Independent Directors

Summary of provisions on Independent Directors

The following class or classes of companies shall have at least two directors as independent directors -

(i) the Public Companies having paid up share capital of ten crore rupees or more; or

(ii) the Public Companies having turnover of one hundred crore rupees or more; or

(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it:

Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later:

Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions;

Explanation. - For the purposes of this rule, it is here by clarified that, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account:

Listed Company - Key Managerial Personnel

Listed Company - Summary of provisions on Key Managerial Personnel

Every listed company shall have the following whole-time key managerial personnel,—

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) company secretary; and

(iii) Chief Financial Officer :

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of the Act unless,—

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.

Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:*

Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of the Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Listed Companies - Additional Disclosure in Board's Report

Listed Companies - List of additional disclosures in Board’s Report*

As per sub-rule (5) of Rule 8 of the Companies (Accounts) Rules, 2014, the report of the Board shall also contain -

(i)        the financial summary or highlights;

(ii)       the change in the nature of business, if any;

(iii)      the details of directors or key managerial personnel who were appointed or have resigned during the year;

(iv)      the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year;

(v)       the details relating to deposits, covered under Chapter V of the Act,-

a.       accepted during the year;

b.       remained unpaid or unclaimed as at the end of the year;

c.        whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved-

                               i.       at the beginning of the year;

                              ii.       maximum during the year;

                             iii.       at the end of the year;

(vi)      the details of deposits which are not in compliance with the requirements of Chapter V of the Act;

(vii)    the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;

(viii)  the details in respect of adequacy of internal financial controls with reference to the Financial Statements.

*While sub-rule 5 referred to in this Article does not specify the category of companies required to make the additional disclosures stated therein, it may be construed from the language of the said sub-rule that the additional disclosure stated therein are required to be made only by listed companies and every other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the preceding financial year.

Listed Securities - NCDs

Implications of having ‘Listed NCDs’ / ‘Listed Securities’ 

Companies Act, 2013 (“Act”) - New Procedural and Substantive Requirements for Non- Banking Finance Companies (private and public) for issue of privately placed non-convertible debentures (“NCDs”)

1. Implications of having ‘Listed NCDs’ / ‘Listed Securities’

Under Section 2 (52) of the Companies Act, 2013, a ‘listed company’ is defined to mean a company which has any of its securities listed on any recognized stock exchange. Securities will bring within its ambit debentures as well.

(i) Constitution of the following committees and additional Corporate Governance Requirements:

Relevant Sections and Rules	Brief Particulars	Relevant details	Timeframe for compliance
S.177 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014[1]	Constitution of Audit Committee	To be appended with every financial statement. To consist of at least 3 directors with independent directors as a majority. The majority of members of Audit Committee including its chairperson shall be persons with ability to read and understand, the financial statement. Existing companies may reconstitute their Audit Committee to comply with provisions of the Act, within 1 year of commencement of this Section, i.e. by March 31, 2015	Existing companies to comply within 1 year of commencement of this Section, i.e. by March 31, 2015
S.178 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014	Constitution of Nomination and Remuneration Committee	To consist of 3 or more non-executive directors of which at least one half shall be independent directors. The committee may also include the chairperson of the company in the capacity of a member, but the chairperson shall not be appointed as chair of the committee.
S. 177(9) read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014	Vigil Mechanism	This is effectively a whistleblower protection mechanism. Listed Company to establish this mechanism for directors and employees to report any genuine concerns. For companies which are required to constitute an Audit Committee, including all listed companies, the Audit Committee will oversee the vigil mechanism. If any member of the committee has a conflict of interest in a given case, they should recuse themselves. Details of such mechanism to be disclosed on (i) the company’s website, if any, and (ii) in the Board’s report.
S.92 read with Rule 11 of Companies (Management and Administration) Rules, 2014	Annual return	Every company shall prepare its annual return in Form No. MGT.7. Annual Return to be certified by practicing company secretary in Form No. MGT.8, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of the Act
S.197	Remuneration Disclosure in the report of the Board of Directors, made in terms of Section 134(3) (“Board’s Report”)	To disclose in the Board’s Report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as prescribed in Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
S.204 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel)[2] Rules, 2014	Secretarial Audit- A secretarial audit report to be provided, given by the practising company secretary	To be annexed with the Board’s Report in Form No.MR.3. It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for auditing the secretarial and related records of the company. The Board’s Report shall explain in full any qualification or observation or other remarks made by the company secretary in practice in the secretarial audit report.
Section 134(3) read with Rule 8 of the Companies (Accounts) Rules, 2014[3]	Director’s Responsibility Statement- to state that directors has laid down the internal financial controls to be followed by the company and the same are adequate and operating effectively.	“internal financial controls” means the policies and procedures adopted by the company for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information.
S. 134 read with Rule 8 of the Companies (Accounts) Rules, 2014	Disclosure of manner of formal annual evaluation of Board, its committees and individual directors, and additional disclosures to be made in Board’s report	Every listed company and every other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its Board of directors, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors. The Board report is also required to contain such information as is contained in Rule 8, sub rule (5) as well, as is more particularly set out in Annexure A hereto
S. 136	Copy of financial statements, including consolidated financial statements, if any, auditor’s report and all documents required by law to be annexed / attached to the financial statements which are to be laid in a general meeting- inter alia to be sent to every trustee of a debenture holder.	Listed companies shall be deemed to have complied with notice requirement prior to AGM if: (i)       copies of all financial statements and other documents required under section 136(1) are made available for inspection at the registered office during working hours for a period of twenty-one days before the date of the meeting; AND  (ii)      Form AOC-3 is sent to shareholders and to every trustee for the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting, UNLESS shareholders ask for full financial statements	Form AOC-3 to be sent to all shareholders and all trustees of debenture holders not less than 21 days before date of AGM
S. 136	Listed company to place financial statements (including consolidated financial statements if any) and all other documents required to be attached thereto, on its website
S. 136 read with Rule 11 of Companies (Accounts) Rules, 2014	Manner of circulation of financial statements prior to AGM	If shareholders ask for full financial statements: listed companies and such public companies which have a net worth of more than one crore rupees and turnover of more than ten crore rupees MAY send financial statements: (i)       by electronic mode to such members whose shareholding is in dematerialised format and whose email Ids are registered with Depository for communication purposes; (ii)      in any other case, in electronic mode only to such members who have positively consented in writing for receiving by electronic mode; or by despatch of physical copies through any recognised mode of delivery as specified under section 20 of the Act.
S. 138 read with Rule 13 of Companies (Accounts) Rules, 2014	Appointment of Internal Auditor- who may be either a CA or a cost accountant or any other professional as decided by the Board-	(i)       the internal auditor may or may not be an employee of the company; (ii)      the internal auditor may be a CA, whether engaged in practice or not. (iii)     Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit.	Existing companies to comply within six months from the commencement of this Section, i.e. by September 30, 2014
S.139	Appointment of Auditors- Company cannot appoint or re-appoint: (a) an individual as auditor for more than one term of five consecutive years; and (b) an audit firm as auditor for more than two terms of five consecutive years: Company cannot re-appoint an individual auditor / audit firm for a period of five years after the completion of the term(s) stipulated in clause (a) and (b) above, in the same company.	Mandatory rotation of auditors provided. Time frame of 3 years from the commencement of the Act is provided for to enable compliance with the same. The tenure of the auditors will be counted from the date of the appointment onwards and not from the commencement of this Act.	Existing companies to comply within 3 years from the commencement of this Section, i.e. March 31, 2017
S.151 read with Companies (Appointment and Qualification of Directors) Rules, 2014[4]	Appointment of Director elected by small shareholders	“small shareholders” defined to be a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed. Appointment can be done either by notice by the required number of shareholders or by the listed company suo moto	A listed company, may upon notice of not less than one thousand small shareholders or 1/10th of the total number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small shareholders.
Section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014	Woman Director- At least one woman director to be on board	The following class of companies shall appoint at least one woman director- (i)       every listed company; (ii)      every other public company having, as on the last date of latest audited financial statements - (a) paid–up share capital of one hundred crore rupees or more; or (b) turnover of three hundred crore rupees or more. Any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later	Existing companies to comply within 1 year of commencement of this Section, i.e. by March 31, 2015 OR within one year from date of notification of the rules, i.e. [date of publication in official gazette to be inserted] Companies incorporated under the Act and falling within prescribed class of companies to comply within six months from the date of its incorporation
S.108 read with Rule 20 of Companies (Management and Administration) Rules, 2014	Voting through electronic means	Every listed company or a company having not less than one thousand shareholders, shall provide to its members facility to exercise their right to vote at general meetings by electronic means. Detailed procedures have been provided in this regard.
Section 120 read with Rule 27 of Companies (Management and Administration) Rules, 2014	Maintenance of records in electronic form "records” means any register, index, agreement, memorandum, minutes or any other document required by the Act or the rules made there under to be kept by a company	(i)       the records shall be maintained in the same formats and in accordance with all other requirements as provided in the Act or the rules made there under; (ii)      the information as required under the provisions of the Act or the rules made there under should be adequately recorded for future reference; (iii)     the records must be capable of being readable, retrievable and reproducible in printed form; (iv)     the records are capable of being dated and signed digitally wherever it is required under the provisions of the Act or the rules made there under; (v)      the records, once dated and signed digitally, shall not be capable of being edited or altered; (vi)     the records shall be capable of being updated, according to the provisions of the Act or the rules made there under, and the date of updating shall be capable of being recorded on every updating.	Existing companies to convert data from physical mode to electronic mode within six months from the commencement of this Section, i.e. by September 30, 2014
Section 203 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014	Key Managerial Person (“KMP”)	Every listed company shall have the following whole-time key managerial personnel,— (i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director; (ii) company secretary; and (iii)  Chief Financial Officer (iv)           Rules also specify limits as to how many offices a whole time director can hold, details of which are more particularly set out in Annexure B hereto	Whole-time KMP holding office in more than one company as of April 01, 2014, should ensure that they choose only one company in which they will continue to hold office of KMP within six months from the commencement of this Section, i.e. by September 30, 2014

(ii) Listed Public Companies

Relevant Sections and Rules	Brief Particulars	Relevant details	Timeframe for compliance
S.121	Annual General Meeting  Report to be prepared in prescribed form	Report to be filed with the Registrar within 30 days of conclusion of AGM. The copy of the report prepared in pursuance of Section 121, shall be filed with the Registrar in Form No. MGT.15	Form No. MGT.15 to be filed within 30 days of conclusion of AGM.
S.149 read with Companies (Appointment and Qualification of Directors) Rules, 2014	Every listed public company shall have at least one-third of the total number of independent directors and the Central Government shall prescribe minimum no. of directors in case of any class/classes of public companies Independent Directors At least 1/3rd of total directors to be independent directors	Detailed provisions on independent directors set out in Annexure C hereto	Existing companies to comply within 1 year of commencement of this Section, i.e. by March 31, 2015.
S. 178	Constitution of Stakeholders Relationship Committee	The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company. The chairperson of each of the committees constituted under this section or, in his absence, any other member of the committee authorised by him in this behalf shall attend the general meetings of the company.	This is not exclusively a requirement for listed companies alone but rather for all companies having more than one thousand shareholders, debentureholders etc during a financial year.

Annexure A

List of additional disclosures in Board’s Report for listed companies*

As per sub-rule (5) of Rule 8 of the Companies (Accounts) Rules, 2014, the report of the Board shall also contain -

(i)        the financial summary or highlights;

(ii)       the change in the nature of business, if any;

(iii)      the details of directors or key managerial personnel who were appointed or have resigned during the year;

(iv)      the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year;

(v)       the details relating to deposits, covered under Chapter V of the Act,-

a.       accepted during the year;

b.       remained unpaid or unclaimed as at the end of the year;

c.        whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved-

                               i.       at the beginning of the year;

                              ii.       maximum during the year;

                             iii.       at the end of the year;

(vi)      the details of deposits which are not in compliance with the requirements of Chapter V of the Act;

(vii)    the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;

(viii)  the details in respect of adequacy of internal financial controls with reference to the Financial Statements.

*While sub-rule 5 referred to in this Annexure does not specify the category of companies required to make the additional disclosures stated therein, it may be construed from the language of the said sub-rule that the additional disclosure stated therein are required to be made only by listed companies and every other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the preceding financial year.

Annexure B

Summary of provisions on Key Managerial Personnel

Every listed company shall have the following whole-time key managerial personnel,—

(i) managing director, or Chief Executive Officer or manager and in their absence, a whole-time director;

(ii) company secretary; and

(iii) Chief Financial Officer :

Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of the Act unless,—

(a) the articles of such a company provide otherwise; or

(b) the company does not carry multiple businesses:

Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.

Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:

Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:*

Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of the Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:

Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees and every director and key managerial personnel of the company who is in default shall be punishable with fine which may extend to fifty thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.

Annexure C

Summary of provisions on Independent Directors

The following class or classes of companies shall have at least two directors as independent directors -

(i) the Public Companies having paid up share capital of ten crore rupees or more; or

(ii) the Public Companies having turnover of one hundred crore rupees or more; or

(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

Provided that in case a company covered under this rule is required to appoint a higher number of independent directors due to composition of its audit committee, such higher number of independent directors shall be applicable to it:

Provided further that any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later:

Provided also that where a company ceases to fulfil any of three conditions laid down in sub-rule (1) for three consecutive years, it shall not be required to comply with these provisions until such time as it meets any of such conditions;

Explanation. - For the purposes of this rule, it is here by clarified that, the paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account:

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[1] These Rules are stated to come into force  on the day of their publication in the Official Gazette

[2] These Rules have come into force with effect from April 1, 2014.

[3] These Rules have come into force with effect from April 1, 2014.

[4] These Rules have come into force with effect from April 1, 2014.