Securities and Exchange Board of India [SEBI] has, on 5 April 2010, directed Stock Exchanges [SE] to amend the Equity Listing Agreement [LA]. The amendments to LA puts in place of earlier decisions of SEBI Board meetings held on 22 September 2009 and 9 November 2009 and are applicable to companies listed on SE in India. The highlights of the amendments to LA are as under:

Submission of auditors’ certificate to the Stock Exchange for accounting treatment under scheme of arrangement

A listed company is required to file with SE a scheme / petition for amalgamation / merger / reconstruction etc. [the Scheme] proposed to be filed before any Court / Tribunal under sections 391, 394 and 101 of the Companies Act, 1956 [the Act], for approval at least 1 month before it is presented to the Court / Tribunal.

SEBI observed that certain schemes of listed companies included details of the accounting treatment to be given to various items in the process of amalgamation / merger / reconstruction etc. SEBI felt that if this accounting treatment is not in accordance with the Accounting Standards [AS] specified under section 211 (3C) of the Act, the resultant financial statements of the entity concerned will not be in conformity with the AS.

A new Clause 24(i) has therefore been inserted in the LA. It provides that a listed company while filing the Scheme with the SE under Clause 24(f) of the LA, shall also file auditors’ certificate to the effect that the accounting treatment contained in the Scheme is in compliance with all the AS specified under Section 211 (3C) of the Act. Mere disclosure of deviations in accounting treatments as provided in para 42 of AS 14 (viz. Accounting for Amalgamations) shall not be deemed as compliance with the new requirement. It is clarified that in case of companies where the respective sectoral regulatory authorities have prescribed norms for accounting treatment of items in the financial statements, which are contained in the Scheme, the requirements of the regulatory authorities shall prevail.

The new clause is made applicable to all the Schemes of listed companies filed with the Courts / Tribunals on or after 5 April 2010.

Amendments to Clause 41 – Submission, Disclosures and Publication of Interim and Annual Financial Results

Changes in timeline / disclosure requirements for quarterly / yearly financial results

The timeline contained in Clause 41 of the LA relating to submission, disclosure and publication of interim and annual financial results have been made uniform and reduced. All listed entities shall disclose:

on standalone or consolidated basis, their quarterly (audited or un-audited with limited review), financial results within 45 days from the end of every quarter.
audited annual results on stand-alone as well as consolidated basis within 60 days from the end of the financial year for such entities, where they opt to submit annual audited results in lieu of the unaudited financial results with limited review for the last quarter.
Publication of consolidated financial results

All companies shall disclose on a standalone basis (a) Turnover (b) Profit before tax and (c) Profit after tax, where they submit consolidated financial results in additions to standalone financial results and publish consolidated financial results only.
Companies that are required to prepare consolidated financial results for the first time at the end of a financial year shall exercise the option of publishing consolidated financial results alone in the newspapers in respect of the quarter during the financial year in which they first acquired the subsidiary.
Half yearly / annual disclosure of statements of Assets and Liabilities

In respect of half yearly results – Company is required to submit to the SE, a statement of assets and liabilities as at the end of the half-year by way of a note as a part of its audited / unaudited financial results in the prescribed format.
In respect of annual results – when a company opts to submit un-audited financial results for the last quarter, statement of assets and liabilities as at the end of the financial year should be submitted along with audited financial results for the entire financial year as soon as they are approved by the board of the Company.
Voluntary adoption of International Financial Reporting Standards [IFRS] by listed entities having subsidiaries

A new provision has been inserted which provides that, in case the company has subsidiaries and it opts to submit consolidated financial results, the company has the option to submit the same either in accordance with IFRS notified by International Accounting Standards Board or AS specified under Section 211(3C) of the Act.

Where the figures for the current period are as per IFRS and the figures for the corresponding previous period are as per the AS specified under Section 211(3C) of the Act, a reconciliation in respect of significant differences between the figures as disclosed as per IFRS and the figures as per AS, had AS been followed, shall be provided.
Submission of stand-alone financial results to the SEs shall continue to be made in accordance with Indian Generally Accepted Accounting Principles.
The above changes in Clause 41 of the LA are effective immediately. Requirement of a valid peer review certificate for statutory auditors

Limited review / audit reports submitted to the SEs on quarterly / annual basis shall be given by the auditors who have subjected themselves to the peer review process of Institute of Chartered Accountants of India [ICAI] and who holds a valid certificate issued by the Peer Review Board of ICAI. This new clause in Clause 41 of the LA would be applicable to all financial statements submitted by listed entities to the SEs after appointment of auditors for accounting periods commencing on or after 1 April 2010.

Modification in formats of limited review report and statutory auditor’s report

Limited review report and statutory auditor’s report formats are modified to make it clear that disclosures pertaining to details of public shareholding and promoter and promoter group shareholding, including details of pledged / encumbered shares of promoters / promoter group, contained in the format have been traced from disclosures made by the management and not reviewed / audited by the auditor.

Amendment to Clause 49 – Approval of appointment of ‘CFO’ by the Audit Committee

Appointment of the CFO (i.e. the whole-time Finance Director or any other person heading the finance function or discharging that function) is now mandatorily required to be approved by the Audit Committee before finalization of the same by the management. The Audit Committee, while approving the appointment of CFO shall assess the qualifications, experience & background etc. This amendment to Clause 49 of the LA is effective immediately.

Listing means an admission of the securities to dealings on a recognized stock exchange[1]. Separate Listing Department grants approval for listing of securities of Companies by the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 2013, Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange. Companies enter into a Listing agreement with the Exchange and make certain disclosures and perform certain acts. Listing Department monitors the compliance of the companies.

Clause 49 of the Listing Agreement by Securities Exchange Board of India explains on the issue of Corporate Governance and endorses the standards under which the Companies are ordered to work. After the enactment of the new Companies Act, 2013; SEBI through an official circular has amended Clause 49 of the Listing Agreement to bring it into conformity with the new Act. SEBI, vide Circular No. CFD/POLICY CELL/2/2014 dated April 17, 2014, has amended the provisions of Clause 49 of Listing Agreement relating to Corporate Governance, mandating, inter-alia, that the Board of Directors of listed entities shall have an optimum combination of executive and non-executive directors with at least one woman director. Further, vide Circular No. CFD/POLICY CELL/7/2014[2] Dated September 15, 2014; the timeline to comply with the requirement mentioned above was extended to March 31, 2015.images

Applicability of Clause 49[3] Extends to all listed companies except –

Companies with equity share capital of less than Rs 10 crore,
Companies having a net worth not exceeding of Rs 25 crore and
Companies listed on SME and SME-ITP platforms of the stock exchanges.
However, it has been clarified by SEBI that the exemption is “for the time being,” and in case applicability of Clause 49 is extended to the exempted categories in future, then such companies shall have 6 (six) months to comply with the provisions of Clause 49.

Provisions relating to the constitution of Risk Management Committee shall apply to top 100 listed companies by market capitalization as at the end of the immediate previous financial year. Clause 49 is also applicable to other listed entities which are not companies, but body corporate or are subject to regulations under other statutes (e.g. Banks, financial institutions, insurance companies, etc.). The clause 49 will apply to the extent that it does not violate their respective statutes and guidelines or directives issued by the relevant regulatory authorities.


Principles of Corporate Governance
Following the amendment, clause 49 has laid out the principles of corporate governance. It likewise explicitly expresses that if there should be an occurrence of any ambiguity, the provisions might be translated and connected incongruity with the said principles. The principles are:

The rights of shareholders –
The company should seek to protect and facilitate the exercise of shareholders’ rights.
The company should provide adequate and timely information to shareholders.
The company should ensure equitable treatment of all shareholders, including minority and foreign shareholders.
Role of stakeholders in corporate governance –
The company should recognize the rights of stakeholders and encourage co-operation between the company and the stakeholders.
Disclosure and transparency –
The company should ensure timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the company.
Responsibilities of the Board of Directors –
Disclosure of information
Key functions of the Board of Directors
Other responsibilities

Board of Directors
Composition of Board of Directors
Woman Director – The Board of Directors of a listed company shall have at least one woman director, with effect from 1 April 2015
A minimum number of independent directors– Clause 49 has been reworded in this context as to replace the reference to executive director with the regular non-executive director. It adds that if the chairperson of the Board is a regular non-executive director who is also a promoter of the company or is related to any promoter or person occupying management positions at the Board level or one level below the Board, then at least one-half of the Board should comprise of independent directors.

Independent Directors
Separate meetings of independent directors– The recent amendment stipulates that the independent directors of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management. They shall:
Performance evaluation of independent directors– The amendment clarifies that the Nomination Committee shall lay down the evaluation criteria for performance evaluation of independent directors. It shall be done by the Board of Directors and shall form the basis for determination of reappointment of the independent director. The company shall disclose the criteria for performance evaluation in its annual report.corporate-management
Maximum tenure of independent directors– it is proposed to be by the Companies Act 2013. Under the 2013 Act, the maximum tenure of an independent director is up to five consecutive years, followed by a reappointment for another term of up to five consecutive years on passing of a special resolution by the company. On completion of the said maximum tenure of 10 years, an individual shall be eligible for an appointment again as an independent director in that company only after a cooling-off period of three years. Further, the tenure already served by an independent director in the past shall not be considered, and for the purpose of determining the maximum tenure, the only future term shall be considered.
Limit on a number of directorships– An individual shall not serve as an independent director in more than seven listed companies. Further, any individual who is also serving as a whole-time director of any listed company shall not serve as an independent director in more than three listed companies.
Definition of independent director– Disqualification criteria for independent directors has been expanded which makes the definition more restrictive[4]. Also, the definition specifically excludes a nominee director.
Review the performance of non-independent directors and the Board of Directors as a whole
Review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors, and
Assess the quality, quantity, and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform its duties.
Familiarization program for independent directors– The company shall familiarize the independent directors with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, the business model of the company, etc. through various programs. The company shall disclose the details of such familiarization programs on its website and also provide that web link in its annual report.

Non-executive Directors’ compensation and disclosures
The revised Clause 49 specifically forbids the independent directors from being entitled to any stock option.


Code of Conduct
In the code of conduct of the company shall be incorporate the duties of independent directors as laid down in the Act. An independent director shall be held liable in respect of acts by a company that occur with his knowledge or if an independent director doesn’t act diligently on the requirements of the listing agreement.


Whistle Blower Policy
With the amendments to Clause 49, it is mandated that the company shall establish a vigil system for directors and employees to report concerns about

unethical behavior,
actual or suspected fraud,
Violation of the company’s code of conduct or ethics policy.
There must also be provided adequate safeguards against victimization of individuals who utilize such mechanism to report any concerns.

Audit Committee
The new Clause 49 enhances the part of audit committees to include:

Review and monitor the auditor’s independence and performance, and effectiveness of the audit process.
Approval or any subsequent modification of transactions of the company with related parties;
Scrutiny of inter-corporate loans and investments.
Valuation of undertakings or assets of the company, wherever it is necessary, and
Evaluation of internal financial controls and risk management systems.

Nomination and Remuneration Committee
A company through its Board of Directors shall constitute a ‘Nomination and Remuneration’ Committee which shall comprise of at least three non-executive directors, half of which should be independent. The chairman of the committee shall be an independent director. The chairperson of the company, even if an executive, can be appointed as a member, but not as the chairman, of such committee. Such committee shall be responsible for:

remittance-by-foreign-companies-and-repatriation-of-dividendsFormulation of the criteria for determining qualifications, positive attributes and independence of a director
Formulation of criteria for evaluation of independent directors and the Board
Identifying persons who are qualified to become directors and who may be appointed by senior management by the criteria laid down, and recommend their appointment and removal
Recommend to the Board of Directors, the policy for remuneration of the directors, key managerial personnel, and other employees; and
Devising a policy on Board diversity The company shall disclose the remuneration policy and the evaluation criteria in its annual report.

Subsidiary Companies
The amendments now require companies to form a policy for the determination of ‘material subsidiaries,’ which is required to be published online. It is also prescribed that at a minimum, a subsidiary shall be considered as material if the investment of the company in the subsidiary exceeds 20% of its consolidated net worth as per the audited balance sheet of the previous financial year or if the subsidiary has generated 20% of the consolidated income of the company during the previous financial year. The revised Clause 49 mandates a special resolution, except in cases where a scheme or arrangement has been duly approved by a court/tribunal, to dispose of shares in its material subsidiary which would reduce the shareholding to less than 50% or results in loss of control over the subsidiary. Further, selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary shall, except in cases where a scheme or arrangement has been duly approved by a court/tribunal, also require prior approval of shareholders by way of special resolution. The amendment has also modified the definition of a ‘material non-listed Indian subsidiary,’ and replaces the references to ‘turnover’ by ‘income,’ thereby expanding the applicability of provisions for material non-listed Indian subsidiary.

Risk Management
The amended Clause 49 requires that the Board of Directors shall be responsible for framing, implementing and monitoring the risk management plan for the company. It also adds (for only top 100 listed companies by market capitalization as at the end of the downloadimmediate previous financial year) that a company through its Board of Directors shall constitute a Risk Management Committee.

The majority of the members, and the chairman, of such committee, shall comprise the members of the Board. The Board shall define the roles and responsibilities of the Risk Management Committee and may delegate its said responsibilities to such committee.


Related Party Transactions
The amended Clause 49 has added a detailed new section on related party transactions. This section describes ‘related party transactions,’ and defines the term ‘related party.’ This definition of related party comprises the definition of the related party provided in, both, the 2013 Act as well as the applicable accounting standards. The amended Clause 49 also prescribes that a company shall form a policy on the materiality of related party transactions, and also on dealing with related party transactions. The revised Clause 49 also prescribes that at a minimum, a transaction with a related party shall be considered material if the transaction(s), individually or taken together with previous transactions during a financial year, exceed 10% of the annual turnover of the company as per the last audited financial statements of the company[5]. The amendment requires that all related party transactions shall require prior approval of the audit committee. The audit committee may grant an omnibus approval if:images (4)

The audit committee shall lay down the criteria for granting the omnibus approval in line with the Policy on Related Party Transactions of the company, and such approval shall be applicable in respect of transactions which are repetitive in nature.
The audit committee shall satisfy itself about the need for such omnibus approval, and that such approval is in the interest of the company.
Such an omnibus approval shall specify –
the name/s of the related party, nature of transaction, period of transaction, the maximum amount of transaction that can be entered into,
the Indicative base price / current contracted price and the formula for variation in the price if any, and such other conditions as the Audit Committee may deem fit. However, where the need for related party transaction cannot be foreseen, and details above are not available. Audit Committee may grant omnibus approval for such transactions subject to their value not exceeding INR 1 crore per transaction
such other conditions as the Audit Committee may deem fit. However, where the need for related party transaction cannot be foreseen, and details above are not available. Audit Committee may grant omnibus approval for such transactions subject to their value not exceeding INR 1 crore per transaction.
download (3)The Audit Committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the company pursuant to each of the omnibus approval given.
Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year.
Also, all material related party transactions shall require the approval of shareholders through a special resolution and all related parties shall abstain from voting on such resolutions. Following transactions shall be exempt from the approvals above of the audit committee and the shareholders, respectively:

transactions entered into between two government companies, or
transactions entered into between a holding company and its wholly-owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

The amendments are a mix of clarifications and relaxations to the requirements of corporate governance under Clause 49 of Listing Agreements. It is through the communication between SEBI and large corporate that has brought to light the prevailing difficulties in interpretation and recognition of problem areas under the clause. It is a welcome change taking into consideration the practicality of implementation of provisions for corporate governance. These changes bring clause 49 of the listing agreement in conformity with the Companies Act, 2013, but does not completely pave the way for smooth implementation standards. Alignment of a definition of ‘related parties’ and an increase in the threshold for determining the materiality of related party transactions to 10 percent of consolidated annual turnover, and permitting omnibus approvals were much-needed changes.