SEBI further amends Clause 49A of Listing Agreement. Classes of listed companies exempted from corporate governance. Related party transactions simplified

Security and Exchange Board of India (SEBI) in view of the Companies Act, 2013 had, vide its circular No. CIR/CFD/POLICY CELL/2/2014 dated April 17, 2014 made amendments to Clauses 35B regarding e-voting facility to shareholders and 49 related to corporate governance of the Equity Listing Agreement. The revised Clause 49 was scheduled to be applicable to all listed companies with effect from October 01, 2014 whereas the clause 35B is applicable to all listed companies.

As per SEBI, it had sought the status of preparedness of top 500 listed companies by market capitalization, for ensuring timely compliance with the revised Clause 49. Also it has received representations from market participants including companies and industry associations, highlighting certain practical difficulties in ensuring compliance, seeking clarifications on interpretation of certain provisions and suggesting various options to ease the process of implementation.

Accordingly SEBI has vide its circular CIR/CFD/POLICY CELL/7/2014 dated 15-09-2014 has further amended clause 49 of the Listing agreement  to exclude certain classes of companies along with other amendments simplifying and bringing out clarity in other clauses related to independent directors, women directors, nomination and remuneration committee, material subsidiary companies, Risk Management, Related party transactions etc.

Few major changes are:

Clause 49 Exemption
It has been provided that clause 49 related to corporate governance for the time being shall not apply to companies having paid up equity share capital not exceeding Rs.10 crore and Net Worth not exceeding Rs.25 crore, as on the last day of the previous financial year.

Related Party Transactions:
The existing clause defining related party transactions has been completely substituted and simplified. As per amended clause an entity shall be considered as related to the company if:

(i) such entity is a related party under Section 2(76) of the Companies Act, 2013; or

(ii) such entity is a related party under the applicable accounting standards.

Further the Audit Committee has been empowered to grant omnibus approval for Related Party Transactions proposed to be entered into by the company subject to prescribed conditions.

Also, the requirement of approval of related party transactions from audit committee and shareholders (through special resolution) shall not be applicable in the following cases:

(i) transactions entered into between two government companies;
(ii)transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.

Composition of Board-Women Director:
The provisions regarding appointment of woman director to be applicable with effect from April 01, 2015.

Independent Directors:
Independent directors definition amended to bring in the concept of materiality in pecuniary relationship with the company.

Download the circular dated 15-09-2014 Click Here >>
Download the circular dated 17-04-2014 Click Here >>
SEBI-Table of Fine for Non Compliance of Clause 49(II)(A)(1) Click Here >>