Clause 49 Vs Companies Act,2013

Clause 49 Vs Companies Act,2013:

CS. Kutralanathan

Introduction:

  To make the  listed companies more transparent and to align the provisions related to listing agreement with the Companies Act 2013 ,Capital Markets Regulator, SEBI has  amended Clause 49 of Listing Agreement The said amendments will be effective from 1st October 2014.
     

Particulars	Clause 49	CA2013 &Rules,2014
Partition of Nominee Director and IDs	Clause 49(II)(B)-  Nominee director is excluded from the definition of IDs.	Section 149(6) An independent director in relation to a company, means a director other than a MD or a WTD or a nominee director
Modified  definition of IDs	Clause 49(II)(B): SEBI has amended the definition of Independent Director in align with the provisions of CA2013.	Section 149(6)  of the Companies act 2013 defines the term Independent Director. .
Qualification of IDs	The qualifications of IDs are not specified in the amended clause 49 of the  listing agreement	Companies (Appointment and Qualification of Directors) Rules, 2014: ,an independent director shall possess 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.
Whistle- Blower mechanism	Clause49(II)(F)— The company shall 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. This mechanism should also provide for adequate safeguards against victimization 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. The details of establishment of such mechanism shall be disclosed by the company on its website and in the Board’s report.	Section 177(9) Every listed company and other classes of companies to establish a Vigil mechanism for directors and employees to report genuine concern. It provide adequate safeguards against victimization of employees and directors who avail of the Vigil mechanism and also provide for direct access to the chairperson of the Audit committee or the director nominated to play the role of audit committee, as the case may be, in exceptional cases Once established, the existence of the mechanism may be appropriately communicated within the organization. The details of establishment of Vigil mechanism shall be disclosed by the company in the website, if any, and in the Board’s Report.
Prohibited   Stock options  for IDs	Clause 49(II)(C)-  IDs shall not be entitled to any stock options.	Section 197(7) IDs shall not entitled to any stock option.
Separate meeting of IDs	Clause49(II)(B)(6)- The IDs of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting.	Section 149 read with Schedule IV:  IDs of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting.
Training of IDs	Clause 49(II)(B) The company shall provide suitable training to independent directors to familiarize 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. The details of such training imparted shall be disclosed in the Annual Report	The Companies Act 2013 did not specify any training of IDs and Board of Directors.
Liability of IDs	Clause49(II)(E)- An independent director shall 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.	Section 149(12) An independent director;  a NED not being promoter or KMP, shall 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
Stakeholder Relationship Committee	Clause 49(VIII)(E)- A committee under the Chairmanship of a non-executive director and such other members as may be decided by the Board of the company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. This Committee shall be designated as ‘Stakeholders Relationship Committee’ and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends.	Section- 178(5)- The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board The SRC shall consider and resolve the grievances of security holders of the company
Disclosure policy  for Remuneration	Clause 49(VIII)(C): 1. All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report. 2. In addition to the disclosures required under the Companies Act, 2013, the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report: a. All elements of remuneration package of individual directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc. b. Details of fixed component and performance linked incentives, along with the performance criteria. c. Service contracts, notice period, severance fees. d. Stock option details, if any - and whether issued at a discount as well as the period over which accrued and over which exercisable. 3. The company shall publish its criteria of making payments to non-executive directors in its annual report. Alternatively, this may be put up on the company’s website and reference drawn thereto in the annual report. 4. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report. 5. Non-executive directors shall be required to disclose their shareholding (both own or held by / for other persons on a beneficial basis) in the listed company in which they are proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such director	Sec.197(12) and   Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014: 1) Every listed company shall disclose in the Board’s report- (i) the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year; (ii) the percentage increase in remuneration of each director, C FO, CEO, CS or Manager, if any, in the financial year; (iii) the percentage increase in the median remuneration of employees in the financial year; (iv) the number of permanent employees on the rolls of company; (v) the explanation on the relationship between average increase in remuneration and company performance; (vi) comparison of the remuneration of the KMP against the performance of the company; (vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year; (viii) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration; (ix) the key parameters for any variable component of remuneration availed by the directors; (x) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and (xi) affirmation that the remuneration is as per the remuneration policy of the company.
Performance evaluation of IDs	Clause 49(II)(B)(5): a. The Nomination Committee shall lay down the evaluation criteria for performance evaluation of independent directors. b. The company shall disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report. c. The performance evaluation of independent directors shall be done by the entire Board of Directors (excluding the director being evaluated). d. On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director	Section 178(2) read with Schedule IV: The Nomination and Remuneration Committee shall 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. The performance evaluation of independent directors shall be done by the entire Board of Directors, excluding the director being evaluated. On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Though utmost efforts has made to provide authentic information, it is suggested that to have better understanding kindly  cross-check  the corresponding SEBI’s circular and relevant  sections, rules  under the Companies Act,2013.

Note: Part II of this article will be released soon.....