Among the series of amendments made to Clause 49 of the Listing
Agreement ("Clause 49"), SEBI issued yet another circular
on 15th September, 2014 amending Clause 49 aligning it with the
Companies Act, 2013 ("Act"). This circular came into
effect from October 1, 2014.
Applicability of Clause 49 shall extend to all listed companies
except (i) companies with equity share capital of less than Rs 10
crore, (ii) companies having net worth not exceeding of Rs 25
crore, and (iii) companies listed on SME and SME-ITP platforms of
the stock exchanges. However, it has been clarified by SEBI that
the exemption is "for the time being", and in case
applicability of Clause 49 is extended to the exempted categories
in future, then such companies shall have 6 (six) months to comply
with the provisions of Clause 49.
Further, SEBI has set 1st April, 2015 as the date by which the
companies will have to comply with the requirement of appointment
of a woman director on the board of directors.
In order to be in consonance with the Act, SEBI has aligned the
term of the Independent Director to two consecutive terms of five
years each. Reappointment of such independent director after the
completion of aforementioned period of two terms could be made
subject to a cooling off period of three years as mentioned in the
Act. Clause 49 also states that the terms and conditions of
appointment of the independent directors shall have to be placed on
the website of the company as against the earlier norms that
required firms to disclose the letter of appointment along with the
detailed profile of the director.
Present amendment also provides that the shareholding of any
company in any of its material subsidiary can be reduced to less
than 50%, or a company may cease to exercise control over the
subsidiary by passing a special resolution in a general meeting.
However, if such reduction is a result of disinvestment made under
a scheme of arrangement duly approved by Court/Tribunal, then such
company shall not be required to pass a special resolution
approving such reduction or loss of control in the General
SEBI also modified the concept of related party transactions by
the present amendment and has amended the definition of
"related party" to mean an entity related to the company,
if such an entity is a related party (i) under section 2(76) of the
Act; or (ii) under the applicable accounting standards.
The amended Clause 49 provides that a company shall formulate a
policy on materiality of related party transactions, and dealing
with related party transactions. Additionally, through this
amendment SEBI has provided that the transaction shall be
considered material if the transaction(s) either individually or
taken together with previous transactions
during a financial year, exceeds 10% of the annual turnover as
per the last audited financial statements of the company.
SEBI had previously provided that all related party transactions
shall require prior approval of the audit committee. However,
pursuant to these amendments an audit committee may also grant
omnibus approval for related party transactions proposed to be
entered into by the company subject to the conditions as prescribed
thereunder. The audit committee can grant such approval only for a
period of 1 year and the company shall apply for a fresh approval
after the expiry of one year.
In addition SEBI has exempted the following related party
transactions from obtaining approval from the audit committee:
Transactions entered into between two government
Transactions entered into between a holding company and its
wholly owned subsidiary.
Finally, another significant change is the requirement for
creation of Risk Management Committee by a company. The Risk
Management Committee shall be responsible for monitoring and
reviewing of risk management plan and such other functions as may
be deemed fit. This SEBI amendment provides that the Committee
shall consist of members of Board of Directors, and may also
include senior executives of the company. However, the Chairman of
the Committee shall be a member of the Board of Directors.
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guide to the subject matter. Specialist advice should be sought
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