BOARD GOVERNANCE UNDER THE COMPANIES ACT, /21/2013 1

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1 BOARD GOVERNANCE UNDER THE COMPANIES ACT, /21/2013 1

2 There is evidence of a steady erosion in trust for established authorities. As trust diminishes, so increases the demand for transparency. -Tom Delfgaauw 9/21/2013 2

3 INDEX 9/21/2013 3

4 BOARD FRAMEWORK 9/21/2013 4

5 INDEPENDENT DIRECTORS SECTION 149 9/21/2013 5

6 APPOINTMENT OF DIRECTOR (SECTION 152). NOTIFIED 9/21/2013 6

7 APPOINTMENT OF DIRECTOR (SECTION 152). NOTIFIED 9/21/2013 7

8 RESTRICTIONS FOR DIRECTORS 9/21/2013 8

9 RESTRICTIONS FOR DIRECTORS 9/21/2013 9

10 RESTRICTIONS FOR DIRECTORS 9/21/

11 LOAN TO DIRECTORS NOTIFIED SECTION 185 9/21/

12 WOMAN DIRECTOR & SMALL SHAREHOLDER DIRECTOR 9/21/

13 DIRECTORS other requirements At least 1 director to be a person who has stayed in India for atleast 182 days in the previous calendar year Section 149 (2) 9/21/

14 POWERS OF BOARD SECTION 179 9/21/

15 POWERS OF BOARD Such other matters as prescribed Per Draft Rules: Other matters prescribed- To make political contributions; to fill a casual vacancy in the Board; to enter into a joint venture or technical or financial collaboration or any collaboration agreement; To commence a new business; to shift the location of a plant or factory or the registered office; To appoint or remove key managerial personnel (KMP) and senior management personnel one level below the KMP; 9/21/

16 POWERS OF BOARD To appoint internal auditors; To adopt common seal; To take note of the disclosure of director s interest and shareholding; To sell investments held by the company (other than trade investments), constituting five percent or more of the paid up share capital and free reserves of the investee company; To accept public deposits and related matters and; To approve quarterly, half yearly and annual financial statements. 9/21/

17 DUTIES OF DIRECTORS 9/21/

18 DUTIES OF DIRECTORS (Sec 166) A director to act in accordance with the articles of the company A director to act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interest of the company, its employees, the shareholders, the community and for the protection of environment. A director to exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment A director not to get involved in a situation he may have direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company A director not to achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates 9/21/

19 COMMITTEE OF BOARD 9/21/

20 AUDIT COMMITTEE (Sec 177) Every listed company and such other class of company shall constitute an Audit committee. (As per Draft Rules: Audit Committee of the Board for every listed company, and every other public company having paid up capital of Rs. 100 cr or more; or which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 200 cr) Committee shall consist of minimum three director with the independent director forming majority Auditors and KMP have right to be heard in the meeting of committee Board s report to disclose Composition of the audit committee and Any recommendation which has not been accepted by the board. 9/21/

21 NOMINATION AND RENUMERATION COMMITTEE (Sec 178) For listed and other prescribed class of Companies (As per Draft Rules: Nomination and Remuneration Committee of the Board for every listed company, and every other public company having paid up capital of Rs. 100 cr or more; or which have, in aggregate, outstanding loans or borrowings or debentures or deposits exceeding Rs. 200 cr) 3 or more non-executive directors out of which not less than one half shall be independent directors Nomination and remuneration committee to formulate the criteria for: Determining qualifications, positive attributes and independence of director Recommending to the board a policy relating to remuneration for directors, KMP and other employee. 9/21/

22 STAKEHOLDERS RELATIONSHIP COMMITTEE (Sec 178) 9/21/

23 STAKEHOLDERS INTEREST PROTECTION 9/21/

24 ACCOUNTS & AUDITORS 9/21/

25 ROTATION OF AUDITORS (Sec 139) Reappointment holiday/cool-off period Individual five years from completion of term Audit firm five years from completion of term Common partner(s) of audit firm five years from completion of term Additional conditions company can impose Audit partner / team rotation Joint auditor Audit firm includes LLP As per Draft Rules Manner in which companies will rotate their auditors on the expiry of the term has been prescribed 9/21/

26 CORPORATE SOCIAL RESPONSIBILITY (Sec 135) 9/21/

27 CORPORATE SOCIAL RESPONSIBILITY (Sec 135) 9/21/

28 CORPORATE SOCIAL RESPONSIBILITY (Sec 135) 9/21/

29 CORPORATE SOCIAL RESPONSIBILITY (Sec 135) 9/21/

30 VIGIL MECHANISM Every listed company or such class of company shall establish a vigil mechanism (As per Draft Rules: classes of companies prescribed are companies which accept deposits from the public and Companies which have borrowed money from banks and public financial institutions in excess of Rs. 50 cr) Mechanism facilitates directors and employees to report genuine concerns Adequate safeguards against victimisation of persons who use such mechanism Provision for direct access to the chairperson of the audit committee Presently, clause 49 of the listed companies provides for WHISTLE BLOWER POLICY (not mandatory) 9/21/

31 RISK MANAGEMENT 9/21/

32 RISK MANAGEMENT 9/21/

33 FRAUD (Sec 447) ( NOTIFIED) 9/21/

34 CLASS ACTION SUITS (Sec 245) Suit may be filed by members or depositors or any class of them; If management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interest of the company, its members or depositors; Suit may be filed by more than 100 in number or more than a percentage of the total number of depositors, whichever is less, or any depositor or depositors to whom the company owes such percentage of total deposits of the company. Damages or compensation or any other suitable action from or against The company or its directors for any fraudulent, unlawful or wrongful act or omission. Any expert or advisor or consultant or any other person for any incorrect or misleading statement or for any fraudulent, unlawful or wrongful act or conduct. 9/21/

35 TRANSPARENCY & DISCLOSURES 9/21/

36 BOARD REPORT (Sec 134) Board s report made comprehensive by inserting more disclosures and transparency requirements Contents of Board Report: Extract of the Annual Return Number of Board meetings Voting rights not being exercised directly by the employees in respect of shares held by trustees Reasons of voluntary revision of financial statements or Board s report. Contracts or arrangements with related parties (further explained in Rules) Declaration by independent directors. Particulars of loans, guarantees or investments Statement indicating development & implementation of risk management policy for the company. CSR Policy and initiatives taken during the year Policy on Corporate Social Responsibility and initiatives taken 9/21/

37 Other Matters Prescribed: As per Draft Rules: (i)financial summary/highlights; (ii)change in the nature of business, if any; (iii)details of directors or KMP who were appointed or have resigned during the yr; (iv)names of companies which have become or ceased to be its Subsidiaries, JVs or associate companies; (v)details relating to Deposits; (a) Accepted during the year; (b) remained unpaid or unclaimed as at the end of the year; (c) whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved: i. at the beginning of the year ii. maximum during the year iii. at the end of the year (d) Details of deposits which are not in compliance with the requirements of Chapter V of the Act (vi) Details of significant and material orders passed by the Regulators or courts or tribunals impacting the going concern status and company s operations in future. 9/21/

38 ANNUAL RETURN (Sec 92) 9/21/

39 ANNUAL RETURN - Contents (Sec 92) Registered office, principal business activities, particulars of its holding, subsidiary and associate companies; Shares, debentures and other securities and shareholding pattern; Indebtedness; Members and debenture holders; Promoters, directors, key managerial personnel ; Meetings of members; Meeting of board and its various committees Remuneration of directors and key managerial personnel; Penalty or punishment imposed on the company, its directors or officers and details of compounding Matters relating to certification of compliances, disclosures Details of shares held by or on behalf of the Foreign Institutional Investors Such other matters as may be prescribed. 9/21/

40 DISCLOSURES IN PROSPECTUS (Sec 26) 9/21/

41 CONSOLIDATION OF FINANCIAL STATEMENTS (Sec 129 & 137) Mandatory requirement of presenting consolidated financial statements of all subsidiaries including associate and joint venture companies Mandatory requirements: a) Financial statements of the company b) Separate Financial statements of its subsidiary or subsidiaries c) Accounts of Foreign Subsidiaries 9/21/

42 DIRECTOR S RESPONSIBILITY STATEMENT (Sec 134) PROMOTERS STAKE CHANGES (Sec 93) 9/21/

43 RELATED PARTY TRANSACTION (Sec 188) Definition of Related Party provided in Section 2(76) of the Act. In addition to existing, Board approval required for following RPTs: Selling or otherwise disposing of, or buying, property of any kind. Leasing of property of any kind. Appointment of any agents for purchase or sale of goods, materials, services or property. Appointment of any related party to any office or place of profit in the company or its subsidiary company or associate company Contract for underwriting the subscription of securities or derivatives thereof Companies with the prescribed Capital require approval by Special resolution for entering into defined related party transactions 9/21/

44 REPORT ON AGM (Sec 121) 9/21/

45 REPORT ON MANAGERIAL REMUNERATION (Sec 197) 9/21/

46 IMPACT OF CHANGE 9/21/

47 THANK YOU PAVAN KUMAR VIJAY Corporate Professionals Group D-28, South Extension I, New Delhi Ph: ; Fax: ; E: 9/21/