COMPANIES ACT 2013

CORPORATE GOVERNANCE
FRAMEWORK

Contents
1.Board Composition

2.Independent Directors
3.Powers of the Board
4.Duties of Directors
5.Liability of Directors and Officers
6.Board Committees
7.Related Party Transactions

Board Composition
TYPE OF
COMPANY

INDEPENDENT
DIRECTOR

WOMAN
DIRECTOR

SMALL
SHAREHOLDE
R DIRECTOR

Rule 11.1

Private
Company

1 Independent
Director on Corporate
Social Responsibility
(CSR) Committee if
CSR requirement is
triggered

Required if
paid-up share
capital > INR
100 crores (to Section 151
be appointed Rule 11.5
within 5
Not applicable
years) from
the
commenceme
nt of the Act

RESIDENT
DIRECTOR

1 director
required to
be resident
in India for
at least 182
days in a
calendar
year
Section
149(3)

Board Composition
TYPE OF
COMPANY

INDEPENDENT
DIRECTOR
1/3rd of the Board to
be Independent if the
Company has:

Public
Unlisted
Company

Paid-up share capital

of INR 100 crores or
more; or
Aggregate
outstanding loans,
borrowings,
debentures or
deposits exceeding
INR 200 crores

WOMAN
DIRECTOR

SMALL
SHAREHOLDE
R DIRECTOR

Required if
paid-up share
capital > INR
100 crores (to
be appointed
Not applicable
within 5
years) from
the
commenceme
nt of the Act

RESIDENT
DIRECTOR

1 director
required to
be resident
in India for
at least 182
days in a
calendar
year
Section
149(3)

Board Composition
TYPE OF
COMPANY

Listed
Company

INDEPENDENT
DIRECTOR

WOMAN
DIRECTOR

All listed companies

to have 1/3rd of the
Board comprised of
Independent Director

All listed
companies to
have a
woman
director (to be
appointed
within 1 year)
from the
commenceme
nt of the Act

Requirement
increases to half of
the Board if there is
an executive
chairman [Clause 49,
Listing Agreement]

SMALL
SHAREHOLDE
R DIRECTOR
Request of
1/10th the
number of
small
shareholders
or 500 small
shareholders
(whichever is
lower)

RESIDENT
DIRECTOR
1 director
required to
be resident
in India for
at least 182
days in a
calendar
year
Section
149(3)

Independent Directors
Term Restrictions [Section 149]:

2 consecutive terms of 5 years each;

3 year cool-off (no association with the company) before

becoming eligible again.

Boards Report [Section 134]:

To provide statements that the Independent Director

possesses the appropriate balance of skills, experience and
knowledge

Independent Directors
Impact

Investor Nominee Directors cannot be regarded as

Independent Directors [Section 149 (7)]

Definition [Section 149 (6)]: A director other than a Managing

Director, Whole-Time Director or Nominee Director, who:

in the opinion of the Board, is a person of integrity, with

relevant experience and expertise;

Independent Directors
is or was not a promoter or director of the company or any
holding, subsidiary or associate company;
is not related to a promoter or director of the company, or any
holding, subsidiary or associate company;

does not have and has not had any pecuniary relationship with
the company and its promoters or directors, including any
holding company, subsidiary or associate company

Independent Directors
whose relatives do not have any pecuniary relationship or
transaction with the company or its holding, subsidiary or
associate company, or their promoters or directors
amounting to 2% or more of the gross turnover of the
relevant entity, or INR 50 lakhs (subject to change), whichever
is lower, during the current financial year or the two
preceding financial years
who neither himself nor any of his relatives:

holds or has held the position of Key Managerial Personnel

or has been an employee of the company, or its holding,
subsidiary or associate company in the preceding 3 financial
years;

Independent Directors

is or has been an employee, proprietor or partner (in the

preceding 3 financial years) of:

any firm of auditors, company secretaries or cost auditors

of the company or its holding, subsidiary or associate
company; or

any legal or consulting firm that has or has had any

transaction with the company, or its holding, subsidiary or
associate company amounting to 10% or more of the gross
turnover of such company

holds, together with his relatives, 2% or more of the total

voting power;

Independent Directors

is a Chief Executive Officer or director of any non-profit

organisation that receives more than 25% of its receipts
from the company, its promoters, directors or any holding,
subsidiary or associate company, or holds more than 2% of
the company; and

who possesses such other qualifications as may be

prescribed.

Independent Directors
Qualifications [Rule 11.3]

Independent Director must possess appropriate balance of skills,

experience, and knowledge in one or more fields of finance, law,
management, sales, marketing, administration, corporate
governance, technical operations or other disciplines related to
the companys business.

Board to furnish a statement in its first report after such

appointment that in its opinion the Independent Director
possesses the appropriate balance of skills, experience and
knowledge as required.

Independent Directors

Independent Directors may be drawn from a data-bank of

persons eligible and willing, maintained by any body, institute or
association as may be prescribed by the Central Government
[Section 150 and Rule 11.4]

Appointment has to be approved by members in general meeting

and the explanatory statement to the notice should indicate
justification of such appointment

Independent Directors

No retirement by rotation

Independent Directors are eligible for sitting fees, commission

from profits and reimbursement of expenses

Independent Directors are not entitled to any stock options. This

is contrary to the Listing Agreement, where the maximum limit
can be fixed by shareholders resolution

Independent Directors

The law now prescribes a code of conduct (Code) to be

complied with by the Independent Directors (Schedule IV)

The Code provides for the following:

Guidelines of professional conduct;

Specific roles, functions and duties;

Manner of appointment, re-appointment, resignation and
removal;
Separate meetings of Independent Directors; and
Evaluation mechanisms.

Powers of the Board

Key Changes [Section 179]
There has been an addition to the list of powers which can
be exercised only at a meeting of the Board of Directors:
Approval of financial statements and Board reports;
Diversification of business;

Approval of amalgamation, merger or reconstruction;

Approval of takeover of another company or
acquisition of a substantial stake in another company.

Powers of the Board

Key Changes Restrictions [Section 180]

Powers which can only be exercised subject to a special (not

ordinary) resolution of the shareholders:

Sell or otherwise dispose off whole or substantially the

whole of an undertaking;

Invest proceeds of a merger or amalgamation;

Borrow money in excess of the paid-up share capital and

free reserves (other than temporary loans) and the limit
of such borrowing should be specified in the special
resolution;

Powers of the Board

Temporary loans must be: (a) from the companys bankers;
(b) in the ordinary course of business; and (c) repayable
within 6 months.
Special resolutions may include conditions.
This section has been extended to private companies.
Definition of the term Undertaking and substantially the
whole undertaking has been introduced

Powers of the Board

Undertaking means:
An undertaking in which the companys investment exceeds
20% of its net worth as per the last audited balance sheet

An undertaking which generates 20% or more of the

companys total income in the previous year
Substantially the whole undertaking means 20% or more of
the value of the undertaking as per the last audited balance
sheet

Powers of the Board

Political contribution limits enhanced to 7.5% of average net
profits of the company for the immediately 3 preceding financial
years
Charitable contribution, permission required where contribution
exceeds the limit of 5% of the average net profits for the
immediately preceding 3 financial years. The limits of monetary
value have been dispensed with

Duties of Directors
[Section 166]

To act in accordance with the articles of association of the

company;

To act in good faith to promote the objects of the company for

the best interests of the company and for the benefit of the
members as a whole and in the best interests of the employees,
shareholders, the community and the environment;

To exercise his duties with due and reasonable care, skill,

diligence and independent judgment;

Duties of Directors

To avoid situations where he may have a direct or indirect interest which

conflicts or may conflict with the interests of the company;

To avoid any undue gain to himself or his relatives, partners, or associates

(if found guilty of this, the director may be required to pay an amount
equal to such gain to the company);

Not to assign his office, such assignment being void.

Liability of Directors and Officers

Key Changes
Liability of Directors under Section 166 relating to duties;
Liability under Section 172 of the company and any officer in
default for any contravention;
Independent and non-executive Directors only face liability for
an act or omission where they have knowledge (attributable
through the Board process) or if there is consent, connivance or
a lack of diligence.

Board Committees: Applicability

TYPE OF
COMPANY

Private
Company

Public
Unlisted
Company

AUDIT COMMITTEE

NOMINATION &
REMUNERATION
COMMITTEE

Not applicable

Not applicable

CSR COMMITTEE

STAKEHOLDER
RELATIONSHIP
COMMITTEE

Not applicable

Both committees required if the company has:

Independent Director
required on CSR
Committee if:

Paid-up share capital of INR 100 crores or more;

or

Net worth INR 500

Crores

Aggregate outstanding loans, borrowings,

debentures or deposits exceeding INR 200 crores

Turnover INR 1000

Crores

Applies if the company

has 1000 or more
shareholders

Net profit INR 5

crores
Public Listed
Company

Applicable

Applies if the company

has 1000 or more
shareholders

Board Committees: Composition, etc.

TYPE OF COMMITTEE

COMPOSITION

OTHER REQUIREMENTS
Roles stipulated

Audit Committee [Section 177]

Nomination & Remuneration

Committee [Section 135]
CSR Committee [Section 178]

Stakeholder Relationship
Committee [Section 178]

3 Directors
Majority Independent Directors

Decisions no longer binding on

the Board
Whistle-blower policy required,
providing direct access to the
chairman of the Audit
Committee

3 Directors
Majority Independent Directors
3 Directors
1 Independent Director
Strength and composition
determined by the Board
Chairman to be non-executive

Purpose to solve the

grievances of security holders

Related Party Transactions

RELATED PARTY - DEFINITION

Director, key managerial personnel or relative of such person

Firm in which a director, manager or relative is a partner

Private company in which a director or manager is a member or director

A public company in which a director or manager is (a) a director; or (b) along with relatives holds
more than 2%
Any body corporate whose Board, Managing Director or manager is accustomed to act in accordance
with the advice, directions or instructions of a director or manager
Any person on whose advice, directions or instructions a director or manager is accustomed to act

a holding, subsidiary or an associate company of such company

Any
a subsidiary of a holding company to which it is also a subsidiary

Related Party Transactions

Prior consent of the Board and no Central
Government permission
Interested Director not to remain present at the
Board meeting

Related Party Transactions

A related party transaction can be entered into only if it is approved by a special
resolution at the general meeting:

where the company has paid-up share capital, which is not less than INR 1 crore;

Transactions amount (individually or taken together with previous transactions

during a financial year)exceeds 5% of the annual turnover or 20% of the net
worth of the company as per last audited financial statements, whichever is
higher;

Transaction relating to appointment to any office or place of profit in the

company, its subsidiary or associate company at a monthly remuneration
exceeding INR 1 lakh; or

Is for a remuneration for underwriting the subscription of any securities or

derivatives exceeding INR 10 lakhs.

No member of the company who is a related party can vote on the special resolution

Related Party Transactions

The scope of existing provisions has been widened to include
selling, buying and leasing
An arms length transaction entered into in the ordinary course
of business of the company is an exception to the related party
transaction rule
Related party transactions including the reasons for entering
into the relevant transactions are to be included in the Boards
report to the shareholders
Shareholders approval for non-cash transactions with Directors
of the company, its holding, its associated company, or a person
connected with him would be required

Company should not acquire assets from such directors