When the shares of the Company are listed on any Stock Exchange. The basic document which is executed between Company and that Stock Exchange is the Listing Agreement.
However, it does not contain any listing or trading related clause. Now question arises what is the scope and purpose of the Listing Agreement.
The basic criterion on which the whole Listing Agreement based is Corporate Governance. Currently there are 54 Clauses in the Listing Agreement and all of them based on this very concept. Further, there is a clause which specifically deals with Corporate Governance i.e. Clause 49. By way of Listing Agreement inter alia Stock Exchange ensures on behalf of SEBI that the Companies are following good Corporate Governance Practice.
As such, the Listing Agreement is of great importance and is executed under the common seal of a company. Under the Listing Agreement, the Company is required to make certain disclosures and perform certain acts, failing which the company may face disciplinary action, including suspension / delisting of securities. A Company undertakes, amongst other things, to provide facilities for prompt transfer, registration, sub-division and consolidation of securities; to give proper notice of closure of transfer books and record dates, to forward copies of Annual Reports, Balance Sheets and Profit and Loss Accounts to Stock Exchange, to file shareholding patterns and financial results on a quarterly basis; to intimate promptly to the Exchange the happenings which are likely to materially affect the financial performance of the Company and its stock prices, to comply with the conditions of Corporate Governance, etc.
The Listing Department of Stock Exchange monitors the compliance by the companies with the provisions of the Listing Agreement, specially with regard to timely payment of annual listing fees, submission of results, shareholding patterns and corporate governance reports on a quarterly basis
Important Clauses of Listing Agreement :
Clauses 1 to 14 deals with investor services such as to provide facilities for prompt transfer, registration, sub-division and consolidation of securities. Clause 11(c) requires that in case of any physical transaction or off-market trade copy of PAN Card of transferee is necessary.
Clause 15 to 16 deals with the Book Closure. Accordingly, a Company is required to close its Transfer Books atleast once a year and advance notice of 7 working days is required to be given to the Stock Exchange for the same. Furthermore, there should be atleast 30 days time gap between two book closures.
Under Clause 19 the Company is required to give prior intimation to the Stock Exchange about the date of Board Meeting if the company is going for Buy Back, declaration / recommendation of Dividend, Rights Issue.
Under Clause 20 the Company immediately on the date of Board Meeting intimate the outcome of Board Meeting to the Stock Exchange by way of fax/letter if the Board Meeting was for dividend, results or Buyback. The date of payment of divided is also required to be informed to the stock exchange.
Under Clause 22 any change in Capital is required to be disclosed to the Stock Exchange within 15 minutes of the Board Meeting.
Under Clause 24(a) the Company is required to take in-principal approval for listing from the Stock Exchange before issuing any further shares. Under sub clause (f) the Company shall file any scheme / petition proposed to be filed before any Court or Tribunal under Section 391, 394 and 101 of the Companies Act, 1956, with the stock exchange for approval atleast 1 month before presenting it to the Court or Tribunal. And under sub clause (i) a certificate of Auditors is also required to be obtained
Under Clause 30 the Company promptly notify the Stock Exchange any change in director, Managing Director, Manager, Auditors or Secretary.
Under Clause 31 the Company will forward to the Stock Exchange promptly 6 copies of Annual Report all notices prior to the dispatch to Shareholders, Minutes of General Meeting.
Clause 32 deals with the change of name of Listed Company and according to this clause atleast 1 year should be elapsed from the last name change and atleast 50% revenue of the company should be from the new activity suggested by the new name.
Under Clause 35 the Company has to file with the Stock Exchange Shareholding pattern on quarterly basis within 21 days of the end of each quarter.
Under Clause 36 the Company will keep the Stock Exchange informed about the lock outs, strikes, closure of business, change in business operations, any litigation or dispute, Revision of rating.
Clause 38 deals with payment of listing fees to the Stock Exchange and payment of Annual Custodian Fees to Depositories. The company has to pay on or before 30th April each year Annual Listing Fee to Stock Exchange and Annual Custodian Fee to the Depositories computed on the basis of capital of the company as on 31st March that year.
Clause 40 deals with minimum level of public shareholding and accordingly every company shall have to maintain a minimum level of public shareholding. It means promoters can not take more that specified percentage of Share Capital of the Company.
Clause 41 deals with preparation and submission of Financial Results. The Company has to disclose its quarterly and yearly results in the following manner:-
The Company has an option to submit audited or unaudited quarterly and year to date financial results within 45 days of the end of each quarter (other than the last quarter). If the Company opts to submit unaudited results it shall be subject to Limited Review by the Statutory Auditors of the Company and the Limited Review Report shall be furnished to the Stock Exchange within 45 days from the end of quarter. If the Company opts to submit audited results it shall be accompanied with audit report.
In respect of last quarter, the Company has an option to submit unaudited financial results for the quarter within 45 days of the end of quarter or to submit audited results for the entire financial year within 60 days of the end of financial year.
In case the Company opts to submit unaudited results for the last quarter it shall also be subject to limited review by Statutory Auditors and the copy of limited review report shall be submitted to Stock Exchange within 45 days form the end of quarter. Further, the Company will also submit audited results for the entire financial year as soon as they are approved by the Board.
If the Company opts to submit audited results for the entire financial results, it shall intimate to the Stock Exchange in advance within 45 days of the end of financial year.
As a part of audited or unaudited financial results for every half year the Company shall also submit by way of note a Statement of Assets and Liabilities
The results as above are to be submitted within 15 days of the Board Meeting to the Stock Exchange.
The Company shall give prior intimation about the Date and Time and Purpose of the meeting in which the financial results will be considered to the Stock Exchange at least 7 clear days prior to the meeting. The Company shall simultaneously issue a public notice in at least 2 daily news papers (one in English daily and one in regional language daily).
The Company shall within 48 hours of conclusion of the Board or Committee meeting at which the Financial Results were approved, publish a copy of the financial results which were submitted to the Stock Exchange in atleast one in English daily news paper and one in regional language daily news paper.
Under Clause 42 the Company has to deposit 1% of the value of securities before offering to the public or existing shareholders which is refundable or forfeitable in the manner stated in the rules of stock exchange.
Under Clause 47(a) the Company has to appoint a Company Secretary to act as a Compliance Officer to deal with all the shareholders requests and to deal with Stock Exchange.
Under Clause 47(c) the Company has to submit to the Stock Exchange a certificate from the Practicing Company Secretary within one month of each half year certifying that all certificates have been issued timely and such certificate is required to made available to the Stock Exchange within 24 hours of receipt of the certificate by the Company.
Under Clause 47(e) the Company will execute Memorandum of Understanding with RTA and shall submit copy of the same to the Stock Exchange within 48 hours for its record.
Under Clause 47(f) the Company will designate an email ID of the grievance redressel division / compliance officer exclusively for the purpose of redressing investor grievances and inform it to the Stock Exchange.
Clause 49 Corporate Governance
1. Board of Directors there shall be optimum combination of executive and non executive directors with not less than 50 % of the Board comprising non executive directors.
Where the chairman of the Board is non executive, at least 1/3rd of the Board should comprise independent directors. Where the Chairman is executive director, at least of the Board should comprise of independent directors.
The expression Independent Director shall mean a Non Executive Director of the Company who:
a. apart from receiving Directors 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;
b. is not related to promoters or persons occupying management positions at the board level or at one level below the board;
c. has not been an executive of the company in the immediately preceding three financial years;
d. is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:
i) the statutory audit firm or the internal audit firm that is associated with the company, and
ii) the legal firm(s) and consulting firm(s) that have a material association with the company.
e. is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director.
f. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.
g. Is not less than 21 years of age.
a. Associate shall mean a company, which is an associate as defined in Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India.
b. Senior management shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.
c. Relative shall mean relative as defined in section 2(41) and section 6 read with Schedule IA of the Companies Act, 1956.
Nominee directors appointed by an institution, which has invested in or lent to the Company shall be deemed to be Independent Directors.
Institution for this purpose means a public financial institution as defined in Section 4A of the Companies Act, 1956 or a corresponding new bank as defined in section 2(d) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 or the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 [both Acts].
Other provisions as to Board
The Board shall meet atleast 4 times in a year, with a maximum time gap of four months between any two meetings.
A director shall not be a member in more than 10 committees or act as chairman in more than 5 committees across all companies.
The Board should lay down a code of conduct for all Board members and senior management of the Company. The code of conduct shall be posted on the website of the Company.
Information to be placed before Board of Directors
1. Annual operating plans and budgets and any updates.
2. Capital budgets and any updates.
3. Quarterly results for the company and its operating divisions or business segments.
4. Minutes of meetings of audit committee and other committees of the board.
5. The information on recruitment and remuneration of senior officers just below the board level, including appointment or removal of Chief Financial Officer and the Company Secretary.
6. Show cause, demand, prosecution notices and penalty notices, which are materially important
7. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.
8. Any material default in financial obligations to and by the company, or substantial nonpayment for goods sold by the company.
9. Any issue, which involves possible public or product liability claims of substantial nature, including any judgement or order which, may have passed strictures on the conduct of the company or taken an adverse view regarding another enterprise that can have negative implications on the company.
10. Details of any joint venture or collaboration agreement.
11. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.
12. Significant labour problems and their proposed solutions. Any significant development in Human Resources/ Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme etc.
13. Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of business.
14. Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.
15. Non-Compliance of any regulatory, statutory or listing requirements and shareholders services such as non payment of dividend, delay in share transfer etc.
2. Audit Committee is required to be formed comprising minimum 3 directors as members. Two-third of the members of Audit Committee shall be independent directors. All members of Audit Committee shall be financially literate and atleast 1 member shall have accounting or related financial management expertise. The Chairman of Audit Committee must be independent director and shall present at the AGM to answer the queries of shareholders queries. The Audit Committee shall also meet 4 times in a year with a maximum gap of 4 months. The quorum shall be either 2 or 1/3rd of the members of the Committee whichever is greater.
Review of information by Audit Committee
The Audit Committee shall mandatorily review the following information:
1. Management discussion and analysis of financial condition and results of operations;
2. Statement of significant related party transactions (as defined by the audit committee), submitted by management;
3. Management letters / letters of internal control weaknesses issued by the statutory auditors;
4. Internal audit reports relating to internal control weaknesses; and
5. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee
1. At least one independent director on the Board of Directors of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company.
2. The Audit Committee of the listed holding company shall also review the financial statements, in particular, the investments made by the unlisted subsidiary company.
3. The minutes of the Board meetings of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company. The management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transactions and arrangements entered into by the unlisted subsidiary company.
1. The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors report, which is sent annually to all the shareholders of the company. The same certificate shall also be sent to the Stock Exchanges along with the annual report filed by the company.
2. The Company shall submit a quarterly compliance report to the stock exchange within 15 days from the end of each quarter. This report shall be required to be signed by Compliance officer or Company Secretary of the Company.
3. There shall be separate section of Corporate Governance Report in the Annual Report of the Company.
(1) The Board
A non-executive Chairman may be entitled to maintain a Chairmans office at the companys expense and also allowed reimbursement of expenses incurred in performance of his duties. Independent Directors may have a tenure not exceeding, in the aggregate, a period of nine years, on the Board of a company. The company may ensure that the person who is being appointed as an independent director has the requisite qualifications and experience which would be of use to the company and which, in the opinion of the company, would enable him to contribute effectively to the company in his capacity as an independent director.
(2) Remuneration Committee
i. The board may set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference, the companys policy on specific remuneration packages for executive directors including pension rights and any compensation payment.
ii. To avoid conflicts of interest, the remuneration committee, which would determine the remuneration packages of the executive directors may comprise of at least three directors, all of whom should be non-executive directors, the Chairman of committee being an independent director.
iii. All the members of the remuneration committee could be present at the meeting.
iv. The Chairman of the remuneration committee could be present at the Annual General Meeting, to answer the shareholder queries. However, it would be up to the Chairman to decide who should answer the queries.
(3) Shareholder Rights
A half-yearly declaration of financial performance including summary of the significant events in last six-months, may be sent to each household of shareholders.
(4) Audit qualifications
Company may move towards a regime of unqualified financial statements.
(5) Training of Board Members
A company may train its Board members in the business model of the company as well as the risk profile of the business parameters of the company, their responsibilities as directors, and the best ways to discharge them.
(6) Mechanism for evaluating non-executive Board Members
The performance evaluation of non-executive directors could be done by a peer group comprising the entire Board of Directors, excluding the director being evaluated; and Peer Group evaluation could be the mechanism to determine whether to extend /continue the terms of appointment of non-executive directors.
(7) Whistle Blower Policy
The company may establish a mechanism for employees to report to the management concerns about unethical behaviour, actual or suspected fraud or violation of the companys code of conduct or ethics policy. This mechanism could also provide for adequate safeguards against victimization of employees who avail of the mechanism and also provide for direct access to the Chairman of the Audit committee in exceptional cases. Once established, the existence of the mechanism may be appropriately communicated within the organization.
Under Clause 50 the Company has to mandatorily comply with the Accounting Standards issued by the ICAI.
Clause 52 deals with Corporate Filing and Dissemination System (CFDS), under this clause the company agrees -
(a) to file on the CDFS, such information, statements and reports as may be specified by the Participating Stock Exchanges in this regard.
(b) that the Compliance Officer, appointed under clause 47(a) and the company shall be responsible for ensuring the correctness, authenticity and comprehensiveness of the information, statements and reports filed under this clause and also for ensuring that such information is in conformity with the applicable laws and the listing agreement.
(c) to ensure that the electronic filing of information through CFDS, pursuant to compliance with any clause of the listing agreement, shall be done within the time limit specified in the respective clause of the listing agreement.
(d) to put in place such infrastructure as may be required to comply with the clause.
Explanation: For the purposes of this clause
(i) The term Corporate Filing and Dissemination System (CFDS) shall mean the portal at the URL www.corpfiling.co.in or such other website as may be specified by the participating stock exchanges from time to time to take care of exigencies, if any.
(ii) The term Participating Stock Exchanges shall mean the stock exchanges owning and maintaining CFDS.
Clause 53 and 54 are new clause which provides that if the Company enters into any agreement with Media Company, it is required to be informed to the Stock Exchange. The company is required to maintain its functional website containing basic information about the Company, details of business, financial performance, shareholding pattern, compliance with corporate governance, contact information, email id of compliance officer etc.
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