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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
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."
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
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: [email protected]
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