1. COMPANIES ACT, 2013

The following are the important provisions under the Companies Act, 2013 (the new Act) and the Rules framed thereunder to further strengthen corporate governance:

1.1. Composition of the Board of Directors [Sections 149, 151]

1.1.1. Minimum number of directors:

• Public company : 3

• Private company : 2

• One person company : 1

1.1.2. Maximum number of directors:

Every company shall have maximum 15 directors. A company can appoint more than 15 directors after passing a special resolution.

1.1.3. Director resident in India ≥ 182 days

Every company is required to have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

1.1.4. Independent Directors

• Every listed public company is required to have at least one-third of total number of directors as independent directors.

• The following public companies are required have at least two directors as independent directors:

  1. Paid-up share capital ≥ Rs.10 crores

  2. Turnover ≥ Rs.100 crores

  3. Outstanding loans, debentures and deposits > Rs.50 crores as at the last date of latest audited financial statements

• In case a company ceases to fulfil any of the above three conditions for three consecutive years, it will not be required to comply with the provisions until such time it meets any of such conditions.

• Any intermittent vacancy of an Independent Director is required to be filled up by the Board at the earliest but not later than immediate next board meeting or 3 months from the date of such vacancy, whichever is later. [Note: This provision is in conflict with provision VI (2) of Schedule IV given below at 1.5.4]

• Every company existing as on or before 1st April, 2014 to which this provision applies is required to comply with the requirements within one year, i.e. by 31st March, 2015.

• Every independent director has to, at the first board meeting in which he participates as a director and thereafter at the first board meeting in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence.

1.1.5. Woman Director – One or more

o The following class of companies are required to appoint at least one woman director

1. Every listed company

2. Every other public company that meets the following criteria based on latest audited financial statements

• Paid–up share capital ≥ Rs.100 crores

• Turnover ≥ Rs.. 300 crores

o Companies to whom this provision applies, are required to comply as under:

Every company existing as on or before 1st April 2014 within 1 year

A company incorporated under Companies Act, 2013 within 6 months from the date of incorporation

o Any intermittent vacancy of a Woman Director is required to be filled up by the Board at the earliest but not later than immediate next board meeting or 3 months from the date of such vacancy, whichever is later.

1.1.6. Small Shareholders’ Director – one or more

Every listed company may appoint a small share holders’ director to be elected by the small share holders, i.e. share holders holding shares of nominal value of less than Rs.20,000 upon receiving notice of not less than 1,000 small share holders or one-tenth of the total number of such share holders, whichever is lower or on a voluntary basis.

1.2. Director's Responsibility Statement (DRS) [Section 134(5)]

The Report of the Board of Directors is required to include a DRS on the following aspects:

1. Applicable accounting standards have been followed in preparation of the annual accounts along with proper reasons/explanations for material departures.

2. Accounting policies as selected are consistently applied and judgments and estimates are made in a reasonable and prudent manner to ensure true and fair view of the state of affairs at the end of financial year and of the profit or loss for that period.

3. Adequate accounting records are maintained in accordance with the provisions of the new Act safeguarding the assets of the company and for preventing and detecting frauds and other irregularities.

4. Annual accounts have been prepared on a Going Concern basis.

5. In the case of a listed company, the directors, have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.

6. Proper systems have been devised to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

1.3. Additional Disclosures in the Report of the Board of Directors [Section 134(3)]

In case of a listed company and every other public company having paid-up share capital Rs.25 crores or more, calculated at the end of the preceding financial year, the Report of the Board of Directors is required to include, inter alia, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.

1.4. Duties of the Directors [Section 166]

The new Act has codified duties of the directors as given below:

1. To act in accordance with the articles of the company

2. To act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the share holders, the community and for the protection of environment

3. To exercise duties with due and reasonable care, skill and diligence and to exercise independent judgment

4. Not involve in a situation in which the director may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company

5. Not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates

6. Not assign director’s office

1.5. Independent Directors [Section 149]

1.5.1 Qualifications

An independent director means a director other than a managing director or a whole-time director or a nominee director and

1. Is a person of integrity and possesses relevant expertise and experience

2. Is not a promoter of the company or its holding, subsidiary or associate company

3. Is not related to promoters or directors in the company, its holding, subsidiary or associate company

4. Has no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the 2 immediately preceding financial years or during the current financial year

5. None of whose relatives has pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to 2% or more of its gross turnover or total income or Rs.50 lakhs or such higher amount as may be prescribed, whichever is lower, during the 2 immediately preceding financial years or during the current financial year;

6. Who, neither himself nor any of his relatives—

1. Holds the position of a KMP or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed;

2. Is or has been an employee or proprietor or a partner, in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed, of

1. A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or

2. Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to 10% or more of the gross turnover of such firm

3. Holds together with his relatives 2% or more of the total voting power of the company

4. Is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company

7. Who possesses appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

1.5.2 Remuneration

An independent director is not entitled to any stock option and may receive remuneration by way of (sitting) fee provided under section 197(5), reimbursement of expenses for participation in the Board and other meetings and profit related commission that be approved by the members.

1.5.3 Term

1. An independent director can hold office for a term up to 5 consecutive years and is eligible for reappointment on passing of a special resolution by the company and disclosure of such appointment in the Board's report.

2. No independent director can hold office for more than 2 consecutive terms. Such independent director is eligible for appointment after the expiration of 3 years of ceasing to become an independent director provided he is not, during the said period of 3 years, appointed in or associated with the company in any other capacity, either directly or indirectly.

1.5.4 Code for Independent Directors

The Schedule IV lays down a detailed code of conduct for Independent Directors covering the following aspects:

I. Guidelines of Professional Conduct

The independent director is required to:

1. Uphold ethical standards of integrity and probity

2. Act objectively and constructively while exercising his duties

3. Exercise his responsibilities in a bona fide manner in the interest of the company

4. Devote sufficient time and attention to his professional obligations for informed and balanced decision making

5. Not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in the paramount interest of the company as a whole, while concurring in or dissenting from the collective judgment of the Board in its decision making

6. Not abuse his position to the detriment of the company or its share holders or for the purpose of gaining direct or indirect personal advantage or advantage for any associated person

7. Refrain from any action that would lead to loss of his independence

8. Where circumstances arise which make an independent director lose his independence, the independent director must immediately inform the Board accordingly

9. Assist the company in implementing the best corporate governance practices

II. Roles and functions

The independent director is required to:

1. Help in bringing an independent judgment to bear on the Board’s deliberations especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct

2. Bring an objective view in the evaluation of the performance of board and management;

3. Scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance

4. Satisfy themselves on the integrity of financial information and that financial controls and the systems of risk management are robust and defensible

5. Safeguard the interests of all stakeholders, particularly the minority share holders

6. Balance the conflicting interest of the stakeholders;

7. Determine appropriate levels of remuneration of executive directors, KMP and senior management and have a prime role in appointing and where necessary recommend removal of executive directors, KMP and senior management;

8. Moderate and arbitrate in the interest of the company as a whole, in situations of conflict between management and shareholder’s interest

III. Duties

The independent director is required to:

1. Undertake appropriate induction and regularly update and refresh their skills, knowledge and familiarity with the company

2. Seek appropriate clarification or amplification of information and, where necessary, take and follow appropriate professional advice and opinion of outside experts at the expense of the company

3. Strive to attend all meetings of the Board of Directors and of the Board committees of which he is a member

4. Participate constructively and actively in the committees of the Board in which they are chairpersons or members

5. Strive to attend the general meetings of the company

6. Where they have concerns about the running of the company or a proposed action, ensure that these are addressed by the Board and, to the extent that they are not resolved, insist that their concerns are recorded in the minutes of the Board meeting

7. Keep themselves well informed about the company and the external environment in which it operates

8. Not to unfairly obstruct the functioning of an otherwise proper Board or committee of the Board

9. Pay sufficient attention and ensure that adequate deliberations are held before approving related party transactions and assure themselves that the same are in the interest of the company

10. Ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such mechanism are not prejudicially affected on account of such use

11. Report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy

12.  Acting within his authority, assist in protecting the legitimate interests of the company, shareholders and its employees

13. Not disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law.

IV. Manner of appointment

1. Appointment process of independent directors is required to be independent of the company management; while selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively.

2. The appointment of independent director(s) of the company is to be approved at the meeting of the share holders.

3. The explanatory statement attached to the notice of the meeting for approving the appointment of independent director is required to include a statement that in the opinion of the Board, the independent director proposed to be appointed fulfils the conditions specified in the Act and the rules made thereunder and that the proposed director is independent of the management.

4. The appointment of independent directors is required to be formalised through a letter of appointment, which shall set out:

1. The term of appointment

2. The expectation of the Board from the appointed director; the Board-level committee(s) in which the director is expected to serve and its tasks

3. The fiduciary duties that come with such an appointment along with accompanying liabilities

4. Provision for Directors and Officers (D and O) insurance, if any

5. The Code of Business Ethics that the company expects its directors and employees to follow

6. The list of actions that a director should not do while functioning as such in the company

7. The remuneration, mentioning periodic fees, reimbursement of expenses for participation in the Board's and other meetings and profit related commission, if any

5. The terms and conditions of appointment of independent directors have to be open for inspection at the registered office of the company by any member during normal business hours.

6. The terms and conditions of appointment of independent directors is also to be posted on the company's website.

V. Reappointment

The reappointment of independent director has to be on the basis of report of performance evaluation

VI. Resignation or removal

1. The resignation or removal of an independent director has to be in the same manner as is provided in sections 168 and 169 of the Act.

2. An independent director who resigns or is removed from the Board of the company is required to be replaced by a new independent director within a period of not more than 180 days from the date of such resignation or removal. [see 1.1.4 above]

3. Where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, the requirement of replacement by a new independent director does not apply.

VII. Separate meetings

1. The independent directors of the company are required to hold at least 1 meeting in a year, without the attendance of non-independent directors and members of management;

2. All the independent directors of the company have to strive to be present at such meeting;

3. The meeting is required to:

1. review the performance of non-independent directors and the Board as a whole

2. review the performance of the Chairperson of the company, taking into account the views of executive directors and nonexecutive directors

3. 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 their duties

VIII. Evaluation Mechanism

1. The performance evaluation of independent directors is required to be done by the entire Board of Directors, excluding the director being evaluated.

2. On the basis of the report of performance evaluation, the Board is required determine whether to extend or continue the term of appointment of the independent director.

1.6. Board Committees

Note 1 – The terms of reference of the Audit Committee should include:

i. The recommendation for appointment, remuneration and terms of appointment of auditors of the company

ii. Review and monitor the auditor's independence and performance, and effectiveness of audit process

iii. Examination of the financial statement and the auditors' report thereon

iv. Approval or any subsequent modification of transactions of the company with related parties

v. Scrutiny of inter-corporate loans and investments

vi. Valuation of undertakings or assets of the company, wherever it is necessary

vii. Evaluation of internal financial controls and risk management systems

viii. Monitoring the end use of funds raised through public offers and related matters

Note 2 - The Nomination and Remuneration Committee is required to:

i. Identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal and shall carry out evaluation of every director's performance

ii. Formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees

iii. Ensure that

1. The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully

2. Relationship of remuneration to performance is clear and meets appropriate performance benchmarks

3. Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals

2. SEBI REGULATIONS – CLAUSE 49 OF THE LISTING AGREEMENT

The SEBI inserted Clause 49 in the Listing Agreement in January, 2000 to enforce compliance with Corporate Governance standards as amended in 2004, 2008, 2010 and recently amended in 2014 vide Circular No. CIR/ CFD/Policy Cell/2/2014 dated 17th April, 2014. The last amendment has been made to align these provisions with the provisions of the Companies Act, 2013 and is applicable from 1st October, 2014. Further amendments were carried out vide Circular No. CIR/ CFD/Policy Cell/7/2014 dated 15th September, 2014 in order to address the concerns of the market participants and facilitate the listed companies to ensure compliance.

The highlights of provisions of Clause 49 are:

Applicability:

The Clause 49 is applicable to all the companies whose equity shares are listed on a recognised stock exchange. However, compliance thereof is not mandatory for the time being, in respect of the following class of companies:

1. 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.

Where the provisions of Clause 49 become applicable to a company at a later date, such company is required to comply with the requirements of Clause 49 within 6 months from the date on which the provisions became applicable to the company.

2. Companies whose equity share capital is listed exclusively on the SME and SME-ITP Platforms.

3. The provisions of Clause 49(VI)(C) pertaining to the Risk Management Committee are applicable to top 100 listed companies by market capitalisation as at the end of the immediate previous financial year.

4. For 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 applies to the extent that it does not violate their respective statutes and guidelines or directives issued by the relevant regulatory authorities. The Clause 49 is not applicable to Mutual Funds.

2.1 Board of Directors

2.1.1 Composition of Board

1. Non-executive directors – not to be less than 50% of the total board

2. Woman director - at least 1 – To be appointed on or before 31st March, 2015

3. Independent directors

1. Chairman is a non-promoter, non-executive director – at least – of the Board to comprise independent directors

2. Chairman is non-executive – but is a promoter of the company or is related to any promoter or person occupying management positions at the Board level or at one level below the Board – at least ½ of the Board of the company to consist of independent directors

3. If the company does not have a regular non-executive Chairman – at least ½ of the Board to comprise independent directors

2.1.2 Independent Directors

1. Independent director to mean a non-executive director, other than a nominee director of the company who satisfies prescribed criteria

2. Restriction on serving as an independent director

1. Any person serving as a whole time director in any listed company – not more than 3 listed companies

2. Any other person – not more than 7 listed companies

3. Maximum tenure of Independent Directors is now linked to the provisions of the Companies Act, 2013 as stated in 1.5.3 above.

4. A formal letter of appointment is required to be issued to the independent directors in the manner as provided in the Companies Act, 2013 and the terms and conditions of appointment to be disclosed on the websites of the company.

5. The performance of independent directors is required to be evaluated by the entire Board of Directors (excluding the director being evaluated) based on the evaluation criteria to be laid down by the Nomination Committee. The company is required to disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report. The extension of the term of the independent director is required to be based on report of such performance evaluation.

6. Independent directors are required to hold at least 1 meeting in a year, without the attendance of non-independent directors and members of management to, inter alia, review and/or assess:

1. Performance of non-independent directors and the Board as a whole

2. Performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors

3. 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 their duties

7. Various programmes are required to be provided to the independent directors to familiarise them 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. and the details of such familiarisation programmes are required to be disclosed on the Company’s website and a web link thereto is also required to be given in the Annual Report.

2.1.3 Non-executive directors’ compensation and disclosures

1. All fees/compensation, if any paid to non-executive directors, including independent directors, are to be fixed by the Board of Directors with previous approval of share holders in general meeting.

2. The share holders’ resolution to specify the limits for the maximum number of stock options that can be granted to non-executive directors, in any financial year and in aggregate.

3. Independent Directors are not entitled to any stock options.

4. Prior approval of share holders in general meeting does not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government.

2.1.4 Other provisions as to Board and Committees

1. The board to meet at least 4 times a year, with a maximum time gap of 120 days between any two meetings. The minimum information to be made available to the board is given in Annexure X to clause 49.

2. A director not to be a member in more than 10 committees or act as Chairman of more than 5 committees across all public companies in which he is a director – committee membership / chairmanship of private companies, section 8 companies and foreign companies excluded. Audit Committee and the Stakeholders' Relationship Committee alone to be considered for the purpose of this limit.

3. Every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.

4. The Board to periodically review compliance reports of all laws applicable to the company, prepared by the company as well as steps taken by the company to rectify instances of non-compliances.

5. An independent director who resigns or is removed from the Board of the Company to be replaced by a new independent director at earliest but not later than the immediate next Board meeting or 3 months from the date of vacancy, whichever is later. However, where the company fulfils the requirement of independent directors in its Board even without filling the vacancy, the requirement of replacement by a new independent director does not apply.

6. The Board is required to satisfy itself that plans are in place for orderly succession for appointments to the Board and to senior management.

2.1.5 Code of Conduct

1. The Board is required to lay down a code of conduct for all Board members and senior management of the company and post the same on the website of the company.

2. All Board members and senior management personnel are required to affirm compliance with the code on an annual basis. The Annual Report of the company to contain a declaration to this effect signed by the CEO.

3. The Code of Conduct is required to suitably incorporate the duties of independent directors as laid down in the Companies Act, 2013.

4. An independent director will be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently with respect of the provisions contained in the Listing Agreement.

2.1.6 Whistle Blower Policy

1. The company is required to establish a vigil mechanism for directors and employees to report concerns about unethical behaviour, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.

2. This mechanism should also provide for adequate safeguards against victimisation of director(s)/ employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases.

3. The details of establishment of such mechanism are required to be disclosed by the company on its website and in the Board’s report

2.2 Audit Committee

2.2.1 Qualified and Independent Audit Committee

1. Minimum 3 directors to be members with – being independent directors.

2. All members to be financially literate and at least 1 member having accounting or related financial management expertise.

3. The Chairman of the Audit Committee to be an independent director and to remain present at the AGM to answer share holders’ queries.

4. The Audit Committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company.

5. The Company Secretary to act as the secretary to the committee.

2.2.2 Meeting of Audit Committee

The Audit Committee to meet at least 4 times in a year with a gap of not more than 4 months between two meetings. The quorum is higher of 2 members or with minimum of 2 independent members present.

2.2.3 Powers of Audit Committee

The powers of the Audit Committee to include:

1. To investigate any activity within its terms of reference

2. To seek information from any employee

3. To obtain outside legal or other professional advice

4. To secure attendance of outsiders with relevant expertise, if necessary

2.2.4 Role of Audit Committee

A very elaborate role is prescribed for the Audit Committee in clause 49. The role of the Audit Committee to include the following:

1. Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, remuneration and terms of appointment of the auditors of the company.

3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors.

4. Reviewing, with the management, the annual financial statements and auditor’s report thereon before submission to the board for approval, with particular reference specified particulars.

5. Reviewing, with the management, the quarterly financial statements before submission to the board for approval.

6. Reviewing, with the management, the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilised for purposes other than those stated in the offer document/prospectus/ notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter.

7. Review and monitor the auditor’s independence and performance, and effectiveness of audit process.

8. Approval or any subsequent modification of transactions of the company with related parties

9. Scrutiny of inter-corporate loans and investments.

10. Valuation of undertakings or assets of the company, wherever it is necessary.

11. Evaluation of internal financial controls and risk management systems.

12. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems.

13. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.

14. Discussion with internal auditors, any significant findings and follow-up thereon.

15. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.

16. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

17. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, share holders (in case of non-payment of declared dividends) and creditors.

18. To review the functioning of the Whistle Blower mechanism.

19. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate.

20. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

2.2.5 Review of information by Audit Committee

The Audit Committee to mandatorily review the following information:

1. Management discussion and analysis of financial condition and results of operations;

2. Statement of significant related party transactions (as defined by the Audit Committee), submitted by management;

3. Management letters/letters of internal control weaknesses issued by the statutory auditors;

4. Internal audit reports relating to internal control weaknesses; and

5. The appointment, removal and terms of remuneration of the Chief internal auditor.

2.3 Nomination and Remuneration Committee

1. The Nomination and Remuneration Committee is required to be set up comprising at least 3 directors, all of whom shall be non-executive directors and at least ½ being independent including the Chairman.

2. The role of the committee, inter alia, includes the following:

1. Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy relating to the remuneration of the directors, key managerial personnel and other employees;

2. Formulation of criteria for evaluation of Independent Directors and the Board;

3. Devising a policy on Board diversity;

4. Identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.

3. The Chairman of the Nomination and Remuneration Committee could be present at the Annual General Meeting, to answer the share holders' queries. However, it would be up to the Chairman to decide who should answer the queries.

2.4 Subsidiary Companies

1. At least 1 independent director of the holding company is required to be director on the Board of a material non-listed Indian subsidiary company [unlisted subsidiary incorporated in India whose income or networth (paid-up capital and free reserves) > 20% consolidated income or networth respectively of the listed holding company and its subsidiaries in the immediately preceding accounting year].

2. The Audit Committee of the listed holding company is also required to review the financial statements, in particular, the investments made by the unlisted subsidiary company.

3. The minutes of the Board meetings of the unlisted subsidiary company and periodically, a statement of all significant transactions and arrangements [single transaction or arrangement exceeding / likely to exceed 10% of total revenues / expenses / assets / liabilities as the case may be, of the material unlisted subsidiary for the immediately preceding accounting year] entered into by the unlisted subsidiary company are required to be placed at the Board meeting of the listed holding company.

4. The company is required to formulate a policy for determining ‘material’ subsidiaries and such policy shall be disclosed to Stock Exchanges and in the Annual Report. A subsidiary is 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.

5. No company can 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.

6. Selling, disposing and leasing of assets amounting to more than 20% of the assets of the material subsidiary requires prior approval of share holders by way of special resolution.

Where a listed holding company has a listed subsidiary which is itself a holding company, the above provisions to be complied with by the listed subsidiary insofar as its subsidiaries are concerned.

2.5 Risk Management

1. The company is required to lay down procedures to inform Board members about the risk assessment and minimisation procedures.

2. The Board is responsible for framing, implementing and monitoring the risk management plan for the company.

3. The company through its Board is required to also constitute a Risk Management Committee and 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.

4. Majority of this committee to consist of the Board members.

5. Senior executives of the company may be the members of this committee; chairman of this committee to be a Board member.

2.6 Related Party Transactions

1. An entity to be considered as related party it is a related party under section 2(76) of the Companies Act 2013 or a related party under applicable Accounting Standard.

2. The company is required to formulate a policy on materiality of related party transactions and also on dealing with Related Party Transactions. A transaction with a related party is considered material if the transaction/transactions to be entered into individually or taken together with previous transactions during a financial year, > 10% of the annual consolidated turnover of the company as per the last audited financial statements of the company.

3. All Related Party Transactions require prior approval of the Audit Committee. However Audit Committee may grant omnibus approval for Related Party Transactions proposed to be entered into by the Company subject to specified conditions.

4. All material Related Party Transactions require approval of the shareholders through special resolution and all the entities falling within the definition of related parties shall abstain from voting on such resolutions, whether the entity is a party to the particular transaction or not.

5. The provision mentioned at 3 and 4 above are not applicable to the following:

• Transaction entered into between 2 government companies;

• Transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the share holders at the general meeting for approval.

2.7 Disclosures

The following disclosure requirements are specified:

1. Related Party Transactions (RPT)

• Details of all material RPT to be disclosed quarterly along with the compliance report on corporate governance

• Policy on dealing with RPT on its website and a web link thereto in the Annual Report

2. Disclosure of Accounting Treatment

3. Remuneration of Directors

4. Management

• Management Discussion and Analysis report

• Senior management to make disclosures to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for example dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.)

• Code of Conduct for the Board of Directors and the senior management to be disclosed on the website of the company.

5. Share holders

• Brief resume of the Director and other specified particulars at the time of his appointment or reappointment of a director

• Disclosure of relationships between directors inter se

• Quarterly results and presentations to analysts to be put on company’s website

6. Proceeds from public issues, rights issues, preferential issues, etc.

2.8 CEO/CFO Certification

The CEO, i.e. the Managing Director or Manager (in their absence, a whole time director) appointed in terms of the Companies Act, 2013, and the CFO, i.e. the whole-time Finance Director or any other person heading the finance function discharging that function, to certify to the Board specified particulars.

2.9 Report on Corporate Governance

1. A separate section on Corporate Governance is to be included in the Annual Reports of company, with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory requirement of this clause with reasons thereof and the extent to which the non-mandatory requirements have been adopted to be specifically highlighted. The suggested list of items to be included in this report is given in Annexure XII and list of non-mandatory requirements is given in Annexure XIII to the listing agreement.

2. The companies are required to submit a quarterly compliance report to the stock exchanges within 15 days from the close of quarter as per the format given in Annexure XI. The report to be signed either by the Compliance Officer or the Chief Executive Officer of the company.

2.10 Compliance

(1) The companies are required to obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated and annex the certificate with the directors’ report sent annually to all the share holders of the company and filed with the Stock Exchanges.

2.11 Non-mandatory requirements

1. The non-mandatory requirements given in Annexure XII may be implemented as per the discretion of the company. However, the disclosures of the compliance with mandatory requirements and adoption (and compliance)/non-adoption of the non-mandatory requirements to be made in the section on corporate governance of the Annual Report.

2. The non-mandatory requirements as specified in Annexure XII to the listing agreement are:

• A non-executive Chairman may be entitled to maintain a Chairman’s office at the company’s expense and also allowed reimbursement of expenses incurred in performance of his duties.

• A half-yearly declaration of financial performance including summary of the significant events in last 6 months, may be sent to each household of share holders.

• Company may move towards a regime of unqualified financial statements.

• The company may appoint separate persons to the post of Chairman and Managing Director/CEO.

• The Internal auditor may report directly to the Audit Committee.