The Hindu Business Line : Key provisions under Clause 49

IN an attempt to review and improve the quality of corporate governance norms among listed companies, the Securities and Exchange Board of India had constituted a Committee under the Chairmanship of Mr N.R. Narayana Murthy in late 2002.

The committee submitted a report spelling out its key recommendations in mid-2003. After a couple of rounds of discussions and public comments, the amended provisions of this report were incorporated in Clause 49 of the Stock Exchange Listing Agreement. This agreement is to come into effect from April 1.

A few key provisions covered under the revised Clause 49 are:

* If the Chairman of the Board is a non-executive director, at least one-third of the Board should comprise independent directors. If the Chairman is an executive director, at least one-half (or 50 per cent) should be independent directors. The definition of an independent director has been expanded.

* In the case of subsidiary companies,

a) At least one independent director on the Board of the listed company shall be a director on the Board of the non-listed Indian subsidiary company.

b) The Audit Committee of the listed holding company will review the financial statements, in particular investments made by the unlisted subsidiary company.

c) The minutes of the Board of the unlisted subsidiary shall be placed at the board meeting of the listed holding company.

* The Audit Committee will have greater power to review related party transactions such as:

Details of individual transactions with related parties, which are not in the normal course of business, should be placed before the Audit Committee. Details of individual transactions with related parties or others, which are not on an arm's length basis, shall be placed before the Audit Committee, together with management's justification for the same.

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