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Securities and Exchange Board of India (SEBI) had vide its Circular No. SEBI /CFD/ DIL/CG/1/2004/12/10 dated 29th October 2004 had issued directives to implement new clause 49 in the listing agreement between stock exchanges and the listed companies. The new clause 49 was to be implemented latest by 1st April 2005. The strict implementation of new clause 49 was later on deferred by SEBI till 31st December 2005 so as to enable the companies getting covered under revised clause 49 to get prepared for the implementation of corporate governance practices as per clause 49.  

Historical Events

The corporate governance practices in India have under gone several changes. Following chronology of events relating to clause 49 of listing agreement on corporate governance traces the development so far-


Chronology of events

Date / Year

Constitution of Kumar Mangalam Birla Committee

(Decision to set up the committee taken in the SEBI Board meeting dated March 19, 1999)

May 7, 1999

Kumar Mangalam Birla Committee Report considered and adopted by SEBI Board

January 25, 2000

Circular introducing Clause 49 based on Kumara Mangalam Birla Committee’s recommendations

February 21, 2000


Circular on Applicability of Clause 49 to Listed Companies and Body Corporates

March 09, 2000


Circular making Amendments to Clause 49 on Composition of Board and Committees

September 12, 2000


Circular Directing Stock Exchanges on Enforcement of Corporate Governance

January 22, 2001


Circular stating that Clause 49 is not applicable to Listed Mutual Funds

March 16, 2001


Amendments to Clause 49 on Composition of Board of Directors

December 31, 2001

Constitution of Narayana Murthy Committee (Report does not disclose the date of constitution)

Later part of 2002

Narayana Murthy Committee report dated February 8, 2003 adopted by SEBI Board on

June 27, 2003

Circular issued on the basis of recommendations of Narayana Murthy Committee

August 26, 2003

Additional Meeting of Narayana Murthy Committee to consider public comments

November 17, 2003

Revised recommendations of Narayana Murthy Committee

December 10, 2003

Press Release deferring implementation of Circular dated 26.08.2003

December 15, 2003


SEBI Board Approved the revised Recommendation of Narayana Murthy Committee

April 16, 2004


Circular revising Clause 49 on the basis of revised Narayana Murthy Committee recommendations

October 29, 2004


Press Release extending time till December 31, 2005 for compliance with revised Clause 49

March 29, 2005


Implementation of revised Clause 49- deadline

December 31, 2005

Implementation Schedule

The provisions of revised clause 49 shall be implemented as follows -

For entities seeking listing for the first time, at the time of seeking in-principle approval for such listing.

 For existing listed entities which were required to comply with clause 49 (now revised) i.e., those having a paid up share capital of Rs. 3 crores and above or net worth of Rs. 25 crores or more at anytime in the history of the company, by 31st December 2005. 

The deadline of 31st December 2005 being the outer limit, did made it voluntary for the entities to comply with revised clause even before 31st December 2005, i.e., there was no bar on the companies to implement the same before 31st December 2005. 

The revised clause 49 applies to all eligible entities which would include companies, corporations, body corporates etc. issuing instruments to be listed on the stock exchanges. 

Broad Requirements

The clause 49 lays down the norms required to be complied with by the entities in respect of -

(a) Board of Directors' Composition, disclosures about non-executive directors, compensation and disclosure provisions about meetings of board, membership of board and committees.

(b) Audit committee to be qualified and independent, meetings, powers, role, review of information etc.

(c)  Subsidiary companies composition of boards.

(d) Disclosures 

Following specific disclosures are required -         

  • basis of related party disclosures

  • disclosure of accounting treatment

  • board disclosures-risk management

  • proceeds from IPOs, right issues, preferential issues

  • director's remuneration

  • management discussion and analysis

  • shareholder's information

(e) certification by CEO and CFO

(f)  corporate governance report as a part of annual report

(g) certification of compliances by a practicing company secretary or statutory auditors of the company.

(h) Certain non-mandatory requirements include issues such as maintenance of non-executive chairman’s office, setting up of remuneration committee, encouraging unqualified audit reports, training of members of bonds, adopting whistle blower policy, having a system of evaluating non-executive boards members performance etc. 

A listed company is also required to frame a code of conduct for all board members and senior management and but it on company’s website. 

In effect, all eligible companies will now have to make certain critical disclosures concerning related party transactions, accounting treatment, risk management practices, proceeds from public issues, remuneration of directors and management discussion and analysis. Companies annual reports must also have a section on corporate governance.  

Clarifications on the revised Clause 49 of the Listing Agreement

SEBI has been receiving a number of requests/suggestions to bring about certain clarifications on few issues pertaining to the revised Clause 49 of the Listing agreement on corporate governance, the compliance date of which has been extended till December 31, 2005. After examination of the suggestions received, it is now proposed to bring about the following clarifications in Clause 49:

  • The maximum time gap between two Board meetings has been increased from three months to four months.

  • Sitting fees paid to non-executive directors as authorized by the Companies Act, 1956 would not require the approval of shareholders.

  • Certification of internal controls and internal control systems by CEO/ CFO would be for the purpose for financial reporting. 

However, a circular has not been issued to the above effect.  


The companies which are required to comply with the requirements of the revised Clause 49 shall submit a quarterly compliance report to the stock exchanges as per sub clause VI(ii), of the revised clause 49, within 15 days from the end of every quarter. The first such report would be submitted for the quarter ending March 31st 2006 by 15th April 2006. The report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company.

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(Manangement Trainee)
Category Corporate Law   Report

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