Page 27 - Banking Finance October 2020

ARTICLE

listed in the following rules / regulations /acts / listing 49 was last amended on 29 October 2004. This amendment
agreements: made certain changes like defining the independent
1. The Companies Act 2013- This consists of the provisions directors, improving the quality of financial disclosure,
related to the Board, its constitution, meetings, board strengthening the audit committee, disclosure about related
dealings, independent directors, related party party, restriction on the terms of independent directors etc.
transactions, disclosure requirements etc.
During the year 2012 to 2013 a slew of measures and
2. Securities and Exchange Board of India Guidelines- SEBI
from time to time issues guidelines pertaining to listed reforms were undertaken by SEBI to improve the Corporate
companies, to ensure that interests of the investors are Governance standards of companies in India. Some of these
changes are listed below:
protected.
1. The listing agreement has been aligned more with the
3. Standard listing agreement of Stock exchanges.
Companies Act 2013. Issuance of formal letter of
4. Accounting standards issued by Institute of Chartered appointment, performance evaluation, separate
Accountants of India (ICAI). meeting at least once in a year, of Independent

5. Secretarial standards issued by Institute of Company Directors is required by SEBI also besides under the
Secretaries of India (ICSI). Companies Act.
2. Restriction on the number of Independent Directorships
Corporate Governance in India: to 7 and restriction to 3 in case the person is also a full
time director on board of a company.
The first initiative in this area started with publication of
"Desirable Code of Corporate Governance"- a voluntary code 3. Maximum term of an Independent director is restricted
published by Confederation of Indian Industries in 1998. In to 2 terms of 5 years each with maximum aggregate
1999, SEBI formed a committee under chairmanship of Sh term of 10 years. They are eligible for re election after
Kumar Mangalam Birla to promote and raise the standard a cooling off period of 3 years.
of Corporate Governance. 4. As per clause 49 of Equity listing agreement, if the
Chairman of the Board is an Executive Director, then
This committee recommended a new clause 49 which was 50% of the board should be of Independent Directors
included in Stock exchange listing agreements. This clause otherwise the Board should have one third Independent
prescribed a format in which the Stock exchanges will have Directors.
to obtain information regarding companies desirous of listing
5. While the Companies Act requires a majority of
on their exchange. In order to comply with the provisions
of clause 49, a company must follow these principles: Independent Director in Audit committee, the SEBI
norm requires two third of the audit committee
1. Right of shareholders - Shareholders are the final
owner of the company and they should have right to
participate in general meeting, questioning and voting.
2. Rights of stakeholders - A company must take care of
its stakeholders.
3. Disclosure and transparency - Company must disclose
all the material information of the company like
financials, performance, ownership etc in a timely and
transparent manner.
4. Responsibility of the board - Board member should
maintain confidentiality. They should perform their
main function like execution of board, preparation of
major actions, designing corporate strategy etc.

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