Parag Basu

Deputy General Manager

Corporation Finance Department

Division of Issues and Listing-II

Phone: +91 22 2285 0451-56, (Extn: 410) 22871582

Fax: +91 22 2204 5633. Email: paragb@sebi.gov.in

SEBI/CFD/DIL/CG/1/2006/13/1

January 13, 2006

The Managing Director/Executive Director/Administrator

of all the Stock Exchanges

Dear Sir/Madam,

Sub: Corporate Governance in listed Companies – Clause 49 of the Listing Agreement

SEBI, vide circular SEBI/CFD/DIL/CG/1/2004/12/10 dated October 29, 2004, issued the revised clause 49 of the listing agreement, which was to come into effect by April 1, 2005. Since it was brought to SEBI’s notice that a large number of companies were still not in a state of preparedness to be fully compliant with the requirements as contained in the revised clause 49, SEBI extended the date for ensuring compliance with the revised Clause 49 of the listing agreement upto December 31, 2005 vide circular no. SEBI/CFD/DIL/CG/1/2005/29/3 dated March 29, 2005. The revised clause 49 thus has come into effect from January 1, 2006.

SEBI has been in receipt of a number of requests/suggestions to bring about clarifications on certain provisions of the revised Clause 49. After examining the same, it has been decided to make the following changes to certain provisions of the revised clause 49:

·The maximum time gap between two Board meetings has been increased from three months to four months.

Sitting fees paid to non-executive directors as authorized by the Companies Act, 1956 would not require the previous approval of shareholders.

·Certification of internal controls and internal control systems by CEO/ CFO would be for the purpose for financial reporting.

In view of the above, certain changes have to be incorporated in the revised Clause 49, details of which are placed in Annexure I

The Stock Exchanges are advised to accordingly amend the listing agreement with immediate effect.

Yours faithfully,

Parag Basu

ANNEXURE I

Clause 49 of the Listing Agreement shall be amended as follows –

1. After sub-clause (I)(B), the following proviso shall be inserted, namely –

“Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 1956 for payment of sitting fees without approval of the Central Government.”

2. In sub-clause (I)(C), for the words “three months” occurring in the first sentence, the words “four months” shall be substituted;

3. Sub-clause (V)(c) shall be substituted with the following, namely –

“(c) They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.”

4. Sub-clause (V)(d) shall be substituted with the following, namely –

“(d) They have indicated to the auditors and the Audit committee

(i) significant changes in internal control over financial reporting during the year;

(ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

(iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.”

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Parag Basu *Deputy General Manager* *Corporation Finance Department* *Division of Issues and Listing-II* Phone: +91 22 2285 0451-56, (Extn: 410) 22871582 Fax: +91 22 2204 5633. Email: paragb@sebi.gov.in SEBI/CFD/DIL/CG/1/2006/13/1 January 13, 2006 The Managing Director/Executive Director/Administrator of all the Stock Exchanges Dear Sir/Madam, Sub: Corporate Governance in listed Companies – Clause 49 of the Listing Agreement SEBI, vide circular SEBI/CFD/DIL/CG/1/2004/12/10 dated October 29, 2004, issued the revised clause 49 of the listing agreement, which was to come into effect by April 1, 2005. Since it was brought to SEBI’s notice that a large number of companies were still not in a state of preparedness to be fully compliant with the requirements as contained in the revised clause 49, SEBI extended the date for ensuring compliance with the revised Clause 49 of the listing agreement upto December 31, 2005 vide circular no. SEBI/CFD/DIL/CG/1/2005/29/3 dated March 29, 2005. The revised clause 49 thus has come into effect from January 1, 2006. SEBI has been in receipt of a number of requests/suggestions to bring about clarifications on certain provisions of the revised Clause 49. After examining the same, it has been decided to make the following changes to certain provisions of the revised clause 49: ·The maximum time gap between two Board meetings has been increased from three months to four months. Sitting fees paid to non-executive directors as authorized by the Companies Act, 1956 would not require the previous approval of shareholders. ·Certification of internal controls and internal control systems by CEO/ CFO would be for the purpose for financial reporting. In view of the above, certain changes have to be incorporated in the revised Clause 49, details of which are placed in Annexure I The Stock Exchanges are advised to accordingly amend the listing agreement with immediate effect. Yours faithfully, Parag Basu ANNEXURE I Clause 49 of the Listing Agreement shall be amended as follows – 1. After sub-clause (I)(B), the following proviso shall be inserted, namely – “Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 1956 for payment of sitting fees without approval of the Central Government.” 2. In sub-clause (I)(C), for the words “three months” occurring in the first sentence, the words “four months” shall be substituted; 3. Sub-clause (V)(c) shall be substituted with the following, namely – “(c) They accept responsibility for establishing and maintaining internal controls for financial reporting and that they have evaluated the effectiveness of internal control systems of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies.” 4. Sub-clause (V)(d) shall be substituted with the following, namely – “(d) They have indicated to the auditors and the Audit committee (i) significant changes in internal control over financial reporting during the year; (ii) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and (iii) instances of significant fraud of which they have become aware and the involvement therein, if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.”