Amendment to Listing Agreement – Review of Corporate Governance norms

SEBI has vide its press release dated 13th February 2014 amended the listing agreement to review corporate governance norms for listed companies to make it compatible with new Companies Act, 2013. The basic features of the amendment which will be brought into force from 1st October 2014 is as follows:

I. Review of Corporate Governance norms in India for listed companies

The Board has approved the proposals to amend the Listing Agreement with respect to corporate governance norms for listed companies. The amendments, inter-alia, propose to align the provisions of Listing Agreement with the provisions of the newly enacted Companies Act, 2013 and also provide additional requirements to strengthen the corporate governance framework for listed companies in India. The amendments shall be made applicable to all listed companies with effect from October 01, 2014.

The Board approved the following proposals:

 (i)         Exclusion of nominee Director from the definition of Independent Director

 (ii)        Compulsory whistle blower mechanism

 (iii)       Expanded role of Audit Committee

 (iv)       Prohibition of stock options to Independent Directors

 (v)        Separate meeting of Independent Directors

 (vi)       Constitution of Stakeholders Relationship Committee

 (vii)      Enhanced disclosure of remuneration policies

 (viii)     Performance evaluation of Independent Directors and the Board of Directors

 (ix)       Prior approval of Audit Committee for all material Related Party Transactions (RPTs)

 (x)        Approval of all material RPTs by shareholders through special resolution with related parties abstaining from voting

 (xi)       Mandatory constitution of Nomination and Remuneration Committee. Chairman of the said committees shall be independent.

 (xii)      At least one woman director on the Board of the company

 (xiii)     It has been decided that the maximum number of Boards an independent director can serve on listed companies be restricted to 7 and 3 in case the person is serving as a whole time director in a listed company

 (xiv)     To restrict the total tenure of an Independent Director to 2 terms of 5 years. However, if a person who has already served as an Independent Director for 5 years or more in a listed company as on the date on which the amendment to Listing Agreement becomes effective, he shall be eligible for appointment for one more term of 5 years only.

 (xv)      The scope of the definition of RPT has been widened to include elements of Companies Act and Accounting Standards.

 In addition to the above, the Board also approved the proposal to put in place principles of Corporate Governance,  policy on dealing with RPTs, divestment of material subsidiaries, disclosure of letter of appointment of Independent Directors and the letter of resignation of all directors, risk management, providing training to Independent Directors, E-voting facility by top 500 companies by market capitalization for all shareholder resolutions and Boards of companies to satisfy themselves that plans are in place for orderly succession for appointments to the Board and senior management.

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