSE 49 (II) (C) – NON-EXECUTIVE DIRECTOR COMPENSATION AND
DISCLOSURE:
All fees/compensation
payable to Non-Executive Directors are required to be fixed by the board and
shall require subsequent approval from the members, however prior approval of
members are not required for payment of sitting fees.
CLAUSE 49 (II) (D) – OTHER PROVISION AS TO BOARD AND
COMMITTEES:
1. To
meet at least 4 times a year with maximum time gap of 120 days between two such board
meetings.
2.
Director can be a
Member – Max 10
Committees – Excluding Private, Foreign and Section 8 Companies
Chairman – Max 5
Committees – Excluding Private, Foreign and Section 8 Companies
Director should notify
all the companies in case of any change in membership or chairmanship from time
to time.
3.
Independent
Director Vacancy to be filled by the board within three months from the date of
Resignation or till next board meeting whichever is later. – Not Applicable if the companies have sufficient number of Independent Director(s).
CLAUSE 49 (II) (E) – CODE OF CONDUCT:
1. The
board should lay down the code of conduct for all the board members and senior
management of the company and the same shall be posted in the websites of the
company.
2.
Declaration
from CEO/MD to be included in the Annual Report.
CLAUSE 49 (II) (F) – WHISTLE BLOWER POLICY:
Vigil
Mechanism/Whistle Blower policy to be established by the company and the same is required to
be placed in the Company's website and Board's report.
GIST OF COMPLIANCE DISCLOSURE
UNDER CLAUSE 49 (II) (A) to (F)
Website
|
Board
Report
|
Annual
Report
|
Stock
Exchange
|
1.
Letter
of Appointment of ID.
2.
Code
of Conduct
3.
Vigil
Mechanism Policy
|
1.
Vigil
Mechanism Policy
|
1.
Performance
Evaluation Criteria for Independent Director
2.
Training
to Independent Director
3.
CEO/MD
Declaration
|
Letter
of Appointments of ID
|
FAQ Relating to Clause 49 (II) (A) to (F):
Can a Woman Director be an
Executive Director?
Yes,
the Clause specifies that there should be at least one Woman Director in the
Board and it does not specify the category.
Whether
any fraction of a number shall be rounded off as one?
No,
below 0.5 not required to be rounded off to next decimal but in case of above
0.5 it is required to be rounded off to the next decimal.
Can
an Independent Director be appointed for a period of below five years?
Yes,
but he/she can be reappointed again only for a maximum term of 5 years.
Maximum
Age Limit for an Independent Director?
Listing
agreement specifies only the Criteria relating to age that the person to be
appointed shall not be less than 21 years of age.
In
case of companies who have not appointed the Independent Director in the
General Meeting before 01st October, 2014, can they appoint them for two tenure or not?
No,
they will be eligible only for the appointment of one tenure and the same is
required to be passed as a special resolution.
Can
an Independent Director appointment be made in Postal Ballot?
Listing
agreement does not specify whether it should be done in postal ballot or
general meeting but when we read Section 150(2) of CA, 2013 with the listing
agreement, Independent Directors appointment is required to be approved by the
Members in the General Meeting. In this purview the company cannot exercise the
option of postal ballot for appointment/re-appointment of Independent Director.
Can
an Independent Director be Removed from the Board before the expiry of his term?
Yes,
if the performance evaluation report issued by the Nomination Committee is not satisfactory
with the performance of an Independent Director.
The
Company is required to pass an Ordinary Resolution in the General Meeting or
Postal Ballot as the case may be as per the procedure laid down under Section
169 of the CA, 2013.
Whether
Information regarding recruitment and remuneration of senior officers below the
board level is required to be placed before the board?
Yes
Whether Independent Director is
required to Sign the Annual Report?
No,
An Independent Director is not under an obligation to certify the financial
statements of the company under both CA, 2013 and Listing Agreement. However,
as a matter of good corporate governance an Independent Director can sign the
annual report.
Whether Independent Director can
sign the Annual Return?
Yes,
He/she is eligible to sign the annual return as per Section 92 of CA, 2013.
Whether deposit of Rs.1,00,000/-
for proposing the candidature for directorship is applicable for Independent
Directors?
Yes,
applicable as per Section 160 of CA, 2013.
By
CS D HEM SENTHIL RAJ
CS K VINOTH
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