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Amendments in Clause 49 of the Listing Agreement

The Securities and Exchange Board of India has issued a circular in continuation of circular dated 17th April, 2014 w.r.t amendments made in clause 35B and 49 of the listing agreement. Also, further the Ministry of Corporate Affairs has issued various circulars after the commencement of the Companies Act, 2013 with regard to the appointment and qualification of directors, related party transactions and meetings of the Board of Directors. In the light of the above the stakeholders have made various representations to SEBI as they are facing a  lot of practical difficulties in the application of such provisions.

The Clause 49 of the Listing Agreement shall be applicable from the 1st day of October, 2014 except clause relating to the appointment of Woman Director which shall be applicable from 1st April, 2015.

The SEBI has issued various amendments in the Clause 49 of the listing agreement which are as follows:

1.  The Clause 49 of the Listing Agreement shall be applicable to all companies whose equity shares are listed on a recognized stock exchange. However, compliance with the provisions of Clause 49 shall not be mandatory, for the time being, in respect of the following class of companies:

a.  Companies having paid up equity share capital not exceeding Rs.10 crore and Net Worth not exceeding Rs.25 crore, as on the last day of the previous financial year;

Provided that where the provisions of Clause 49 becomes applicable to a company at a later date, such company shall comply with the requirements of Clause 49 within six months from the date on which the provisions became applicable to the company.

2. The provisions regarding appointment of woman director as provided in Clause 49 (II)(A)(1) shall be applicable with effect from April 01, 2015.

3.  Amendment to Clause 49(II)(B)(1)(c)

The clause shall be substituted with the following:

“(c) apart from receiving director’s remuneration, has or had no material pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.”

4. “The maximum tenure of Independent Directors shall be in accordance with the Companies Act, 2013 and clarifications/ circulars issued by the Ministry of Corporate Affairs, in this regard, from time to time.”

5. “The terms and conditions of appointment shall be disclosed on the website of the company.”

6.  a.  The company shall familiarise the independent directors with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc., through various programmes.

b. The details of such familiarisation programmes shall be disclosed on the company’s website and a web link thereto shall also be given in the Annual Report.”

7. The company through its Board of Directors shall constitute the nomination and remuneration committee which shall comprise at least three directors, all of whom shall be non-executive directors and at least half shall be independent. Chairman of the committee shall be an independent director.

Provided that the chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.”

8. The company shall formulate a policy for determining ‘material’ subsidiaries and such policy shall be disclosed on the company’s website and a web link thereto shall be provided in the Annual Report.”

9.  No company shall dispose of shares in its material subsidiary which would reduce its shareholding (either on its own or together with other subsidiaries) to less than 50% or cease the exercise of control over the subsidiary without passing a special resolution in its General Meeting except in cases where such divestment is made under a scheme of arrangement duly approved by a Court/Tribunal.”

10. Amendment to Clause 49(V)(G) The clause shall be substituted with the following:

“(G). Selling, disposing and leasing of assets amounting to more than twenty percent of the assets of the material subsidiary on an aggregate basis during a financial year shall require prior approval of shareholders by way of special resolution, unless the sale/disposal/lease is made under a scheme of arrangement duly approved by a Court/Tribunal.”

11. Amendment to Clause 49(VI) The clause 49(VI)(C) shall be substituted with the following:

“(C) The company through its Board of Directors shall constitute a Risk Management Committee. The Board shall define the roles and responsibilities of the Risk Management Committee and may delegate monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem fit.”

12. Amendment to Clause 49(VII)(A) The following explanation shall be inserted after Clause 49(VII)(A):

“Explanation: A “transaction” with a related party shall be construed to include single transaction or a group of transactions in a contract.”

13. Amendment to Clause 49(VII)(B) The clause shall be substituted with the following:

“B. For the purpose of Clause 49 (VII), an entity shall be considered as related to the company if:

(i)such entity is a related party under Section 2(76) of the Companies Act, 2013; or

(ii) such entity is a related party under the applicable accounting standards.”

14. Amendment to Clause 49(VII)(C) The clause shall be substituted with the following:

“(C)The company shall formulate a policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions.

Provided that a transaction with a related party shall be considered material if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual consolidated turnover of the company as per the last audited financial statements of the company.”

15. Amendment to Clause 49(VII)(D) The clause shall be substituted with the following:

“(D)All Related Party Transactions shall require prior approval of the Audit Committee. However, the Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the company subject to the conditions as specified in the clause.

16. Amendment to Clause 49(VII)(E)

The following proviso and explanations shall be inserted after Clause 49(VII)(E):

“Provided that sub-clause 49 (VII)(D) and (E) shall not be applicable in the following cases:

(i) transactions entered into between two government companies;

(ii)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.

Explanation(i):For the purpose of Clause 49(VII), “Government company” shall have the same meaning as defined in Section 2(45) of the Companies Act, 2013.”

Explanation(ii):For the purpose of Clause 49(VII), all entities falling under the definition of related parties shall abstain from voting irrespective of whether the entity is a party to the particular transaction or not.”

17. Amendment to Clause 49(VIII)(A)(2) The clause shall be substituted with the following:

“(2) The company shall disclose the policy on dealing with Related Party Transactions on its website and a web link thereto shall be provided in the Annual Report. ”

18. Amendment to clause 49(IX)

The words ” The CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole-time Finance Director or any other person heading the finance function discharging that function shall certify to the Board that:”

shall be substituted with:

“The CEO or the Managing Director or manager or in their absence, a Whole Time Director appointed in terms of Companies Act, 2013 and the CFO shall certify to the Board that :”

The Circular containing the above details can also be accessed below.

Corporate Governance Amendments in Clause 49 of the Equity Listing agreement

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