[FAQs] on Listing in Indian Stock Exchanges – Corporate Governance | Compliance | SME Listings

• Corporate excellence refers to a transformation from the status of a good company to the status of a great company. The essence of corporate excellence is to have a competitive advantage over other firms in the industry.
• Corporate excellence is about developing and strengthening the management system and process of a company to improve performance and create value for stakeholders. Corporate governance is the one and only route to achieve corporate excellence.
• Corporate Governance provides a structure through which the objectives of a company are set and how they are achieved and monitored.
• Good governance practice enhances the efficiency of corporate sector and helps achieving excellence in all areas in the organization.

According to Regulation 6 of SEBI (LODR) Regulations, 2015 shall appoint a Qualified Company Secretary as the Compliance Officer who is responsible for:

• Ensuring conformity with the regulatory provisions in letter and spirit.
• Co-ordination with and reporting to SEBI, recognized stock exchange(s) and depositories.
• Monitoring email address of grievance redressal division for the purpose of registering complaint by investors.
• Ensuring correctness, authenticity and comprehensiveness of the information, statements and reports filed by listed entities.

Note. This regulation is not applicable to listing of units of mutual funds.

• Part E of Schedule II of SEBI (LODR) Regulations, 2015 deals with Compliance Certificate on Corporate Governance.
• Compliance Certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance shall be annexed with the directors’ report.
• The listed entity shall submit to stock exchange a comparative analysis of the corporate governance provisions that are applicable in its home country and in the other jurisdictions in which its equity shares are listed along with the compliance of the same vis-a-vis the corporate governance requirements applicable under Regulation 17 to Regulation 27 to other listed entities.
• The disclosures of the compliance with corporate governance requirements specified in regulations 17 to 27 and clauses (b) to (i) of sub-regulation (2) of Regulation 46 shall be made in the section on corporate governance of the annual report.

“Whistle blower Policy” or “Vigil Mechanism”: As per Regulation 22 of SEBI (LODR) Regulations, 2015, following are the requirements for the “Whistle Blower Policy” in a listed entity:

• The listed entity shall formulate a vigil mechanism for directors and employees to report genuine concerns.
• The vigil mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.
• Details of establishment of Vigil Mechanism shall be disclosed by the listed entity on its website and in the Board’s Report.

• Composition of Audit Committee: Every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:

1. Minimum Number of Directors: The Audit Committee shall have minimum 3 directors as members.

2. Number of Independent Directors: 2/3^rd of the members of audit committee shall be independent directors.

3. Financially literate: All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

4. Secretary: The Company Secretary shall act as the Secretary to the audit committee.

5. Chairperson: The Chairperson of the audit committee shall be an independent director and he shall be present at AGM to answer shareholders queries.

6. Invitation: The audit committee at its discretion shall invite the finance director or head of the finance function, head of internal audit and a representative of the statutory auditor and any other such executives to be present at the meetings of the committee.

• Meeting of Audit Committee: The listed entity shall conduct the meeting of audit committee in the following manner:

1. Minimum Number of Meeting: The audit committee shall meet at least 4 times in a year and not more than 120 days shall elapse between two meetings.

2. Quorum: The quorum for audit committee meeting shall either be:

i. two membersor

ii. one third of the members of the audit committee.

whichever is greater, with at least two independent directors.

• Role and Responsibilities of Audit Committee: Following are the role and responsibilities of audit committee as per Part C of Schedule II:

1. Oversight of the listed entity’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.

2. Recommendation for appointment of auditors and remuneration and terms of appointment of auditors of the listed entity.

3. Approval of payment to statutory auditors for any other services rendered by the statutory auditor.

4. Reviewing, with the management, the annual financial statements before submission to the board for approval with particular reference to:

i. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of Clause (c) of Section 134 of the Companies Act, 2013.

ii. Changes, if any, in accounting policies and practices and reasons for the judgment by management.

iii. Major accounting entries involving estimates based on the exercise of judgment by management.

iv. Significant adjustment made in the financial statements arising out of audit findings.

v. Compliance with listing and other legal requirements relating to financial statements.

vi. Disclosure of any related party transactions.

vii. Qualifications in the draft audit report.

5. Reviewing, with the management:

i. Quarterly financial statements before submission to the board for approval.

ii. Performance of statutory and internal auditors, and adequacy of the internal control systems.

6. Approval of any subsequent modifications of transactions of the company with related parties.

7. Scrutiny of inter-corporate loans and investment.

8. Valuation of undertaking or assets of the company, wherever it is necessary.

9. Evaluation of internal financial control and risk management systems.

10. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern.

11. To review the functioning of the Whistle Blower mechanism in case the same is existing.

12. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.

• According to Regulation 23(2) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all related party transactions shall require prior approval of the Audit Committee.
• The Audit Committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions:

1. The audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature.

2. The audit committee shall satisfy itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity.

3. The audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approval is given.

4. Such omnibus approval shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year.

5. The omnibus approval shall specify:

i. the name(s) of the related party, nature of transaction, period of transaction, maximum amount of transactions that shall be entered into;

ii. The indicated base price/current contracted price and the formula for variation in the price if any; and

iii. Such other conditions as the audit committee may deem fit.

• Nevertheless where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.
• The provisions related to the prior approval of audit committee shall not apply, in case the transactions are entered 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.

• “SME exchange” means a trading platform of a recognised stock exchange having nationwide trading terminals permitted by SEBI to list the specified securities issued in accordance with Chapter IX and includes a stock exchange granted recognition for this purpose but does not include the Main Board.
  Explanation: ‘Main Board’ means a recognized stock exchange having nationwide trading terminals, other than SME exchange.
  Example: BSE and NSE have started their SME listing platforms in India.

• “Role of Company Secretary” in the model SEBI (LODR) Regulations, 2015 laid down by SEBI for SMEs for the purpose of listing: Following are roles of Company Secretary:

1. All listed SMEs on SME platform are required to appoint the Company Secretary of the Issuer as Compliance Officer who will be responsible for monitoring the share transfer process and report to the Issuer board in each meeting.

2. ‘Compliance Officer’ will directly liaise with the authorities such as SEBI, Stock Exchange, ROC etc., and investors with respect to implementation of various clause, rules, regulations and other directives of such authorities and investors service and complaints related matter.

3. “Registrar and Transfer Agent” of a listed SMEs are required to produce a certificate from a practicing company secretary that all the transfers have been completed within the stipulated time and certification regarding compliance of conditions of Corporate Governance.

Following policies required to be framed under SEBI (LODR) Regulations, 2015:

Listing of securities with stock exchange is a matter of great importance for companies and investors, because this provides the liquidity to the securities in the market. The following benefits are available when securities are listed by a company in the stock exchange:

• Public Image: Enhancement of Public image of the company.
• Liquidity: The liquidity of the security is ensured making it easy to buy and sell the securities in the stock exchange.
• Tax Concessions: Tax concessions are made available both to the investors and the companies.
• Attract more Investors through disclosure of important information for Investment: Listing procedure compels company management to disclose important information to the investors enabling them to make crucial decisions with regard to keeping or disposing of such securities.
• Better Support Services from Banks and FIs: Listed companies command better support such as loans and investments from Banks and Financial Institutions.

Based on the recommendations of Kotak Committee, the amendments made in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to Independent Directors are as follows:

• Independent Women Director: The Board of Directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of Directors of the top 1000 listed entities shall have at least one independent woman Director By April 1, 2020.
• Quorum for Board Meetings: The quorum for every meeting of the Board of Directors of the top 1000 listed entities with effect from April 1, 2019 and the top 2000 listed entities with effect from April 1, 2020 shall be one-third of its total strength or three Directors, whichever is higher, including at least one independent director.
• Limit on Independent Directorship Holding: A person shall not serve as an independent director in more than seven listed entities. However, any person who is serving as a whole time director/managing director in any listed entity shall serve as an independent director in not more than three listed entities.
• Evaluation of Independent Director: The evaluation of independent director shall be done by the entire Board of Directors which shall include:

1. Performance of the director.

2. Fulfilment of the Independence criteria as specified in SEBI Listing Regulations and their Independence from the management.

• Nevertheless, in the above evaluation directors who are subject to evaluations shall not participate.

• Quorum for NRC Meeting: The quorum for a meeting of the nomination and remuneration committee shall be either two members or one-third of the members of the committee whichever is greater, including at least one independent director in attendance.
• One common independent director on Board of listed entity and its unlisted material subsidiary: At least one independent director on the Board of Directors of the listed entities shall be a director on the Board of Directors of an unlisted material subsidiary whether incorporated in India or not.
• Reason for resignation of an independent director: Detailed reasons for the resignation of an independent director who resigns before the expiry of his tenure along with a confirmation by such director that there are no other material reasons other than those provided.

The followings are the quarterly compliances required to be made under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015:

As per Regulation 39 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 provides that:

• The listed entity shall comply with Rule 19(3) of Securities Contract (Regulations) Rules, 1957 in respect of Letter/Advices of Allotment, Acceptance or Rights, transfers, subdivision, consolidation, renewal, exchanges, issuance of duplicates thereof or any other purpose.
• The listed entity shall issue certificates or receipts or advices, as applicable, of subdivision, split, consolidation, renewal, exchanges, endorsements, issuance of duplicates thereof or issuance of new certificates or receipts or advices, as applicable, in cases of loss or old decrepit or worn out certificates or receipts or advices, as applicable within a period of thirty days from the date of such lodgement.
• The listed entity shall submit information regarding loss of share certificates and issue of the duplicate certificates, to the stock exchange within two days of its getting information.
• The listed entity shall comply with the procedural requirements specified in Schedule VI to these regulations while dealing with securities issued pursuant to the public issue or any other issue, physical or otherwise which remain unclaimed and/or are lying in the escrow account as applicable.

Half Yearly Compliance Calendar for listed entity for SME (Small and Medium Enterprise) as per SEBI Listing Regulations, 2015: