Revised Clause 49 of the Listing Agreement
Applicability of Clause 49:
Clause 49 of the Listing Agreement is applicable to all the listed companies through the official circular with effect from 1st October, 2014. Other entities which are not Company per se but fall under the head of body corporate and are guided or regulated by some other Statute, the clause shall apply on them till it is conformity with their statute. In case, any of the provision of the clause violates the concerned statute, the Listing Agreement would cease to apply. This clause is not applicable to mutual funds.
Clause 49(I) Principles:
Rights of Shareholders: Listing Agreement enumerates the following rights of the shareholders which must be met by the Company: Shareholder’s must be sufficiently informed about the fundamental corporate changes and must get a right to participate in it. They must have an opportunity to participate and vote in general shareholder’s meetings. They should have a right to place items on the agenda of the meeting (general), propose resolutions etc. The shareholders must have the opportunity to exercise ownership rights. Minority protection from the abusive action of the majority must be protected. Further, the Company must adequately and timely inform the shareholders about the general meetings, capital structures and arrangements, rights attached to shares or class of shares they seek to invest in. The Company must design ways to avoid Insider trading and abusive self dealing. Finally, there must be equitable treatment of all shareholders.
Role of Stakeholders in Corporate Governance: This section provides for the need of recognition of the rights of stakeholder and encourage cooperation between stakeholders and company. The stakeholders must be effectively recognised and respected. A mechanism must be created to protect their rights from abuse or violation. Further, they must be timely and adequately informed about every process relating to Corporate Governance.
Disclosure and Transparency: Disclosures must be made regarding proper compliance of prescribed standards of accounting, financial and non- financial disclosure. Maintenance of records containing minutes of the meeting must be done, specifically recording dissenting opinions.
Duties/ Responsibilities of the Board: One of the key responsibilities of the Board is to observe transparency and disclose every material fact or report which is required to be disclosed. Other key functions include monitoring the effectiveness of the Company’s governance practice, setting performance objectives, aligning board remuneration and other key executive with the interests of the Company and shareholders etc.
Clause 49(II) Board of Directors:
Composition: This part requires that the Company must have an optimum combination of Executive and non executive directors i.e. the Board must necessarily have 50% non- executive directors. Also, it is mandated that there must be at least one woman director. In case, the Chairman of the company is a non executive director, one-third of the Board must comprise of independent directors. However, if the Chairman is an executive director, half the Board must comprise of Independent directors.
Independent Directors: The amended agreement excludes nominee director to fall under the meaning of independent director. Independent director is any non executive director who possess relevant expertise and integrity and in no way is related to the Company.
According to the clause, no person can be an independent director of more than seven listed companies. If any person is serving as a whole time director in any listed company, then he/she shall not be the independent director of more than three listed companies.
The tenure of the Independent director has been amended to be in accordance with the Companies Act, 2013 and the relevant rules released by Ministry of Corporate Affairs from time to time. Under the Companies Act, 2013 the tenure of independent directors has been given of five years. However, an independent director cannot be an independent director of a company consecutively. There has been prescribed a cooling period of three years in between.
The appointment of the independent director has to be made through a formal letter of appointment as prescribed in the Companies Act, 2013.
The evaluation of the performance of the independent directors must be made as per the criteria laid down by the Nomination Committee which must be disclosed in the annual report. The evaluation of the director would be done by the entire board except the director evaluated or concerned. Based on this evaluation, the Director’s tenure would be extended or not.
The independent directors of a company shall hold a meeting where only independent directors are present and no other member or director. The objective behind such meeting is to analyse the performance of the other directors and to assess the quality and quantity of information flow between the Company and the Board for the effective functioning.
Instead of the training programme for the independent directors, the familiarisation programme for the independent director has been introduced whereby the directors would be familiarised with their role, functions in the Company. Also, the details of the business functioning would be elaborated through programmes. The details of this programme have to be disclosed in the website of the Company along with a link attached to the Company’s annual report.
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