20 April 2014

Amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance) of the equity listing agreement.

SEBI has pursuant to a master circular issued today, introduced amendments to clause 35B (E-voting facility) and clause 49 (Corporate Governance) of the equity listing agreement. The master circular will supersede all other earlier circulars issued by SEBI on Clauses 35B and 49 of the Equity Listing Agreement. The revised Clause 35B would be applicable to all listed companies and the modalities would be governed by the provisions of Companies (Management and Administration) Rules, 2014.

Following are some of the highlights of the revised Clause 49:

1.       Applicability

a)      To all listed companies with effect from 1 October 2014.

b)      The provisions of Clause 49(VI)(C) [constitution of risk management committee] will be applicable to top 100 listed companies by market capitalisation as at the end of the immediate previous financial year.

2.       Related Party Transactions i.e. a transfer of resources, services or obligations between a company and a related party, regardless of whether a price is charged:

a)      Applicable to all prospective transactions.

b)      A “related party” is a person or entity that is related to the company. Parties are considered to be related, if one party has the ability to control the other party or exercise significant influence over the other party, directly or indirectly, in making financial and/or operating decisions and includes certain specified entities.

c)       Company is obliged to formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions.

d)      A transaction with a related party will be considered material, if the transaction / transactions to be entered into individually or taken together with previous transactions during a financial year, exceeds five percent (5%) of the annual turnover or twenty percent (20%) of the net worth of the company as per the last audited financial statements of the company, whichever is higher.

e)      All Related Party Transactions will require prior approval of the Audit Committee.

f)       All material Related Party Transactions will require approval of the shareholders through special resolution and the related parties will have to abstain from voting on such resolutions.

g)      Details of all material transactions with related parties will have to be disclosed quarterly along with the compliance report on corporate governance.

h)      All existing material related party contracts or arrangements as on the date of this circular which are likely to continue beyond March 31, 2015 will have to be placed for approval of the shareholders in the first General Meeting subsequent to 1 October 2014. A company may choose to get such contracts approved by the shareholders even before 1 October 2014.

Equal treatment of all shareholders

3.       Companies are obliged to provide equal treatment to all shareholders including minority and foreign shareholders.

Whistle blower mechanism

4.       Companies will have to establish a whistle blower mechanism.

Accounting standards

5.       Implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders.

Disclosure of interest by board and key executives

6.       Members of the Board and key executives are obliged to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the company.

Woman director and Independent director

7.       Mandatory appointment of a woman director and independent directors.

8.       An independent director cannot act as such in more than seven listed companies.

9.       Any person who is serving as a whole time director in any listed company cannot serve as an independent director in more than three listed companies.

10.   An independent director can hold office for a term up to five consecutive year

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