Conditional Listing Permission
SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, B Wing, First Floor,
224, Nariman Point, Mumbai 400 021
SMDRP/Policy/Cir- 29 /01
May 22, 2001
The President/Executive Director/
Managing Director of all the Stock Exchanges
Sub: Practice of granting conditional listing permission
It has been brought to our notice that some stock exchanges have been granting conditional listing permission to the companies. Section 73 of the Companies Act, 1956 does not envisage any qualified conditional listing permission. Section 73 of the Companies Act, 1956 envisages a final decision of granting / refusing to grant listing permission. The stock exchanges are, therefore, advised to desist from the practice of granting conditional listing to the companies.
P. K. BINDLISH
Deputy General Manager
Secondary Market Depositories
Research & Publications Department
E-mail: [email protected]
Instructions to Bankers to Issues
SECURITIES AND EXCHANGE BOARD OF INDIA
PRIMARY MARKET DEPARTMENT
Mittal Court, ‘A’ Wing, Ground Floor
Nariman Point, MUMBAI - 400 021.
TEL NO. : 2850451- 56/ 2880962-70 FAX NO. :204 5633
BTI (G I Series) Circular No. 1 (2000-2001) May 11, 2001
To All Bankers to an Issue registered with SEBI under 'Securities and Exchange Board of India (Bankers to an Issue) Rules and Regulation, 1994
As you are aware that in terms of sub-Regulation (2) of Regulation 14 of the SEBI (Bankers to an Issue) Regulations, 1994, the agreement between a banker to an issue and the body corporate shall inter alia contain the clauses stipulating the time within which the statement regarding the application and application monies received from the investors will be forwarded to the Registrar to an Issue or the body corporate, as the case may be. Further, the agreement shall also stipulate that a daily statement will be sent by the designated controlling branch of the Bankers to the Issue, to the Registrar to the Issue indicating the number of applications received on that date and the amount of the application monies received.
In the interest of the investors it has been the endeavour of SEBI to reduce the time period involved between closure of the issue and listing of the securities. The SEBI (Disclosure and Investor Protection) Guidelines, 2000 specify a maximum period of 30 days for allotment after the closure of the issue. In the case of book built issues the allotment is required to be done within 15 days of closure of issue. The Registrar to the Issue may be able to finalize the basis of allotment of securities only on timely receipt of details of collection figures, the applications and the application monies received.
Therefore, you are advised to ensure that the applications, details regarding the application and application monies received from the investors investing in the issue of a body corporate and the final certificate are furnished to the Registrar to the Issue ,the lead manager and the body corporate, before the expiry of 7 working days after the date of closure of issue.
These instructions shall be applicable to all issues including book built issues, opening on and from June 1, 2001. You are advised to ensure that appropriate systems, procedure and infrastructure are in place at the collecting and controlling branches for compliance with the above.
These instructions have been issued in exercise of the powers conferred under section 11 of the Securities Exchange Board of India Act, 1992 and in furtherance of the requirements of the Securities and Exchange Board of India (Bankers to an Issue) Rules and Regulations, 1994.
Please note that non-compliance with the above-mentioned instructions will attract penal action under the Securities and Exchange Board of India, Act 1992 and SEBI (Bankers to an Issue) Rules and Regulation, 1994.
PRIMARY MARKET DEPARTMENT
Listing requirements for Corporate Governance
I. Board of Directors
A. The company agrees that the board of directors of the company shall have an optimum combination of executive and non-executive directors with not less than fifty percent of the board of directors comprising of non-executive directors. The number of independent directors would depend whether the Chairman is executive or non-executive. In case of a non-executive chairman, at least one-third of board should comprise of independent directors and in case of an executive chairman, at least half of board should comprise of independent directors.
Explanation: For the purpose of this clause the expression ‘independent directors’ means directors who apart from receiving director’s remuneration, do not have any other material pecuniary relationship or transactions with the company, its promoters, its management or its subsidiaries, which in judgement of the board may affect independence of judgement of the director.
B. The company agrees that all pecuniary relationship or transactions of the non-executive directors viz-a-viz. the company should be disclosed in the Annual Report.
II Audit Committee.
- The company agrees that a qualified and independent audit committee shall be set up and that :
- The audit committee shall have minimum three members, all being non-executive directors, with the majority of them being independent, and with at least one director having financial and accounting knowledge;
- The chairman of the committee shall be an independent director;
- The chairman shall be present at Annual General Meeting to answer shareholder queries;
- The audit committee should invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to be present at the meetings of the committee, but on occasions it may also meet without the presence of any executives of the company. The finance director, head of internal audit and when required, a representative of the external auditor shall be present as invitees for the meetings of the audit committee;
- The Company Secretary shall act as the secretary to the committee.
- The audit committee shall meet at least thrice a year. One meeting shall be held before finalisation of annual accounts and one every six months. The quorum shall be either two members or one third of the members of the audit committee, whichever is higher and minimum of two independent directors.
- The audit committee shall have powers which should include the following :
- to investigate any activity within its terms of reference.
- to seek information from any employee.
- to obtain outside legal or other professional advice.
- to secure attendance of outsiders with relevant expertise, if it considers necessary.
- The company agrees that the role of the audit committee shall include the following.
- Oversight of the company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible.
- Recommending the appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services.
- Reviewing with management the annual financial statements before submission to the board, focusing primarily on;
- Any changes in accounting policies and practices.
- Major accounting entries based on exercise of judgement by management.
- Qualifications in draft audit report.
- Significant adjustments arising out of audit.
- The going concern assumption.
- Compliance with accounting standards.
- Compliance with stock exchange and legal requirements concerning financial statements
- Any related party transactions i.e. transactions of the company of material nature, with promoters or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of company at large.
- Reviewing with the management, external and internal auditors, the adequacy of internal control systems.
- Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit.
- Discussion with internal auditors any significant findings and follow up there on.
- Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board.
- Discussion with external auditors before the audit commences nature and scope of audit as well as have post-audit discussion to ascertain any area of concern.
- Reviewing the company’s financial and risk management policies.
- To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors.
- If the company has set up an audit committee pursuant to provision of the Companies Act, the company agrees that the said audit committee shall have such additional functions / features as is contained in the Listing Agreement.
III. Remuneration of Directors
- The company agrees that the remuneration of non-executive directors shall be decided by the board of directors.
- The company further agrees that the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the annual report.
- All elements of remuneration package of all the directors i.e. salary, benefits, bonuses, stock options, pension etc.
- Details of fixed component and performance linked incentives, along with the performance criteria.
- Service contracts, notice period, severance fees.
- Stock option details, if any – and whether issued at a discount as well as the period over which accrued and over which exercisable.
IV Board Procedure
- The company agrees that the board meeting shall be held at least four times a year, with a maximum time gap of four months between any two meetings. The minimum information to be made available to the board is given in Annexure - 1.
- The company further agrees that a director shall not be a member in more than 10 committees or act as Chairman of more than five committees across all companies in which he is a director. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.
- The company agrees that as part of the directors’ report or as an addition there to, a Management Discussion and Analysis report should form part of the annual report to the shareholders. This Management Discussion & Analysis should include discussion on the following matters within the limits set by the company’s competitive position:
- Industry structure and developments.
- Opportunities and Threats.
- Segment–wise or product-wise performance.
- Risks and concerns.
- Internal control systems and their adequacy.
- Discussion on financial performance with respect to operational performance.
- Material developments in Human Resources / Industrial Relations front, including number of people employed.
- Disclosures must be made by the management to the board relating to all material financial and commercial transactions, where they have personal interest, that may have a potential conflict with the interest of the company at large (for e.g. dealing in company shares, commercial dealings with bodies, which have shareholding of management and their relatives etc.)
- The company agrees that in case of the appointment of a new director or re-appointment of a director the shareholders must be provided with the following information:
- A brief resume of the director;
- Nature of his expertise in specific functional areas ; and
- Names of companies in which the person also holds the directorship and the membership of Committees of the board.
- The company further agrees that information like quarterly results, presentation made by companies to analysts shall be put on company’s web-site, or shall be sent in such a form so as to enable the stock exchange on which the company is listed to put it on its own web-site.
- The company further agrees that a board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressing of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as ‘Shareholders/Investors Grievance Committee’.
- The company further agrees that to expedite the process of share transfers the board of the company shall delegate the power of share transfer to an officer or a committee or to the registrar and share transfer agents. The delegated authority shall attend to share transfer formalities at least once in a fortnight.
VII Report on Corporate Governance
The company agrees that there shall be a separate section on Corporate Governance in the annual reports of company, with a detailed compliance report on Corporate Governance. Non compliance of any mandatory requirement i.e. which is part of the listing agreement with reasons there of and the extent to which the non-mandatory requirements have been adopted should be specifically highlighted. The suggested list of items to be included in this report is given in Annexure - 2 and list of non-mandatory requirements is given in Annexure - 3.
The company agrees that it shall obtain a certificate from the auditors of the company regarding compliance of conditions of corporate governance as stipulated in this clause and annexe 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 returns filed by the company.
Schedule of Implementation :
The above amendments to the listing agreement have to be implemented as per schedule of implementation given below:
- By all entities seeking listing for the first time, at the time of listing.
- Within financial year 2000-2001,but not later than March 31, 2001 by all entities, which are included either in Group ‘A’of the BSE or in S&P CNX Nifty index as on January 1, 2000. However to comply with the recommendations, these companies may have to begin the process of implementation as early as possible.
- Within financial year 2001-2002,but not later than March 31, 2002 by all the entities which are presently listed, with paid up share capital of Rs. 10 crore and above, or networth of Rs 25 crore or more any time in the history of the company.
- Within financial year 2002-2003,but not later than March 31, 2003 by all the entities which are presently listed, with paid up share capital of Rs.3 crore and above
- As regards the non-mandatory requirement given in Annexure - 3, they shall be implemented as per the discretion of the company. However, the disclosures of the adoption/non-adoption of the non-mandatory requirements shall be made in the section on corporate governance of the Annual Report.
Information to be placed before board of directors
- Annual operating plans and budgets and any updates.
- Capital budgets and any updates.
- Quarterly results for the company and its operating divisions or business segments.
- Minutes of meetings of audit committee and other committees of the board.
- 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.
- Show cause, demand, prosecution notices and penalty notices which are materially important
- Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.
- Any material default in financial obligations to and by the company, or substantial non-payment for goods sold by the company.
- 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.
- Details of any joint venture or collaboration agreement.
- Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property.
- 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.
- Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of business.
- Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of adverse exchange rate movement, if material.
- Non-compliance of any regulatory, statutory nature or listing requirements and shareholders service such as non-payment of dividend, delay in share transfer etc.
Suggested List Of Items To Be Included In The Report On Corporate Governance In The Annual Report Of Companies
- A brief statement on company’s philosophy on code of governance.
- Board of Directors:
- Composition and category of directors for example promoter, executive, non-executive, independent non-executive, nominee director, which institution represented as Lender or as equity investor.
- Attendance of each director at the BoD meetings and the last AGM.
- Number of other BoDs or Board Committees he/she is a member or Chairperson of.
- Number of BoD meetings held, dates on which held.
- Audit Committee.
- Brief description of terms of reference
- Composition, name of members and Chairperson
- Meetings and attendance during the year
- Remuneration Committee.
- Brief description of terms of reference
- Composition, name of members and Chairperson
- Attendance during the year
- Remuneration policy
- Details of remuneration to all the directors, as per format in main report.
- Shareholders Committee.
- Name of non-executive director heading the committee
- Name and designation of compliance officer
- Number of shareholders complaints received so far
- Number not solved to the satisfaction of shareholders
- Number of pending share transfers
- General Body meetings.
- Location and time, where last three AGMs held.
- Whether special resolutions
- Were put through postal ballot last year, details of voting pattern.
- Person who conducted the postal ballot exercise
- Are proposed to be conducted through postal ballot
- Procedure for postal ballot
- Disclosures on materially significant related party transactions i.e. transactions of the company of material nature, with its promoters, the directors or the management, their subsidiaries or relatives etc. that may have potential conflict with the interests of company at large.
- Details of non-compliance by the company, penalties, strictures imposed on the company by Stock Exchange or SEBI or any statutory authority, on any matter related to capital markets, during the last three years.
- Means of communication.
- Half-yearly report sent to each household of shareholders.
- Quarterly results
- Which newspapers normally published in.
- Any website, where displayed
- Whether it also displays official news releases; and
- The presentations made to institutional investors or to the analysts.
- Whether MD&A is a part of annual report or not.
- General Shareholder information
- AGM : Date, time and venue
- Financial Calendar
- Date of Book closure
- Dividend Payment Date
- Listing on Stock Exchanges
- Stock Code
- Market Price Data : High., Low during each month in last financial year
- Performance in comparison to broad-based indices such as BSE Sensex, CRISIL index etc.
- Registrar and Transfer Agents
- Share Transfer System
- Distribution of shareholding
- Dematerialization of shares and liquidity
- Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion date and likely impact on equity
- Plant Locations
- Address for correspondence
Annexure – 3
- Chairman of the Board
A non-executive Chairman should be entitled to maintain a Chairman’s office at the company’s expense and also allowed reimbursement of expenses incurred in performance of his duties.
- Remuneration Committee
- The board should set up a remuneration committee to determine on their behalf and on behalf of the shareholders with agreed terms of reference, the company’s policy on specific remuneration packages for executive directors including pension rights and any compensation payment.
- To avoid conflicts of interest, the remuneration committee, which would determine the remuneration packages of the executive directors should comprise of at least three directors, all of whom should be non-executive directors, the chairman of committee being an independent director.
- All the members of the remuneration committee should be present at the meeting.
- The Chairman of the remuneration committee should 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.
c) Shareholder Rights
The half-yearly declaration of financial performance including summary of the significant events in last six-months, should be sent to each household of shareholders.
d) Postal Ballot
Currently, although the formality of holding the general meeting is gone through, in actual practice only a small fraction of the shareholders of that company do or can really participate therein. This virtually makes the concept of corporate democracy illusory. It is imperative that this situation which has lasted too long needs an early correction. In this context, for shareholders who are unable to attend the meetings, there should be a requirement which will enable them to vote by postal ballot for key decisions. Some of the critical matters which should be decided by postal ballot are given below :
- Maters relating to alteration in the memorandum of association of the company like changes in name, objects, address of registered office etc;
- Sale of whole or substantially the whole of the undertaking;
- Sale of investments in the companies, where the shareholding or the voting rights of the company exceeds 25%;
- Making a further issue of shares through preferential allotment or private placement basis;
- Corporate restructuring;
- Entering a new business area not germane to the existing business of the company;
- Variation in rights attached to class of securities;
- Matters relating to change in management
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