Privileges to Private Limited Company, Special provisions applicable to listed companies/companies having paid-up capital above particular limit, Management Discussion & Analysis Report (MDAR), Clause 49 of Listing Agreement

Intensive Study Course on Company Law

WIRC, ICAI CS Sameer Maniar

22 March 2011

Contents

• Privileges to Private Limited Company

• Special provisions applicable to listed cos.

• Special provisions applicable to Co. with paid-

up capital above specified limit

• Management Discussion & Analysis Report

(MDAR)

• Clause 49 of Listing Agreement

2

Privileges to Private Limited

Company

3

Types of Companies

4

Types of companies

5

Minimum paid-up share capital of

`1,00,000

Restricts by its Articles:

Transferability of shares

Maximum Members – 50 (not including

past & current employees holding

shares)

Invitation to public to subscribe to

shares or debentures

Invitation or acceptance of deposits

from any person other than its

members, directors or their relatives

Private Company

[Section 3(1)(iii)]

Not a private company

Minimum paid-up share capital of

`5,00,000

a private company which is a subsidiary

of a company which is not a private

company

Public Company

[Section 3(1)(iv)]

Types of Companies

Deemed Public Company – concept abolished since December 2000

Key differentiators between public co. and

private co.

6

Particulars Private Company Public Company

Members: *

Minimum 2 7

Maximum 50 ** no limit

Directors (Individuals only):

Minimum 2 3

Minimum Paid-up Capital ` 1,00,000 ` 5,00,000

Transferability of shares and

marketability thereof

Restricted No restrictions

Issue of Prospectus Prohibited from inviting public

for subscription of its shares /

debentures etc.

Can issue Prospectus

Acceptance of deposit Prohibited from inviting

deposits from public except

from members, directors or

relative

Allowed to accept

* Partnership firms, society, corporation sole cannot be members. Firm may be a member of section 25

company.

** excluding joint-holders, employees, ex-employees

Key differentiators between private co. and public co.

7

Privileges to Private Co. under the

Companies Act, 1956

8

Exemptions and privileges for private company under the

Companies Act, 1956

9

Section

reference

Particulars

3(1)(iii) A Private Company can be incorporated with minimum paid-up capital of

Rs. 100,000 as against Rs. 500,000 in case of a Public Company

12(1) Private Company can be formed by only 2 persons as against at least 7

persons in case of Public Company

58A Deposit taken from members is exempt from the ceilings etc. of Section

58A subject to furnishing of undertaking

70(3) Statement in lieu of prospectus need not be delivered to ROC before

allotting shares

77(2) Financial assistance can be given for purchase of or subscribing for its own

shares or shares in its holding company

81(3)(a) Further shares can be issued without passing special resolution or

obtaining Central Government’s approval and without offering the same

necessarily to existing shareholders

90(2) Provisions as to kinds of share capital (Section 85), voting rights (Section

87), and termination of disproportionate excessive rights (Section 89)

111A Appeal against refusal to register a transfer or transmission of shares is not

applicable

149(7) Business can be commenced immediately on incorporation without

obtaining a certificate of commencement from ROC

Exemptions and privileges for private company under the

Companies Act, 1956

10

Section

reference

Particulars

165(10) It is not necessary to hold a statutory meeting and to send statutory report

to shareholders and file the same with ROC

170(1) Articles of private company may provide for regulations relating to general

meetings without being subject to the provisions of sections 171 to 186

Sec 171 – Length of notice for calling meeting

Sec 172 – Contents and manner of service of notice and persons on whom it is

to be served

Sec 173 – Explanatory statement to be annexed to notice

Sec 174 – Quorum for meeting

Sec 175 – Chairman of meeting

Sec 176 – Proxies

Sec 177 – Voting to be by show of hands in first instance

Sec 178 – Chairman’s declaration of result of voting by show of hands to be

conclusive

Sec 179 – Demand for poll

Sec 180 – Time of taking poll

Sec 181 – Restriction on exercise of voting right of members who have not paid

calls, etc.

Sec 182 – Restrictions on exercise of voting right in other cases to be void

Sec 184 – Scrutineers at poll

Sec 185 – Manner of taking poll and result thereof

Sec 186 – Power of Tribunal to order meeting to be called

Exemptions and privileges for private company under the

Companies Act, 1956

11

Section

reference

Particulars

192A Passing of resolution by postal ballot do not apply

198(1) Any amount of managerial remuneration can be paid and the same is not

restricted to any particular proportion of the net profits

204(6) Private company can appoint a firm or body corporate to an office or place

of profit under the company

220 Profit & Loss account filed with the ROC is not available for the inspection

to the public (other than a member of the company).

224(1B) Requirement of obtaining a certificate under section 224(1B) at the time of

appointment of auditors do not apply to private company

252(1) Appointment of Small Shareholders’ Directors is not applicable

252(2) Private company need not have more than two directors

255(1) A proportion of directors need not retire every year

257(2) Statutory notice, etc., is not required for a person to stand for election as a

director

259 Central Government’s sanction is not required to effect increase in the

number of directors beyond 12 or the number fixed by articles of

association

Exemptions and privileges for private company under the

Companies Act, 1956

12

Section

reference

Particulars

262 Manner of filling casual vacancy and duration of office of director is not

applicable

263(1) In passing resolution for election of directors, all directors can be appointed

by a single resolution

264(3) Consent to act as director need not be filed with ROC

266(5) Restriction on appointment or advertisement of director as regards consent

and qualification of shares does not apply

268 Central Government’s sanction is not required to modify any provision

relating to appointment of managing, whole-time or non-rotational

directors

269(2) Appointment of managing or whole-time director or manager is not

compulsory. Appointment if made does not require any Central

Government’ approval

273 Directors of a private company need not possess any share qualifications,

in terms of section 270

274(1)(g) Default in filing annual accounts and annual return for 3 continuous financial

years (or) failure to repay deposit or interest thereon on due date or redeem

debentures on due date or pay dividend and such failure continues for 1

year or more in a private company will not disqualify a director of such

private company to get appointed in any other company

Exemptions and privileges for private company under the

Companies Act, 1956

13

Section

reference

Particulars

275 to 279 Restrictive provisions regarding total number of directorships which any

person may hold do not include directorships held in private companies

283 Private companies may provide for special grounds for vacating the office of

director.

292A Requirement of appointing an Audit Committee do not apply

293(1) Certain restrictions on powers of board of directors do not apply

295(2) Prohibition against loans to directors does not apply

300(2) Prohibition against participation in board meetings by interested director

does not apply

303(1) Date of birth of director need not be entered in the register of directors

309(9) There is no restriction on remuneration payable to directors

310 Any change in remuneration of directors also does not require

Government’s approval

311 Any increase in the remuneration not being sitting fees beyond specified

limit of directors on appointment or reappointment does not require

Central Government’s approval

Exemptions and privileges for private company under the

Companies Act, 1956

14

Section

reference

Particulars

316(1) Number of companies of which one person may be appointed managing

director do not apply

317(4) Restriction on appointment of a managing director for more than 5 years at

a time do not apply

349, 350 & 355 Provisions relating to method of determination of net profits and

ascertainment of depreciation do not apply

372A Restriction on the inter-corporate loans and investments etc. do not apply

388A Provisions of sections 386 and 387, which restrict the number of companies

of which a person can be appointed as Manager, remuneration of the

Manager and provisions of sections 269, 310, 311, 312 and 317 do not

apply to appointment of Manager

409(3) Central Government cannot exercise its power to prevent change in board

of directors which is likely to affect the company prejudicially

416(1) Person can enter into contract on behalf of company as undisclosed

principal and need not give intimation to the other directors

Special provisions applicable to

Listed co. under the

Companies Act

15

Glossary Special provisions applicable to Listed co.

16

Powers of SEBI [Section 55A ] In case of listed companies, following provisions relating to issue and transfer of securities and non-payment of dividend are administered by SEBI

Sections Matters

55 to 58 Matters related to prospectus

59 to 81 Penalty, registration, information memorandum, civil liability, criminal liability,

etc. relating to prospectus.

108 Transfer of shares

109 Transfer by legal representative

110 Application for transfer

112 Certification of transfers

113 Limitation of time for issue of certificates

116 Penalty for personation of shareholder

117 Debentures with voting rights cannot to be issued

118 Right to obtain copies of trust deed

Glossary Special provisions applicable to Listed co.

17

Powers of SEBI [Section 55A contd..]

Sections Matters

119 Liability of trustees for debenture holders

120 Perpetual debentures

121 Power to re-issue redeemed debentures in certain cases

122 Specific performance of contract to subscribe for debentures

206 Dividend not to be paid except to registered shareholders or to their order or to

their bankers

206A Right to dividend, rights shares and bonus shares to be held in abeyance

pending registration of transfer of shares

207 Penalty for failure to distribute dividends within 30 days

Glossary Special provisions applicable to Listed co.

18

Annual return [Section 161] • Annual return of listed co. to be signed by the practicing CS

Postal ballot [Section 192A & Companies (Passing of Resolution by Postal Ballot ) Rules, 2001]

• Passing of resolution by postal ballot instead of in general meeting • Postal ballot compulsorily for specified maters and voluntary for other

businesses • Appointment of scruitneer • Items to be dealt compulsorily approved under by postal ballot

Alteration in the object clause of memorandum

Alteration of AOA for insertion of provisions defining private company

Buy-back of shares [Section 77A(1)]

Issue of shares with differential voting rights as to voting or dividend or otherwise [Also

refer Clause 28A of Listing Agreement – prohibition on superior rights]

Variation in the rights of shares or debentures or other securities [Section 106]

Shift of registered office outside local limits of city, town or village

Election of a director by small shareholders [Proviso to Section 252(1)]

Sale of whole or substantially the whole of undertaking [Section 293(1)(a)]

Giving loans or extending guarantee or providing security in excess of the limit

prescribed [Section 372A(1)]

Glossary Special provisions applicable to Listed co.

19

Member’s right to copies of balance sheet [Proviso (iv) to Section 219(1)]

• Listed company shall not require to be send full financial statements

(Balance sheet, P & L Account, Auditors report, documents required to

be annexed / attached to the Balance sheet) to every member of the

company subject to following:

• If full financial statements are made available for inspection at its registered

office 21 days before the date of AGM

• Statement containing salient features of above documents is sent [Form

23AB] to –

• every member of the company; and

• trustee of debenture holders

• SEBI circular dated 26th April 2007 on sending Abridged accounts [but

no amendments in clause 32 are made in the LA by stock exchanges

as yet] "Company will send a statement containing the salient features of the Balance Sheet,

Profit and Loss Account and Auditors’ Report to each shareholder.

Provided that, the company on receipt of written request from a shareholder, shall send

the complete and full Balance Sheet, Profit & Loss Account and Auditors’ Report to the

said shareholder."

Special provisions applicable to

Co. with paid-up capital above

specified limit

20

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

21

Small Shareholder Director [Section 252 & Companies (Appointment of the

Small Shareholders’ Director) Rules, 2001]

Public company with

• Paid-up capital of => Rs. 5 Crore or

• 1000 or more small shareholders

may elect a director by such small shareholders in the manner prescribed

• SS means a shareholder holding shares of nominal value of =< Rs. 20,000

• Appointment may be made by company on its own from amongst SS or on

receipt of notice from SS => 1/10th of total SS

• Minimum 100 SS to give a 14 days advance notice to company proposing the

candidate (SS) for appointment

• Listed public company shall elect SS through postal ballot

• Unlisted company may appoint SS nominee if majority of SS recommend the

candidate for the post of director in their meeting

• Tenure of SS director shall be <= 3 years (not liable to retire by rotation)

• SS nominee director shall not be appointed as WTD or MD

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

22

Appointment of MD/ WTD / Manager [Section 269]

Public company having paid-up share capital of => Rs. 5 Crores shall

appoint a MD / WTD/ Manager

• Appointment of MD / WTD/ Manager shall be made

In accordance with conditions specified in Part I and II of Schedule XIII; or

with the approval of CG

If CG does not approve the appointment, he shall vacate his office on receipt

of the decision from CG by the company

• Application to CG shall be made in Form 25A

• Form 25C to be filed with ROC within 90 days of appointment

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

23

Appointment of MD/ WTD / Manager [Section 269]

• Schedule XIII Part I – Appointment conditions

Not been sentenced to imprisonment for any period, or fined exceeding Rs.

1,000 under specifies 15 Acts

Not been detained for any period under Conservation of Foreign Exchange

and Prevention of Smuggling Activities Act, 1974

Completed 25 years and not attained 70 years [No CG approval if appointed

by Special resolution for candidate (i) between 18 years & less than 25 years

or (ii) =>70 year]

Where he is a managerial person in more than one company, he draws

remuneration from one or more companies subject to the ceiling provided in

Schedule XIII

He is resident in India (stay in India for not less than 12 months immediately

preceding the date of appointment & who has come to India for taking up

employment in India / carrying on business / vocation) – separate provisions

for SEZ

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

24

• Schedule XIII – Part II – section I – companies having profits

Company having profits in a financial year may pay any remuneration by

way of salary, dearness allowance, perquisites, commission and other

allowances to managerial personnel (MD/ WTD/ Manager) not

exceeding:

5% of net profits for 1 such managerial person

10% for all of them together - if there is more than 1 such managerial

person

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

25

• Schedule XIII – Part II – section II – companies having inadequate profits/

loss

• Payment linked with Effective capital (EC).

EC means paid-up share capital (excluding share application money or advances against

shares) +

share premium account +

reserves and surplus (excluding revaluation reserve) +

long-term loans and deposits repayable after one year (excluding working

capital loans, overdrafts, interest due on loans unless funded, bank

guarantee, etc., and other short-term arrangements)

(-)

investments (except in the case of investment by an investment company

whose principal business is acquisition of shares, stock debentures or other

securities)

accumulated losses

preliminary expenses not written off

• EC shall be calculated as on the last date of the FY preceding the FY in

which the appointment is made

• In case of newly incorporated company – EC shall be calculated as on

the date of appointment

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

26

• Schedule XIII – Part II – Remuneration by companies having no profits or

inadequate profits

Scenario A

Remuneration is approved by Remuneration Committee

Company has not defaulted in repayment of any of its debts (including public deposits)

or debentures or interest payable thereon for a continuous period of 30 days in the

preceding financial year before the date of appointment of such managerial person

Scenario B

Conditions mentioned in Scenario A above

Approval of shareholders by special resolution by disclosing specified information and

for a period not exceeding 3 years

Scenario C

Conditions mentioned in Scenario B above

Prior approval of CG

Scenario D

Remuneration not exceeding Rs. 2.40 crores p.a. or Rs. 20,00,000 p.m. for companies

in Special Economic Zones (SEZ) notified by Department of Commerce [no graded

scale based payment]

SEZ companies have not raised money by public issue of shares / debentures in India

SEZ companies have not made any default in India in repayment of any of its debts

(including public deposits) or debentures or interest payable thereon for a continuous

period of 30 days in any financial year

Special provisions applicable to Co. with paid-up capital

above specified limit

27

Effective capital Monthly rem.

as per Para A

Monthly rem.

as per Para B

Monthly rem.

as per Para C

Monthly rem.

as per Para D

(SEZ)

< 1 cr. 75,000 1,50,000 Exceeding

remuneration

mentioned

under Para B

20,00,000 (or

2.4 cr. p.a.) => 1 cr. < 5 cr. 1,00,000 2,00,000

=> 5 cr. < 25 cr. 1,25,000 2,50,000

=> 25 cr. < 50 cr. 1,50,000 3,00,000

=> 50 cr. < 100 cr. 1,75,000 3,50,000

=> 100 cr. 2,00,000 4,00,000

Period / approvals 5 yrs – Ordinary

Reso

3 yrs – Special

Reso

• 3 yrs –

Special Reso

• Govt

approval in

listed co.

Conditions • RC approval

• No default in

repayment

• RC approval

• No default in repayment

• Specified disclosures in

explanatory statement

• No public

deposit

• No default in

repayment

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

28

Appointment of Audit Committee [Section 292A ]

Public company having paid-up capital of => Rs. 5 Crores shall constitute "Audit

Committee" (AC) from the Board members

• Constitution of Audit Committee

Minimum 3

At least 2/3rd of total members shall be non-MD/ non-WTD

• Annual report of the Company shall disclose the composition of AC

• AC chairman shall attend the AGM

• Auditors, internal auditor and director-in-charge of finance shall participate in AC

meetings but cannot vote on resolution

• AC should

periodically discuss with Auditors about internal control systems, scope of audit

including the observations of the auditors

review ½ yearly and annual financial statements before submission to the Board

ensure compliance of internal control systems

• AC can investigate into any matter in specified in section 292A or referred by the

Board and can seek external professional advice

• AC recommendation on financial management are binding on the Board. Non-

acceptance of recommendation shall be communicated to shareholders

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

29

Board / CG approval for contracts where directors are interested

[Section 297 ]

• Contracts between the following requires consent of Board of Directors

(i) the company (company X) and

(ii) other party who is director of Company X or a relative of a director, or a firm in which

such a director or relative is a partner, or any other partner of such a firm, or a private

company of which the director (of company X) is a member or director

• Contracts referred to in Section 297 are contracts for

sale, purchase or supply of any goods, materials or services; or

underwriting the subscription of any shares or debentures of the company

• Where paid-up share capital => Rs. 1 Crore – prior approval of CG (Regional

Director) is required. Application to be made in Form 24A

• Exceptions to Section 297 (1):

purchase/ sale of goods/ materials for cash at prevailing market prices

sale/ purchase/ supply of any goods, materials and services in which either the

company or the related parties regularly trades or does business, for a value =< Rs.

5,000/- in the aggregate in any year

transaction in the ordinary course of business by a banking or insurance company with

the related parties

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

30

Sole selling agent [Section 294AA (3) & Companies (Appointment of Sole

Agents) Rules, 1975]

• Company having a paid-up share capital of => Rs. 50,00,000 would

require consent of the Company by special resolution and Central

Government for appointment of a sole selling agent

• Details of the appointment to be given in Form I containing inter alia

following info. Details of appointee

Profit sharing ratio (in case of partnership firm)

Shareholding details of the directors of the applicant company and their relatives in the sole selling

agent

Terms of commission

Tenure etc..

Glossary Special provisions applicable to Co. with paid-up capital above specified limit

31

Company secretary [Section 383A & Companies (Appointment and

Qualifications of Secretary) Rules, 1988 & Companies (Compliance

Certificate) Rules, 2001]

Paid-up Share Capital Requirement of

appointment of whole-time

company secretary

(WTCS)

Requirement of obtaining

compliance certificate from

a secretary in whole time

practice

Rs. 5 crore or more Appointment of a WTCS

who is a member of ICSI

is mandatory

Not applicable

Rs. 2 crore or more but

less than Rs. 5 crore

Appointment of a WTCS

who is a member of ICSI

is optional

Required, if a WTCS who

is a member of ICSI is not

appointed

Less than Rs. 2 crore but

more than Rs. 10 lakhs

Appointment of a WTCS,

provided he possesses

specified qualifications, is

optional

Required, if a WTCS who

is not a member of ICSI is

appointed

Management Discussion &

Analysis Report (MDAR)

Glossary Management Discussion & Analysis Report (MDAR)

33

It is applicable to Listed Companies and is a part of Directors’ report.

MDAR should form part of Annual Report [Clause 49 (F) of LA]

• Industry structure and developments

• Opportunities and Threats

• Segment–wise or product-wise performance

• Outlook

• Risks and concerns

• Internal control systems and their adequacy

• Discussion on financial performance with respect to operational

performance

• Material developments in Human Resources / Industrial Relations front,

including number of people employed

• Senior Managers (members of core management team excluding BOD)

shall make disclosure to Board for all material and financial and

commercial transactions on which they have personal interest which

conflict with the interest of the company

Clause 49 of Listing Agreement

Glossary Clause 49 of Listing Agreement

35

Clause 49 comprises of 7 parts

• Board of Directors

• Audit Committee

• Subsidiary Companies

• Disclosures

• CEO/ CFO certification

• Report on Corporate Governance in Annual Return

• Compliance Certificate from Auditor / practicing CS

Glossary Board of Directors

36

Board of Directors

≥ 50 % of the Board of Directors comprising of

NED

Chairman of the Board is a NED

Chairman of the Board is a ED

at least 33% of the Board should comprise of ID

at least 50% of the Board should comprise of ID

Non-executive Chairman is a promoter or related to any

promoter or person occupying management positions at the

Board level / one level below the Board

at least 50% of the Board should comprise of ID

Glossary Board of Directors

37

• ID shall mean a NED who:

apart from receiving director’s remuneration, does not have any material pecuniary

relationships or transactions with the company, its promoters, its directors, its senior

management or its holding company, its subsidiaries and associates which may affect

independence of the director;

is not related to promoters or persons occupying management positions at the board

level or at one level below the board;

has not been an executive of the company in the immediately preceding 3 financial

years;

is not a partner or an executive or was not partner or an executive during the preceding

3 years, of any of the following:

the statutory audit firm or the internal audit firm that is associated with the

company, and

the legal firm(s) and consulting firm(s) that have a material association with the

company.

is not a material supplier, service provider or customer or a lessor or lessee of the

company, which may affect independence of the director;

is not a substantial shareholder of the company i.e. owning two percent or more of the

block of voting shares.

is not less than 21 years of age

• Nominee directors appointed by an institution which has invested in / lent to the

company is deemed to be ID

• Tenure of ID not to exceed total period of 9 years (Non-Mandatory)

Glossary

38

• Board meetings

Frequency: At least 4 times in a year. Time gap between two meetings not to exceed

4 months

Agenda: Minimum information to be made available to the board as specified

• Number of Companies in which an individual may become a Director / member

of any committee –

• For computing above limit of committees – only public companies (whether

listed or unlisted) shall be considered.

Committee in following class companies are excluded:

Private limited companies

foreign companies

Section 25 companies

• For reckoning the limit, Chairmanship/ Membership of AC and Shareholders’

Grievance Committee only to be considered

Particulars Can become

Members

Can become

Chairman

Director 10 committees 5 committees

Board of Directors

Glossary Code of conduct, & NED compensation

39

• Legal compliance – BOD shall 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

• Code of conduct – BOD to lay down a code of conduct for all Board members

and senior management. Board members and senior management shall affirm

compliance with the code on an annual basis

• All fees / compensation paid to NED (including ID) shall be fixed by the BOD

with previous approval of shareholders

• No approval of shareholders required for payment of sitting fees to NED within

the limits prescribed under the Companies Act

• Shareholders’ resolution to specify limits for the maximum number of stock

options that can be granted to NED (including IDs), in any financial year and in

aggregate

• Structure of compensation to NEDs/IDs –

No reference of fixed / variable payment structure

Company shall publish criteria of making payments to NED in its annual report / its

website

Glossary Audit Committee

40

Audit Committee

Minimum 3 directors as members.

2/3rd of the members shall be ID. Chairman

should be ID

All members of audit committee shall be financially literate and at least 1 member

shall have accounting or related financial management

expertise

2/3rd of the members shall be ID. Chairman

should be ID

Glossary Audit Committee

41

• Chairman of AC shall be ID

• Chairman of AC shall attend AGM to answer shareholder queries

• Head of the finance function can be present at AC meetings. Finance

Director, head of internal audit and a representative of statutory auditor

may be present as invitees to the AC meetings

• Meetings At least 4 meeting in a year

Time gap between two meetings should not exceed 4 months

• Quorum 2 members or 1/3rd of members, whichever is greater, subject to minimum of 2 IDs

being present

• Powers of AC investigate any activity within its terms of reference

seek information from any employee

obtain outside legal or other professional advice

secure attendance of outsiders with relevant expertise, if it considers necessary

• Detailed dole of AC

Glossary Subsidiaries

42

• At least 1 ID on the BOD of the holding company shall be a director on

the BOD of a material non-listed Indian subsidiary company means a company whose turnover or net worth exceeds 20% of the consolidated

turnover or net worth respectively of the holding co.

• AC of the listed holding company shall also review the financial

statements, in particular, investments made by the unlisted subsidiary

company

• Minutes of the Board meetings of the unlisted subsidiary company shall

be placed at the Board meeting of the listed holding company

• Where a listed holding company has a listed subsidiary which is itself a

holding company, the above provisions shall apply to the listed

subsidiary insofar as its subsidiaries are concerned

Glossary

43

• Related Party Transactions Summary of transactions with related parties in the ordinary course of business shall

be placed periodically before the AC

Details of material individual transactions with related parties, which are not in the

normal course of business, shall be placed before the AC

Details of material individual transactions with related parties or others, which are not

on an arm’s length basis, should be placed before the AC, together with

Management’s justification for the same

• Disclosure of Accounting Treatment If accounting treatment is different from the one prescribed in the Accounting

Standards, the fact shall be disclosed in the financial statements, together with the

management’s explanation

• Risk Management Company shall lay down procedures to inform Board members about the risk

assessment and minimization procedures

Procedures shall be periodically reviewed to ensure that executive management

controls risk through means of a properly defined framework

• Proceeds from public issues, rights issues, preferential issues etc. Disclosure to AC about the uses of funds on a quarterly basis as a part of their

quarterly declaration of financial results

Disclosures

Glossary

44

• Remuneration to directors All pecuniary relationship or transactions of the non-executive directors vis-à-vis the

company shall be disclosed in the Annual Report

Annual Report / corporate government section therein should contain following:

All elements of remuneration package such as salary, benefits, bonuses, stock

options, pension etc.

Details of fixed component and performance linked incentives, along with the

performance criteria

Service contracts, notice period, severance fees

Stock option details, if any

Criteria of making payments to non-executive directors

Number of shares and convertible instruments held by non-executive directors

Shareholding of NED in listed company in which they are proposed to be

appointed as directors, prior to their appointment

• Shareholders Shareholders must be provided with the following:

A brief resume of the director

Nature of his expertise in specific functional areas

Names of companies in which the person also holds the directorship and the

membership of Committees of the Board

Shareholding of NED etc

Disclosures

Glossary Certification by CEO/CFO to the Board

45

• CEO means Managing Director / manager

• CFO means Whole Time Finance Director or any other person heading

the finance function discharging that function

• CEO/ CFO have to review the financial statements and cash flow

statement and certify to the board prescribed statements

Report on Corporate Governance to the Stock Exchanges

• A separate section on Corporate Governance should be there in Annual

Report

• Non-compliance of any mandatory requirement of Clause 49 with

reasons thereof and the extent to which the non-mandatory

requirements have been adopted should be specifically highlighted

• Companies shall submit a quarterly compliance report to the SE within

15 days from the close of quarter as per prescribed format

• Report to SE shall be signed either by Compliance Officer or CEO

Glossary Compliance Certificate from Auditor / PCS

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• Certificate from the auditors (or) PCS regarding compliance of

conditions of Corporate Governance to be annexed with Directors’

report

• Disclosures of the compliance with mandatory requirements and

adoption (and compliance) / non-adoption of the non-mandatory

requirements shall be made in the section on corporate governance of

the Annual Report

Glossary

Act - Companies Act, 1956

AC - Audit Committee

AGM - Annual General Meeting

AOA - Articles of association

BM - Board Meeting

CEO - Chief Executive Officer

CFO - Chief Financial Officer

CG - Central Government

CLB - Company Law Board

Co. - Company

CS - Company Secretary

EC - Effective capital

ED - Executive Director

FEMA - Foreign Exchange Management Act, 1999

GM - General Meeting

ID - Independent Director

LA - Listing Agreement

MD - Managing Director

MDAR - Management Discussion & Analysis Report

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Glossary

NED - Non-Executive Director

RC - Remuneration Committee

RD - Regional Director

ROC - Registrar of Companies

SEBI - Securities and Exchange Board of India

SEZ - Special Economic Zone

SS - Small Shareholders

WTCS - Whole-time company secretary

WTD - Whole Time Director

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Contact details

Sameer Maniar, ACS, LLB

Tel: +91 (22) 6747 6025 (D) / 6619 8900 (B)

Mobile: +91 98202 49602

Fax: +91 (22) 6619 8901

e-mail: smaniar@deloitte.com

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