MUMBAI: The Securities and Exchange Board of India (Sebi) has initiated ‘adjudication proceedings’ against 20 companies for not complying with the Clause 49 provision of the listing agreement pertaining to corporate governance. Such action would involve imposing monetary penalties on the companies in question.
Sebi, however, did not disclose the names of the companies. This is the first time the market regulator has formally acted against companies for not adhering to the provision, which defines certain corporate governance rules for listed companies including board composition.
The market regulator in a release said the 20 companies include five state-owned companies.
Sebi said, out of the 15 private sector companies, action has been initiated against three companies for non-compliance with almost all the major provisions of Clause 49. Two companies have not complied with provisions like board/audit committee composition and CEO/CFO certification, while the rest have not submitted compliance reports on Clause 49 to stock exchanges, the Sebi release said. The action against the state-owned companies have been initiated for non-compliance with provisions relating to board composition, it added.
Companies with equity of over Rs 3 crore are required to adhere to the Clause 49 provision. Clause 49 has partly been inspired by the new corporate governance norms in the US, which were revised following a slew of scandals. The revised provision received a poor response from several Indian companies, citing impracticality to implement them here.
Several smaller listed companies have been unable to meet the Clause 49 provision requirements mainly due to costs for inducting independent directors in line with stipulated norms. Also, they are unable to find enough number of independent directors.
A note by BSE a few months ago said, out of the 2,693 actively-traded companies where Clause 49 is applicable, approximately 18% have either not reported or have reported non-compliance for the quarter ended June 2006. Currently, 4,751 companies are listed on BSE.
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