Corporate Governance

1. COMPANIES ACT, 2013

Important provisions under the Companies Act, 2013 to further strengthen corporate governance:

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

1.2 Board Committees

Note 1 – The terms of reference of the AC should include:

1. The recommendation for appointment, remuneration and terms of appointment of auditors of the company
2. Review and monitor the auditor's independence and performance, and effectiveness of audit process
3. Examination of the financial statement and the auditors' report thereon
4. Approval or any subsequent modification of transactions of the company with related parties, and also omnibus approval for related party transactions proposed to be entered into by the company subject to prescribed conditions³⁵
5. Scrutiny of inter-corporate loans and investments
6. Valuation of undertakings or assets of the company, wherever it is necessary
7. Evaluation of internal financial controls and risk management systems
8. Monitoring the end use of funds raised through public offers and related matters

Note 2 – The NRC is required to

1. 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 BoD their appointment and removal and shall carry out evaluation of every director's performance
2. Formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the BoD a policy, relating to the remuneration for the directors, KMP and other employees
3. While formulating, 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, KMP 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 Listing Regulations

2.1 Listing Regulations consolidate and streamline the provisions of Listing Agreements for different segments of capital market. Following are some of the key corporate governance related provisions of the Listing Regulations applicable to the companies whose equity shares listed on the main board, having paid-up equity share capital >  ₹ 10 crore AND net worth >  ₹ 25 crore, as on the last day of the previous FY

2.1.1 BoD [Ch. IV - Reg. 17]

2.1.2 Key Committees [Ch. IV]

2.1.2 Committees (Contd.)

Note I : Role of Audit Committee as per Sch II of Listing Regulations includes:

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 for the appointment, remuneration and terms of appointment of the auditorsof the company.
3. Approval of payment to statutory auditors for any other services rendered by the statutory auditor.
4. Reviewing, with the management, the annual financial statements and auditor’s report thereonbefore submission to the board for approval, with particular reference specified particulars.
5. Reviewing, with the management, the quarterly financial statements before submission to the BoD 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 independenceand performance, and effectiveness of audit process.
8. Approval or any subsequent modification of RPTs.
9. Scrutiny of inter-corporate loans and investments.
10. Valuation of undertakingsor 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,of 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 auditorsbefore 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 defaultsin the payment to the depositors, debenture holders, shareholders (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 CFOafter 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.

Review of information by AC (mandatory)

1. Management discussion and analysisof financial condition and results of operations
2. Statement of significant RPTs(as defined by the AC), 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.
6. Statement of deviations:
   1. Quarterly statement of deviation including report of monitoring agency, if applicable, submitted to SE in terms of Reg. 32(1)
   2. Annual statement of funds utilised for purposes other than those stated in the offer document/ prospectus/notice in terms of Reg. 32(7)

Note II : Role of NRC as per Sch II of Listing Regulations, inter alia, includes:

1. Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the BoD a policy relating to the remuneration of the directors, key managerial personnel and other employees
2. Formulation of criteria for evaluation of performanceof IDs and the BoD
3. Devising a policy on Board diversity
4. Identifyingpersons 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 BoD their appointment and removal
5. Whether to extend or continue the term of appointment of the ID,on the basis of the report of performance evaluation of IDs.

2.2 Guiding Principles under Listing Regulations [Ch. II of LODR]

2.2.1 Broad principles (in line with IOSCO Principles) for periodic disclosures - Principles governing disclosures and obligations

• Information to be prepared and disclosed in accordance with applicable standards of accounting and financial disclosure
• Implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders
• Ensure that the annual audit is conducted by an independent, competent and qualified auditor
• Refrain from misrepresentation
• Adequate and timelyinformation
• Disseminations made are adequate, accurate, explicit, timely and presented in a simple language
• Channels for disseminatinginformation to provide for equal, timely and cost efficient access to relevant information by investors
• Abide by all the provisions of the applicable laws
• Make the specified disclosuresand follow its obligations in letter and spirit taking into consideration the interest of all stakeholder
• Filings, reports, statements, documents and information which are event based or are filed periodically to contain relevant information
• Periodic filings,reports, statements, documents and information reports to contain information to enable investors to track the performance of a listed entity over regular intervals of time and shall provide sufficient information to enable investors to assess the current status of a listed entity

2.2.2 Principles of corporate governance (in line with OECD principles) - Compliance with corporate governance to achieve the objectives of the following principles:

• Protect and facilitate the exercise of the rights of SH
• Provide adequate and timely information to SH
• Ensure equitable treatment of all SH, including minority and foreign SH
• Recognise the rights of its stakeholders and encourage co-operation between listed entity and the stakeholders
• ensure timely and accurate disclosure on all material matters including the financial situation, performance, ownership, and governance of the listed entity
• Responsibilities of the board of directors:

Key functions

• Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans, setting performance objectives, monitoring implementation and corporate performance, and overseeing major capital expenditures, acquisitions and divestments.
• Monitoring the effectiveness of the listed entity’s governance practices and making changes as needed.
• Selecting, compensating, monitoring and, when necessary, replacing KMP and overseeing succession planning.
• Aligning KMP and remuneration of BoD with the longer term interests of the listed entity and its shareholder.
• Ensuring a transparent nomination process to BoD with the diversity of thought, experience, knowledge, perspective and gender in BoD.
• Monitoring and managing potential conflicts of interest of management, directors and shareholders, including misuse of 
  corporate assets and abuse in related party transactions.
• Ensuring the integrity of the listed entity’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
• Overseeing the process of disclosure and communications.
• Monitoring and reviewing board of director’s evaluation framework.

Other responsibilities BOD to

• Provide strategic guidance to ensure effective monitoring of the management.
• Accountable to the listed entity and the shareholders.
• Set a corporate culture and the values by which executives throughout a group shall behave.
• Encourage continuing directors training to ensure that they are kept up to date.
• Treat all SH fairly, where its decisions may affect different SH groups differently.
• Maintain high ethical standards and take into account the interests of stakeholders
• Exercise objective independent judgment on corporate affairs
• Consider assigning a sufficient number of NEDs capable of exercising independent judgment to tasks where there is a potential for conflict of interest.
• Ensure that, while rightly encouraging positive thinking, these do not result in over-optimism that either leads to significant risks not being recognised or exposes the listed entity to excessive risk.
• Have ability to ‘step back’ to assist executive management by challenging the assumptions underlying: strategy, strategic initiatives (such as acquisitions), risk appetite, exposures and the key areas of the listed entity’s focus.
• Well define and disclose mandate, composition and 
  working procedures of committees of the board, when established.
• Directors to:
  • Act on a fully informed basis,in good faith, with due diligence and care, and in the best interest of the listed entity and the shareholders
  • Be able to commit themselves effectively to their responsibilities.
  • Have access to accurate, relevant and timely information to fulfill their responsibilities

In case of ambiguity or incongruity between the principles and relevant regulations è the principles specified in Ch II shall prevail.

34 As per Co Amend Act 217 - during the FY; For newly incorporated Co - applied proportionately at the end of the FY of incorporation - came into force from 7 May 2018

35 As per Co Amend Act 2017: (Addition) – Where Audit Committee does not approve the transaction not covered u/s. 188, it shall make its recommendations to the Board. In case any transaction involving any amount not > ₹ 1 crore is entered into by a director or officer of the company without obtaining AC approval and it is not ratified by AC within 3 months from the date of the transaction, such transaction shall be voidable at the option of AC and if the transaction is with the related party to any director or is authorised by any other director, the director concerned shall indemnify the company against any loss incurred by it. This clause shall not apply to a transaction not covered u/s. 188, between a holding company and its WOS – came into force from 7 May 2018