CORPORATION FINANCE DEPARTMENT
DIVISION OF ISSUES & LISTING
AMENDMENTS TO CLAUSE 49 OF THE LISTING AGREEMENT
SEBI, vide its circular dated February 21, 2000, for the first time specified principles of corporate governance and introduced a new Clause 49 in the Listing agreement of the Stock Exchanges. These principles of corporate governance were made applicable in a phased manner and all the listed companies with the paid up capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the company, were covered as of March 31, 2003. SEBI has from time to time issued six circulars on the subject of corporate governance inter-alia detailing provisions of corporate governance, its applicability, reporting requirements etc.
In its constant endeavor to improve the standards of corporate governance in India in line with needs of a dynamic market, SEBI constituted a Committee on Corporate Governance under the Chairmanship of Shri N. R. Narayana Murthy. SEBI, based on the recommendations of the Committee and public comments received on the report, has approved certain amendments in the Clause49 of the Listing Agreement.
SEBI, vide its Circular Ref No. SEBI/MRD/SE/31/2003/26-08 dated August 26, 2003, issued to all the stock Exchanges, has revised Clause 49 of the Listing Agreement. The revised Clause 49 contains both, the sub clauses of existing Clause 49 as well as new sub-clauses. The amendments have been carried out inter-alia for strengthening the responsibilities of audit committees, improving quality of financial disclosures, including those related to related party transactions and proceeds from Initial Public offerings, requiring Boards to adopt formal code of conduct, Whistle Blower Policy and for improving disclosures related to compensation paid to non- executive directors.
It may be noted that some of the sub-clauses of the revised Clause 49 shall be reviewed following the amendments to the Companies Act 1956 by the Companies (Amendment) Bill/Act 2003, so that the relevant provisions of the clauses on corporate governance in the Listing Agreement and the Companies Act, remain harmonious with one another.
The SEBI circular dated August 26, 2003 is a master circular which contains the revised Clause 49 as well as provisions contained in other circulars issued by SEBI on the subject, after suitable modifications. All listed entities having a paid up share capital of Rs 3 crores and above or net worth of Rs 25 crores or more at any time in the history of the entity, are required to comply with the requirements of revised Clause 49 and they have been given time up to March 31, 2004 to comply with the same. Till that time, these entities shall continue to comply with the requirements of earlier circulars issued on the subject by SEBI.
Details of the aforesaid circular is available in SEBI website at www.sebi.gov.in. under Section “ Legal Framework- Circulars”.