Changes and Comparitive analysis of Listing Agreement pursuant to The New Companies Act.

  CS Sandeep Kumar Jain     0000-00-00 00:00:00

In order to comply with various new compliances introduced by the companies act, 2013 SEBI has introduced certain amendments in listing agreements vide its circular dated April 17, 2014 which shall be effective from 1st October 2014. Thus, to provide a clear picture on changes so introduced, here is a comparative analysis between the existing and new listing agreements along with related provision of the companies act, 2013.

 

 

Particulars

Provisions of Ammended Clause 49 and 35B

Existing Clause 49

Related Provisions in Companies Act 2013

Introduction of e-voting facility to its shareholder, clause 35B

SEBI has harmonically aligned the provisions of electronic voting with that of the companies act, 2013 by mandating companies -

  • To provide e-voting facility to its shareholders, in respect of all shareholders' resolutions, to be passed at general meetings or through postal ballot,
  • Notice to the shareholders shall contain internet link of such voting platform
  • Such facility shall be kept open for a period as specified in the companies (management and administration) rules, 2014
  • To facilitate shareholders who does not have access to e-voting facility to send their assent /dissent in writing on a postal ballot

Nil

Section 108 along with rule no 20 of the companies (management and administration) rules, 2014 provides for e-voting for listed companies with a detailed e – voting process.

Rights of shareholders clause 49A

New listing agreement as amended provides various right to shareholder with respect to:

  • To participate and vote  on, decisions concerning fundamental corporate changes.
  • To get adequate and timely information to the shareholders
  • Minority shareholders should be protected from abusive actions by, or in the interest of controlling and
  • Manner in which company shall ensure equitable treatment of all shareholders (clause 49, sub-section i(a))

Nil

The Companies Act 2013 provides

  • Various rights to its shareholders
  • Manner of providing information to shareholders and various information which the shareholders can ask for on payment of fees, if any

Responsibilities of the board.

Clause 49D

  1. Provides for disclosures regarding
    • Members of the board and key executives should disclose to board any material interest in any transaction or matter, directly affecting the company
    • The board and top management should provide operational transparency to stakeholders and at the same time maintain Confidentiality of information.
  2. Provides for various functions and responsibilities of the board (clause 49, sub-section i(d))

NIL

Section 184 of the act provides for disclosures of interest in any contract or arrangement entered or proposed to be entered by the company by a director.

Definition of independent director 49, sub -clause ii (b)

Definition of independent director has been modified, new definition is as follows:

‘independent director’ shall mean a non-executive director, other than a nominee director of the company:

a.Who, in the opinion of the board, is a person of integrity and possesses relevant expertise and experience;

b.         i. Who is or was not a promoter of the company or its holding, subsidiary or associate company; 

ii  .Who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

c.      Apart from receiving director's remuneration, has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;

d.     None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. Or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

e.     Who, neither himself nor any of his relatives —

i. Holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;

 ii. Is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of —

a.) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company;

b) Any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent or more of the gross turnover of such firm;

iii.Holds together with his relatives two per cent or more of the total voting power of the company; or

iv. Is a chief executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent or more of the total voting power of the company;

v. s a material supplier, service provider or customer or a lessor or lessee of the company;

f Who is less than 21 years of age. (clause 49, sub -clause ii (b))

‘independent director’ shall mean a nonexecutive Director of the company who:

A. 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;

B. Is not related to promoters or persons occupying management positions at the board level or At one level below the board;

C. Has not been an executive of the company in the immediately preceding three financial years;

D. Is not a partner or an executive or was not partner or an executive during the preceding three Years, of any of the following:

I) the statutory audit firm or the internal audit firm that is associated with the company, and

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

E. Is not a material supplier, service provider or customer or a lessor or lessee of the company, Which may affect independence of the director.

F. Is not a substantial shareholder of the company i.e. Owning two percent or more of the block Of voting shares.

G. Is not less than 21 years of age.

 

 

Section 149(6) defines the term independent director.

 An  ndependent director in relation to a company, means a director other than a

Managing director or a whole-time director or a nominee director,—

(a) who, in the opinion of the board, is a person of integrity and  ossesses Relevant expertise and experience;

(b) (i) who is or was not a promoter of the company or its holding, subsidiary or Associate company;

(ii) who is not related to promoters or directors in the company, its holding, Subsidiary or associate company;

(c) who has or had no pecuniary relationship with the company, its holding, Subsidiary or associate company, or their promoters, or directors, during the two Immediately preceding financial years or during the current financial year;

(d) none of whose relatives has or had pecuniary relationship or transaction With the company, its holding, subsidiary or associate company, or their promoters, or Directors, amounting to two per cent. Or more of its gross turnover or total income or Fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, During the two immediately preceding financial years or during the current financial Year;

(e) who, neither himself nor any of his relatives—

(i) holds or has held the position of a key managerial personnel or is or Has been employee of the company or its holding, subsidiary or associate Company in any of the three financial years immediately preceding the financial Year in which he is proposed to be appointed;

(ii) is or has been an employee or proprietor or a partner, in any of the Three financial years immediately preceding the financial year in which he is Proposed to be appointed, of—

(a) a firm of auditors or company secretaries in practice or cost auditors

Of the company or its holding, subsidiary or associate company; or

(b) any legal or a consulting firm that has or had any transaction With the company, its holding, subsidiary or associate company amounting To ten per cent. Or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent. Or more of the total Voting power of the company; or

(iv) is a chief executive or director, by whatever name called, of any non profit Organisation that receives twenty-five per cent. Or more of its receipts from The company, any of its promoters, directors or its holding, subsidiary or associate Company or that holds two per cent. Or more of the total voting power of the Company; or

(f) who possesses such other qualifications as may be prescribed.

Limit on number of directorship 49(b)(2)

A person shall not be an independent director in more than 7 listed companies and not more than 3 in case the person is serving as a whole time director in a listed company. (clause 49, sub-clause ii (b) (2))

Nil

Section 165 (1) states that maximum number of directorships allowed for a director in the act is 20 including 10 public companies at the same time .

Maximum tenure of independent directorship

  • Independent director shall hold office for terms of 5 years, and can be reappointed for a tenure of additional 5 years
  • However if a person already served as an independent director for 5 years or more shall be eligible for appointment for one more term of 5 years only after expiration of 3 years of ceasing to be an independent director of the company.

(clause 49, sub-clause ii (b) (3))

No restriction on tenure of independent directors has been provided.

Section 149 (11) states that an independent director can be appointed in a company for a period of 5 years at one time and after expiry of such period if the person is reappointed then a special resolution is required to be passed by the shareholders. If such director completes his term then a cooling period of 3 years is provided during which the said director cannot be associated with the company in any capacity whether directly or indirectly.

Performance evaluation of independent directors.

Board of directors (excluding the director being evaluated) shall evaluate the performance of independent directors on the evaluation criteria formulated by the nomination committee, and such criteria shall be disclosed in its annual report

 (clause 49, sub-clause ii (b) (5))

Annexure ID sub – clause 6 provides for performance evaluation of non-executive directors by a peer group comprising of all the directors excluding the director whose performance is getting evaluated this requirement is of non mandatory nature

Section 178 (2) of the act provides for requirement of performance evaluation of directors by the nomination and remuneration committee.

Separate meeting of independent directors

The independent directors of the company shall hold at least one meeting in a year, without non-independent directors and members of management.

(clause 49, sub-clause ii (b)(7))

Nil

Schedule IV to the section 149 of the act which is code of conduct for independent directors provides for one separate meeting of independent director in a year, without attendance of other directors and members of management in the meeting.

Training of independent directors

  • Provide suitable training to the independent directors to familiarize them with the company, their roles, rights, responsibilities in the company, nature of industry in which the company operates, business model of the company, etc. And
  • The details of the training imparted shall be disclosed in the annual report.

(clause 49, sub-clause ii (b) (7))

Non mandatory requirement to train board members of the company in the business model of the company as well as the risk profile of the business parameters of the company, their responsibilities as directors, and the best ways to discharge them. (annexure I D (5))

Nil

Code of conduct

  • The board shall lay down a code of conduct for all board members and senior Management of the company.
  • All board members and senior management personnel shall affirm compliance with The code on an annual basis. The annual report of the company shall contain a Declaration to this effect signed by the CEO.
  • Code of conduct shall incorporate duties of independent directors as laid down in the companies act, 2013.

(clause 49, sub-section ii (e))

Code of conduct does not include duties of independent directors. (clause 49, sub-section i (d))

Part III OF Schedule IV to the act provides for duties of independent director.

Whistle blower mechanism

  • The company shall compulsorily 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.
  • The details of establishment of such mechanism shall be disclosed by the company On its website and in the board’s report.

(clause 49, sub -clause ii (f))

Non mandatory requirement under Annexure ID

Section 177 (9) of the act requires listed companies to establish vigil mechanism for its directors and employees to report genuine concerns and provide adequate safeguards against victimisation of the persons who use such mechanism

Nomination and remuneration committee

  • Requirement of nomination and remuneration committee is made mandatory comprising at least 3 non-executive directors half of which shall be independent the chairman of the committee shall be an independent director
  • Role of such commi


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