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A STUDY ON THE EVALUATION OF CORPORATE          GOVERNANCE STANDARDS & PRACTICES<br />   Done for<br />Project report submitted in partial fulfillment of the requirement of Pondicherry University for the award of the degree of<br />MASTER OF BUSINESS ADMINISTRATION<br />Submitted By<br />AMRESH KUMAR PANDEY<br />(Reg: No.1105503)<br />Under the guidance of<br />Dr. B. CHARUMATHI<br />Associate Professor,<br />Faculty Advisor – Corporate Relations and Placements,<br />Department of Management Studies.<br />DEPARTMENT OF MANAGEMENT STUDIES<br />SCHOOL OF MANAGEMENT<br />PONDICHERRY UNIVERSITY<br />PUDUCHERRY- 605 014<br />MAY-JUNE 2011<br />DEPARTMENT OF MANAGEMENT STUDIES<br />SCHOOL OF MANAGEMENT<br />PONDICHERRY UNIVERSITY<br />PUDUCHERRY-605014<br />CERTIFICATE<br />This is to certify that this project entitled “A STUDY ON THE EVALUATION OF CORPORATE GOVERNANCE STANDARDS & PRACTICES.” done for ADITYA BIRLA CHEMICALS(INDIA) LIMITED   Rehla, Jharkhand is  submitted by AMRESH KUMAR PANDEY II year MBA (Reg NO. 1105503) to the Department of Management Studies, School of Management, Pondicherry University in partial fulfillment of the degree requirement for the award of degree Master of Business Administration and is certified to be an original and bonafide work.<br />DR.R.PRABHAKARA RAYA       DR.B.CHARUMATHI<br />Professor  & Head of the Department                 Associate Professor,<br />Department of Management Studies,                                Department of Management Studies,<br />School of Management,                                              School of Management,<br />Pondicherry University.                                              Pondicherry University.<br />Place: Puducherry<br />Date: 10.07.2011<br />DECLARATION<br />I, Amresh Kumar Pandey, Student of Department of Management Studies, Pondicherry University, hereby declare that this project report titled “A STUDY ON THE EVALUATION OF CORPORATE GOVERNANCE STANDARDS & PRACTICES OF ADITYA BIRLA CHEMICALS(INDIA) LIMITED” is an original work done by me and submitted to the Department of Management Studies, for the award of Degree of Master of Business Administration. I further declare that any part this project itself has not been submitted elsewhere for award of any degree. <br />Place:Pondicherry<br />Date: 10.07.2011                                                                            <br />Amresh Kr. Pandey<br />Signature of th candidate<br />ACKNOWLEDGEMENT<br />I am indebted to the all powerful Almighty God for all the blessings he showered on me and for being with me throughout the study. It is not possible to prepare a project report without the assistance & encouragement of other people. This one is certainly no exception.<br />I place on record my sincere gratitude and appreciation to internal guide Dr. B. CHARUMATHI, Associate Professor, Department of Management Studies, Pondicherry University for meticulously reviewing my work, making corrections and offering suggestions without which the project would have been incomplete. <br />I express my sincere thanks to Dr. R. P. RAYA, HOD, Department of Management Studies, School of Management, Pondicherry University, who provided me an opportunity to do this project.<br />I express my deep sense of gratitude to (CA)Brijesh Kumar AGM (ACCOUNTS& FINANCE), and my Project coordinator Astt. Manager (CA)Rajesh Rathi of ADITYA BIRLA CHEMICALS (INDIA) LTD for offering me this project and for taking the role as my external guide and guiding and supporting continuously in shaping my project, correcting errors, clearing doubts throughout the project. I would also like to thank entire ADITYA BIRLA CHEMICALS(INDIA) LIMITED,REHLA Team for their constant guidance and support. <br />I take this opportunity to dedicate this project to my parents who were a constant source of motivation and I express my deep gratitude for their never ending support and encouragement during this project.<br />Finally I thank each and everyone who helped me to complete this project.<br />EXECUTIVE SUMMARY<br />Rules and norms of corporate governance are important components of the framework for successful market economies. Although corporate governance can be defined in a variety of ways, generally it involves the mechanisms by which a business enterprise, organised in a limited liability corporate form, is directed and controlled. It usually concerns mechanisms by which corporate managers are held accountable for corporate conduct and performance. Poor corporate governance is widely viewed as one of the structural weaknesses that were responsible for the outbreak of the 1997 Asian crisis. In companies controlled by family owners, these owners could pursue their private interests relatively easily and often at the expense of minority shareholders and firms' profits.Aditya birla chemicals (India) limited one of the premier company for the chlor-alkali.Study on Corporate Disclosure of Aditya Birla chemicals(India) Ltd. with reference of mandatory disclosure described by SEBI for Indian listed companies.<br />The objective of the project is to analyze corporate governance practice of Aditya Birla chemicals(India) Ltd. with reference of mandatory disclosure described by SEBI for Indian companies.  The corporate governance report of the company pertaining to 5 years, viz., 2005-06 to 2009-10 were analysed to know whether the company has followed the regulations relating to mandatory disclosures of SEBI’s clause 49 listing agreement. It is found that the company has followed the mandatory disclosures but yet to do voluntary disclosures.  This project would help Aditya Birla chemicals(India) Ltd. to reach good corporate governance prescribed by SEBI.<br />CONTENT<br />ChapterDescriptionPage no.LETTER FROM THE ORGANIZATIONCERTIFICATEDECLARATIONACKNOWLEDGEMENTEXECUTIVE SUMMARYLIST OF TABLES1INTRODUCTION1.1 INTRODUCTION TO THE TOPIC1.2 NEED FOR THE STUDY1.3 STATEMENT OF THE PROBLEM1.4 OBJECTIVES OF THE STUDY1.5 RESEARCH METHODOLOGY1.6 LIMITATIONS OF THE STUDY1.7 CHAPTERIZATION01-032PROFILE OF THE INDUSTRY2.1 ORGANIZATIONAL OVERVIEW2.2 ADITYA BIRLA CHEMICALS (INDIA) LIMITED04-093CORPORATE GOVERNANCE IN & REGULATORY FRAMEWORK IN INDIA11-284ANALYSIS AND INTERPRETATION29-535SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION54-56BIBILOGRAPHY57<br />    LIST OF TABLES<br />TABLE NO.TITLEPAGE NO.4.1Board of Directors304.2Board meetings314.3Audit committee334.4Shareholders’ Grievance Committee344.5Remuneration Committee344.6Non Executive Directors & fees354.7salary and perquisites paid354.8number of requests / complaints364.9number of requests/complaint for 2005-06 to 2009-10374.10General Shareholder Information384.11Market Price Data394.12Investors – Shareholding patterns404.13Annual general meeting414.14Disclosures424.15Dematerialisation of equity shares474.16Investors-financials484.17Evaluation of status of CG during 2005-06 to 2009-1050<br />CHAPTER 1<br />INTRODUCTION<br />INTRODUCTION <br />,[object Object],NEED FOR THE STUDY<br />The corporate governance practices concentrates on stakeholders protection specially investors protection.Good corporate governance citizenship evidents through good corporate governance practices.Good corporate governance enhances the financial position of the company through ethical means knowing the corporate governance issues in chemical companies is need of ours.<br />STATEMENT OF THE PROBLEM<br /> In view of corporate scandals witnessed during the recent past,the implementation of corporate governance in listed companies as become significant.Hence the present study has been taken upto evaluate whether Aditya Birla Chemicals(India) Limited has followed the corporate governance standards prescribed by SEBI’s clause-49 of listing agreement.<br />1.4 OBJECTIVES OF THE STUDY<br />To analyze corporate governance practice of Aditya Birla chemicals(India) Ltd. with reference of mandatory disclosure described by SEBI for Indian companies.<br />To offer suggestions based on the findings.<br />1.5 RESEARCH METHODOLOGY <br />This is an discriptive research study.It has taken Aditya Birla Chemicals (India) Limited as a case study. It used only Primary & Secondary Data. The primary data were collected from secreterial department of Compny by interview.  The secondary data were collected from company’s annual report,website.The data are analysed discriptive by using cross tabulation and percentage analysis.<br />1.6 PERIOD OF STUDY<br />It includes 2005-06 to 2009-10<br />1.6 LIMITATIONS OF THE STUDY<br />Non availability of certain data with the department, like statutory compliance and shareholders compliances.<br />1.7 CHAPTERIZATION<br />Following is the plan of present study:<br />Chapter I deals with the meaning introduction to the topic, need for the study, statement of problem, objective of the study, period of study, research methodology,limitations of the study. <br />Chapter II presents the profile of the industry<br />Chapter III presents the conceptual framework of the topic<br />Chapter IV analyses and interprets the collected secondary data.<br />Chapter V concludes the findings derived from the present study and the suggestions based on the findings were presented.              <br />CHAPTER 2<br />PROFILE OF THE INDUSTRY <br />2.1 ORGANIZATIONAL OVERVIEW<br />Aditya Birla Chemicals (India) Ltd, is a unit of Aditya Birla Group and one of the leading Chlor Alkali Company in India. The plant has been commissioned in 1984 and located at Garhwa Road, Distt. PALAMAU, State JHARKHAND, India. Company’s detail product range & Installed Capacity:<br />Caustic Soda lye109,500 TPA<br />Liquid Chlorine91,250 TPA<br />Hydrochloric Acid45,625 TPA<br />Sodium Hypo Chlorite1,460 TPA<br />Aluminium Chloride11,680 TPA<br />Stable Bleaching Powder17,520 TPA<br />The manufacturing process of the plant is the latest energy efficient and environment friendly state-of-art Membrane Cell Technology. To meet the requirement of uninterrupted power supply, company has a state-of-art 30 MW Captive Power Plant. Company has implemented SAP R/3 and People Soft System.<br />To meet the heterogeneous business challenges, company has adopted WCM (World Class Management) work culture. Further organization has adopted 40 villages under community development to improve the quality of life in nearby vicinity of the factory.<br />International Applauds<br />ISO 9001:2000:For quality management System<br />ISO 14001:2004:For environment management System<br />SA 8000:2001:For social Accountability<br />OHSAS 18001:1999:For Occupational Health & Safety Assessment                                                                                            Management<br />National Applauds<br />IMC Ramkrishna Bajaj National Quality Certificate of merit<br />Best Responsible care Committed Company Award<br />RC logo<br />FICCI award<br />Planet Award 2005-06<br />Greentech Environment Excellent Gold Award<br />Membership of IONAL Associates<br />Alkali Manufacturers Association Of India (AMAI)<br />Indian Chemical Council(ICC)<br />American Chemistry Council<br />,[object Object]
Aditya Birla Chemicals (India) Limited (formerly Bihar Caustic and Chemicals Limited) was incorporated as a joint venture of the Aditya Birla Group and the Bihar State Industrial Development Corporation. The unit was set up with the objective of catering to the caustic soda requirements of Hindalco Industries Limited, and to contribute towards the economic development of the backward region of Palamau district in Jharkhand.
Commissioned in 1984 with an initial caustic soda capacity of 33,000tpa, the company has since grown to become the leading caustic soda producer in the eastern region of the country. The company had commissioned a 30mw captive power plant in the year 2000 and simultaneously, the caustic plant capacity was enhanced to 51,048tpa. In the year 2006, the capacity was increased to 78,750tpa by converting the mercury cell technology to the more environment-friendly membrane cell technology supplied by world-renowned technology supplier UHDENORA, Germany. Presently, the installed capacity stands at 105,000tpa.
For value addition and effective utilization of chlorine, the company has commissioned a 12,000tpa aluminium chloride plant in the year 2007 and a 17,500tpa stable bleaching powder (SBP) plant in 2008. SBP is marketed under the brand name Shaktiman. Aluminium chloride is the principal catalyst used in the Friedel Craft reaction and widely used in pharmaceuticals, chemical intermediates, agrochemicals, dyestuffs and pigments, hydrocarbon resins, flavours and fragrances. SBP is used in textile mills for bleaching, sanitation, sewage systems, tanning process, organic synthesis and other applications.Our Key People<br />Mr. Kumar Mangalam BirlaChairman, Aditya Birla Group<br />Mrs. Rajshree BirlaChairperson, Aditya Birla Centre for community      Initiatives and Rural Development<br />Mr. Ajay SrinivasanFinancial Services<br />Mr. Askaran Agarwal             Birla Group Trusts & Special Community Projects<br />Dr. Bharat SinghBusiness Review Council(Services Business)<br />Mr. D.D. RathiBusiness Review Council (Services Business)<br />Mr. Debu BhattacharyaMetals<br />Mr. K.K. MaheswariPulp and fibre<br />Mr. Pranab BaruaTextiles and Apparels<br />Mr. Rajiv DubeGroup Corporate Services<br />Mr. Rakesh JainAditya Birla Nuvo<br />Mr. Ravi KastiaTrading, Port and power projects<br />Mr. Himanshu KapaniaTelecom<br />Dr. Santrupt B. MisraCarbon Black Business and Group HR<br />Mr. Shailendra jainChairman, Business Review Council<br />Mr. Thomas VargheseRetail<br />Mr. Lalit NaikChemicals<br />Mr. Tuhin MukherjeeMining and Mineral Resources Development<br />Mr. O.P. PuranmalkaCement<br />Mr. Vikram RaoAcrylic Fibre and Overseas Spinning Business <br />Some global facts about Aditya Birla Group<br />It is the world’s largest aluminium rolling company.<br />It is the world leader in viscose staple fibre.<br />It is one of the three biggest producers of primary aluminium in Asia.<br />It is one of the leading cement producers in India and eighth largest globally.<br />It is the fourth largest producer of carbon black in the world.<br />It is the fourth largest producer of insulators in the world.<br />It is the fifth largest producer of acrylic fibre in the world.<br />Some Indian facts<br />It is the largest premium branded apparel company.<br />It is the second largest producer of viscose filament yarn.<br />It is the second largest in the chlor-alkali sector.<br />It is among the top five cellular operators.<br />It is among the top 10 Indian BPO companies by revenue size.<br />It is among the top 5 asset management and private sector life insurance companies.<br />2.4 VISION, MISSION & VALUES<br />OurVisionTo be a premium global conglomerate with a clear focus on each business.<br />OurMissionTo deliver superior value to our customers, shareholders, employees and society at large.Our Values<br />IntegrityCommitmentPassionSeamlessnessSpeed<br />2.5 Our Valued Customers<br />2.6 Our Products<br />Caustic Soda<br />It is also known as lye and Sodium Hydroxide (NaOH), which is a caustic metallic base. It is used in many industries, mostly as a strong chemical base in the manufacture of pulp and paper, textile, drinking water, soap, and detergents and as a drain cleaner.<br />Liquid Chlorine<br />Chlorine is used in the purification of drinking water, as bleaching agent in pulp, paper and textile industries.<br /> It is also used as raw material / intermediate chemical in the manufacture of PVC plastics, paraffin waxes, synthetic rubbers, pesticides / insecticides, inorganic / organic chemicals, pharmaceuticals etc.<br />Hydrochloric Acid<br />Hydrochloric acid is a solution of hydrogen chloride (HCl) in water that is a highly corrosive, strong mineral acid with many industrial uses. It is found naturally in gastric acid.<br />Sodium Hypochlorite<br />Sodium hypochlorite is a chemical compound with the formula NaClO. Sodium hypochlorite solution, commonly known as bleach, is frequently used as disinfectant or a bleaching agent<br />      4.Aluminium Chloride<br />Aluminium chloride (AlCl3) is the main compound of aluminium and chlorine. It is white, but samples are often contaminated with iron trichloride, giving it a yellow color. The solid has a low melting and boiling point. It is mainly produced and consumed in the production of aluminium metal, but large amounts are also used in other areas of chemical industry. The compound is often cited as a Lewis acid. It is an example of an inorganic compound that quot;
cracksquot;
 at mild temperature, reversibly changing from a polymer to a molecule.<br />Stable Bleaching Powder<br />Calcium hypochlorite is a chemical compound with formula Ca(ClO)2. It is widely used for water treatment and as a bleaching agent (bleaching powder).Calcium hypochlorite is used for the disinfection of drinking water or swimming pool water. It is used as a sanitizer in outdoor swimming pools in combination with a cyanuric acid stabilizer, which reduces the loss of chlorine due to ultraviolet radiation. The calcium content hardens the water and tends to clog up some filters; hence, some products containing calcium hypochlorite also contain anti-scaling agents. Calcium hypochlorite is also an ingredient in bleaching powder, used for bleaching cotton and linen. It is also used in bathroom cleaners, household disinfectant sprays, moss and algae removers, and weed killers.<br />CHAPTER 3<br />CORPORATE GOVERNANCE & REGULATORY FRMEWORK IN INDIA<br />3.1 INTRODUCTION<br />Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In simpler terms it means the extent to which companies are run in an open & honest manner.<br />Corporate governance has three key constituents namely: the Shareholders, the Board of Directors & the Management. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large. The concept of corporate governance identifies their roles & responsibilities as well as their rights in the context of the company. It emphasises accountability, transparency & fairness in the management of a company by its Board, so as to achieve sustained prosperity for all the stakeholders. <br />Corporate governance is a synonym for sound management, transparency & disclosure. Transparency refers to creation of an environment whereby decisions & actions of the corporate are made visible, accessible & understandable. Disclosure refers to the process of providing information as well as its timely dissemination. <br />In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines corporate governance as “An internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity”. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes.<br />Issues involving corporate governance principles include:<br />Internal controls and internal auditors <br />The independence of the entity's external auditors and the quality of their audits<br />Oversight of the preparation of the entity's financial statements <br />Review of the compensation arrangements for the chief executive officer and other senior executives<br />3.2 BACKGROUND<br />As mentioned earlier, the term ‘corporate governance’ is related to the extent to which the companies are transparent & accountable about their business. Corporate governance today has become a major issue of interest in most of the corporate boardrooms, academic circles & even governments around the globe. <br />In the 19th century, state corporation laws enhanced the rights of corporate boards to govern without unanimous consent of shareholders in exchange for statutory benefits like appraisal rights, to make corporate governance more efficient. Since that time and because most large publicly traded corporations in the US are incorporated under corporate administration-friendly Delaware law and because the US's wealth has been increasingly securitized into various corporate entities and institutions, the rights of individual owners and shareholders have become increasingly derivative and dissipated. The concerns of shareholders over administration pay and stock losses periodically has led to more frequent calls for corporate governance reforms.<br /> In the 20th century, in the immediate aftermath of the Wall Street Crash of 1929, legal scholars such as Adolf Augustus Berle, Edwin Dodd, and Gardiner C. Means pondered on the changing role of the modern corporation in society. From the Chicago school of economics, Ronald Coase's quot;
The Nature of the Firmquot;
 (1937) introduced the notion of transaction costs into the understanding of why firms are founded and how they continue to behave. Fifty years later, Eugene Fama and Michael Jensen's quot;
The Separation of Ownership and Controlquot;
 (1983, Journal of Law and Economics) firmly established agency theory as a way of understanding corporate governance: the firm is seen as a series of contracts. Agency theory's dominance was highlighted in a 1989 article by Kathleen Eisenhardt (quot;
Agency theory: an assessment and reviewquot;
, Academy of Management Review).<br />The expansion of US after World War II through the emergence of multinational corporations saw the establishment of the managerial class. Accordingly, the following Harvard Business School management professors published influential monographs studying their prominence: Myles Mace (entrepreneurship), Alfred D. Chandler, Jr. (business history), Jay Lorsch (organizational behavior) and Elizabeth MacIver (organizational behaviour). According to Lorsch and MacIver quot;
Many large corporations have dominant control over business affairs without sufficient accountability or monitoring by their board of directors.quot;
<br />Since the late 1970’s, corporate governance has been the subject of significant debate in the U.S. and around the globe. Bold, broad efforts to reform corporate governance have been driven, in part, by the needs and desires of shareowners to exercise their rights of corporate ownership and to increase the value of their shares and, therefore, wealth. Over the past three decades, corporate directors’ duties have expanded greatly beyond their traditional legal responsibility of duty of loyalty to the corporation and its shareowners. <br />In the first half of the 1990s, the issue of corporate governance in the U.S. received considerable press attention due to the wave of CEO dismissals (e.g.: IBM, Kodak, Honeywell) by their boards. The California Public Employees' Retirement System (CalPERS) led a wave of institutional shareholder activism (something only very rarely seen before), as a way of ensuring that corporate value would not be destroyed by the now traditionally cozy relationships between the CEO and the board of directors (e.g., by the unrestrained issuance of stock options, not infrequently back dated).<br />In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and The Philippines severely affected by the exit of foreign capital after property assets collapsed. The lack of corporate governance mechanisms in these countries highlighted the weaknesses of the institutions in their economies.<br />In the early 2000s, the massive bankruptcies (and criminal malfeasance) of Enron and WorldCom, as well as lesser corporate debacles, such as Adelphia Communications, AOL, Qwest, Arthur Andersen, Global Crossing, Tyco, etc. led to increased shareholder and governmental interest in corporate governance. Because these triggered some of the largest insolvencies, the public confidence in the corporate sector was sapped. The popular perception was that corporate leadership was fraught with greed & excess. Inadequacies & failure of the existing systems, brought to the fore, the need for norms & codes to remedy them.  This resulted in the passage of the Sarbanes-Oxley Act of 2002, (popularly known as Sox) by the United States.<br />In India however, only when the Securities Exchange Board of India (SEBI), introduced Clause 49 in the Listing Agreement, for the first time in the financial year 2000-2001, that the listed companies started embracing the concept of corporate governance. This clause was based on the Kumara Mangalam Birla Committee constituted by SEBI. After these recommendations were in place for about four years, SEBI, in order to evaluate & improve the existing practices, set up a committee under the Chairmanship of Mr. N.R. Narayana Murthy during 2002-2003.At the same time, the Ministry of Corporate Affairs set up a committee under the Chairmanship of Shri. Naresh Chandra to examine the various corporate governance issues. The recommendations of the committee however, faced widespread protests & representations from the industry, forcing SEBI to revise them. <br />Finally, on the 29th October, 2004, SEBI announced the revised Clause 49, which was implemented by the end of the financial year 2004-2005. Apart from Clause 49 of the Listing Agreement, corporate governance is also regulated through the provisions of the Companies Act, 1956. The respective provisions have been introduced in the Companies Act by Companies Amendment Act, 2000.<br />3.3 SCOPE  &  IMPORTANCE OF CORPORATE GOVERNANCE<br />Corporate governance is all about ethics in business. It is about transparency, openness & fair play in all aspects of business operations. The key aspects to corporate governance include:<br />Accountability of Board of Directors & their constituent responsibilities to the ultimate owners- the shareholders.<br />Transparency, i.e. right to information, timeliness & integrity of the information produced.<br />Clarity in responsibilities to enhance accountability.<br />Quality & competence of Directors and their track record.<br />Checks & balances in the process of governance.<br />Adherence to the rules, laws & spirit of codes.<br /> An active & involved board consisting of professional & truly independent directors plays an important role in creating trust between a company & its’ investors and is the best guarantor of good corporate governance.<br />Good corporate governance is integral to the very existence of a company. It is important for the following reasons:<br />Corporate governance ensures that a properly structured Board, capable of taking independent & objective decisions is at the helm of affairs of the company. This lays down the framework for creating long-term trust between the company & external providers of capital.<br />It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience & a host of new ideas.<br />It rationalizes the management & monitoring of risk that a corporation faces globally.<br />Corporate governance emphasises the adoption of transparent procedures & practices by the Board, thereby ensuring integrity in financial reports.<br />It limits the liability of top management & directors, by carefully articulating the decision making process.<br />It inspires & strengthens investors’ confidence by ensuring that there are adequate number of non-executive & independent directors on the Board, to look after the interests & well-being of all the stakeholders.<br />Corporate governance helps provide a degree of confidence that is necessary for the proper functioning of a market economy, as it contemplates adherence to ethical business standards.<br />Finally, globalization of the market place has ushered in an era wherein the quality of corporate governance has become a crucial determinant of survival of corporate. Compatibility of corporate governance practices with global standards has also become an important constituent of corporate success. Thus, good corporate governance is a necessary pre-requisite for the success of Indian corporate.<br />3.4 CLAUSE 49 – MANDATORY REQUIREMENTS<br />,[object Object]
Composition  of Board:
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 .
Where the Chairman of the Board is non- executive directors, at least one third of the Board should comprise of independent directors and in case he is an executive directors, at least half of the Board should comprise of independent directors.
For the purpose of sub – clause (ii) the expression ‘independent director’ shall mean a non executive director of the company who:
Apart from receiving director’s remuneration , does not have any material pecuniary relationships or transactions with the company, its promoters, its directors its senior management or its holding company, its subsidiaries  and associated which many affects independence of the director.
Is not related to promoters or persons occupying managements positions at the board level or at one level below the board;
It  not been  executive or was not partner or an executive during the preceding three years, of any of the following:
Is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:
The statutory audit firm or the internal audit firm that is associated with the company, and ;
The legal firm(s) and consulting firm(s) that have a material association with the company
Is not a material supplier, service provider or customer or a lessor or lessee of the company, which may  affect independence of the directors; and
is not a substantial shareholder of the company i.e.  owning two percent or more of the block of voting shares.
Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors.  However if the Dr. J.J. irani Committee recommendations on the proposed new company law are accepted, then directors, nominated by financial institutions and the government will not be considered independent.
Non executive directors compensation and disclosures:  all fees/ compensation and disclosures: all fees/ compensation , if any paid to non executive directors,  including independent directors, shall be fixed by the Board of Directors and shall require previous approval of shareholders in general meeting. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non- executive directors, including independent directors, in any financial year and aggregate.  However as per SEBI amendment made vide circular SEBI/ CFD/DIL/CG dated 12/1/06 sitting fees paid to non-executive directors as authorized by the Companies Act 1956, would not require the previous approval of shareholders.
Other provisions as to Board and Committees:
The board shall meet at least four times a year, with a maximum time gap of three months between any two meetings.  However SEBI has amended the clause 40 of the listing agreement vide circular SEBI/CFD/DIL/CG dated 12-1-06 as per which the maximum gap between two board meetings has been increased again to 4 months.
A director shall not be a member in more than 10 Audit and /  or Shareholders grievance Committee or act as chairman of more than five Audit Shareholders Grievance committee across all companies in which he is a director.  Furthermore it should e 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.
Code of conduct:
The Board shall lay down a code of conduct for all Board members and senior management of the company.  The code of conduct shall be posted the website of the company,
All Board members and senior management personnel shall affirm compliance with the code on an annual basis.  The Annual report of the company shall contain declaration to this effect signed by CEO.
AUDIT COMMITTEE.
Qualified and Independent Audit Committee:  A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following:
The audit committee shall have minimum three directors as members.   Two thirds of the members of audit committee shall be independent directors.
All members of audit committee shall be financially literate an at least one member shall have accounting or related financial management expertise.
The chairman of the Audit Committee shall be an independent director.
The chairman of the Audit Committee shall be present at annual General Meeting to answer shareholder queries;
The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to the present at the meetings of the committee.  The finance director, head of internal audit and representative of the statutory auditor may be present as invitees for the meeting of the audit committee;
The Company Secretary shall act as the secretary to the committee.
Meeting of Audit Committee:   the audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings.  The quorum shall be either tow members or one third of the members of the audit committee whichever is greater, but there should be minimum of two independent members present.
Powers of Audit Committee:  the audit committee shall have powers:
To investigate any activity within the terms of reference;
To seek information from any employee;
To obtain outside legal or other professional advice;
To secure attendance of outsiders with relevant experts, if any.
Role of audit committee:  the role for 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 to the Board, the appointment re- appointment and if required the replacement or removal of the statutory auditor and the fixation of audit fees.
Approval of payment too statutory auditors for any other services rendered by the statutory auditors.
Reviewing, with the management the quarterly and annual financial statements before submission to the board for approval with reference to Director’s Responsibility statement under section 217 (2AA)k, significant adjustments made in financial statements, compliance with listing requirements, disclosure of any related pending transaction etc.
Reviewing with the management performance of statutory and internal auditor and adequacy of the internal control systems.
Discussion with internal auditors regarding any significant findings including suspected frauds or irregularities and follow up thereon.
Reviewing the findings of any internal investigation by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the board.
Discussion with statutory auditors before the audit commence, about the nature and scope of audit as well as post- audit discussion to ascertain any area of concern.
To look into the reason of substantial defaults in the payments to the depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors.
To review the functioning of the Whistle Blower mechanism, in case the same is existing.
Carrying out any other function as it mentioned in the terms of reference of the Audit Committee.
SUBSIDIARY COMPANIES
At least one independent director on the Board of Director of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company.
The audit committee of the listed holding company shall also review the financial statements, in particular, the investment made by the unlisted subsidiary company.
The minutes of the Board meeting of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company,  the management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transaction and arrangements entered into by the unlisted subsidiary company.
DISCLOSURES
Basis of related party transactions:
A statement in summary form of transactions with related parties shall be placed periodically before the audit committee.
Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee.
Disclosure of Accounting Treatment:  where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.
Board Disclosure- Risk Management: the company shall lay down procedures to inform Board members about the risk assessment and minimization procedures.
Proceeds from public issues, rights issues , preferential issues etc. :   When money is raised through an issue (public issues rights issues, preferential issues etc.), it shall disclose to the Audit committee, the uses/ applications of funds by major category (capital expenditure,, sales and marketing, working capital, etc.),  on a quarterly and annual basis.
Remuneration of Directors :
All pecuniary relationship or transactions of the non- executive directors vis-à-vis the company shall be disclosed in the Annual Report.
Further, certain prescribed disclosures on the remuneration of directors shall be made in the section on the corporation governance of the Annual Report;
The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report.
Non executive directors shall be required to disclose their shareholding (both own or held by/ for other persons on a (beneficial basis) in the listed company in which they proposed to be appointed as directors, prior to their appointment.  These details should be disclosed in the notice to the general meeting called for appointment of such directors.

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Corporate governance

  • 1.
  • 2. Aditya Birla Chemicals (India) Limited (formerly Bihar Caustic and Chemicals Limited) was incorporated as a joint venture of the Aditya Birla Group and the Bihar State Industrial Development Corporation. The unit was set up with the objective of catering to the caustic soda requirements of Hindalco Industries Limited, and to contribute towards the economic development of the backward region of Palamau district in Jharkhand.
  • 3. Commissioned in 1984 with an initial caustic soda capacity of 33,000tpa, the company has since grown to become the leading caustic soda producer in the eastern region of the country. The company had commissioned a 30mw captive power plant in the year 2000 and simultaneously, the caustic plant capacity was enhanced to 51,048tpa. In the year 2006, the capacity was increased to 78,750tpa by converting the mercury cell technology to the more environment-friendly membrane cell technology supplied by world-renowned technology supplier UHDENORA, Germany. Presently, the installed capacity stands at 105,000tpa.
  • 4.
  • 6. 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 .
  • 7. Where the Chairman of the Board is non- executive directors, at least one third of the Board should comprise of independent directors and in case he is an executive directors, at least half of the Board should comprise of independent directors.
  • 8. For the purpose of sub – clause (ii) the expression ‘independent director’ shall mean a non executive director of the company who:
  • 9. Apart from receiving director’s remuneration , does not have any material pecuniary relationships or transactions with the company, its promoters, its directors its senior management or its holding company, its subsidiaries and associated which many affects independence of the director.
  • 10. Is not related to promoters or persons occupying managements positions at the board level or at one level below the board;
  • 11. It not been executive or was not partner or an executive during the preceding three years, of any of the following:
  • 12. Is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following:
  • 13. The statutory audit firm or the internal audit firm that is associated with the company, and ;
  • 14. The legal firm(s) and consulting firm(s) that have a material association with the company
  • 15. Is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the directors; and
  • 16. is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.
  • 17. Nominee directors appointed by an institution which has invested in or lent to the company shall be deemed to be independent directors. However if the Dr. J.J. irani Committee recommendations on the proposed new company law are accepted, then directors, nominated by financial institutions and the government will not be considered independent.
  • 18. Non executive directors compensation and disclosures: all fees/ compensation and disclosures: all fees/ compensation , if any paid to non executive directors, including independent directors, shall be fixed by the Board of Directors and shall require previous approval of shareholders in general meeting. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non- executive directors, including independent directors, in any financial year and aggregate. However as per SEBI amendment made vide circular SEBI/ CFD/DIL/CG dated 12/1/06 sitting fees paid to non-executive directors as authorized by the Companies Act 1956, would not require the previous approval of shareholders.
  • 19. Other provisions as to Board and Committees:
  • 20. The board shall meet at least four times a year, with a maximum time gap of three months between any two meetings. However SEBI has amended the clause 40 of the listing agreement vide circular SEBI/CFD/DIL/CG dated 12-1-06 as per which the maximum gap between two board meetings has been increased again to 4 months.
  • 21. A director shall not be a member in more than 10 Audit and / or Shareholders grievance Committee or act as chairman of more than five Audit Shareholders Grievance committee across all companies in which he is a director. Furthermore it should e 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.
  • 23. The Board shall lay down a code of conduct for all Board members and senior management of the company. The code of conduct shall be posted the website of the company,
  • 24. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual report of the company shall contain declaration to this effect signed by CEO.
  • 26. Qualified and Independent Audit Committee: A qualified and independent audit committee shall be set up, giving the terms of reference subject to the following:
  • 27. The audit committee shall have minimum three directors as members. Two thirds of the members of audit committee shall be independent directors.
  • 28. All members of audit committee shall be financially literate an at least one member shall have accounting or related financial management expertise.
  • 29. The chairman of the Audit Committee shall be an independent director.
  • 30. The chairman of the Audit Committee shall be present at annual General Meeting to answer shareholder queries;
  • 31. The audit committee may invite such of the executives, as it considers appropriate (and particularly the head of the finance function) to the present at the meetings of the committee. The finance director, head of internal audit and representative of the statutory auditor may be present as invitees for the meeting of the audit committee;
  • 32. The Company Secretary shall act as the secretary to the committee.
  • 33. Meeting of Audit Committee: the audit committee should meet at least four times in a year and not more than four months shall elapse between two meetings. The quorum shall be either tow members or one third of the members of the audit committee whichever is greater, but there should be minimum of two independent members present.
  • 34. Powers of Audit Committee: the audit committee shall have powers:
  • 35. To investigate any activity within the terms of reference;
  • 36. To seek information from any employee;
  • 37. To obtain outside legal or other professional advice;
  • 38. To secure attendance of outsiders with relevant experts, if any.
  • 39. Role of audit committee: the role for the audit committee shall include the following:
  • 40. 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.
  • 41. Recommending to the Board, the appointment re- appointment and if required the replacement or removal of the statutory auditor and the fixation of audit fees.
  • 42. Approval of payment too statutory auditors for any other services rendered by the statutory auditors.
  • 43. Reviewing, with the management the quarterly and annual financial statements before submission to the board for approval with reference to Director’s Responsibility statement under section 217 (2AA)k, significant adjustments made in financial statements, compliance with listing requirements, disclosure of any related pending transaction etc.
  • 44. Reviewing with the management performance of statutory and internal auditor and adequacy of the internal control systems.
  • 45. Discussion with internal auditors regarding any significant findings including suspected frauds or irregularities and follow up thereon.
  • 46. Reviewing the findings of any internal investigation by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control system of a material nature and reporting the matter to the board.
  • 47. Discussion with statutory auditors before the audit commence, about the nature and scope of audit as well as post- audit discussion to ascertain any area of concern.
  • 48. To look into the reason of substantial defaults in the payments to the depositors, debenture holders, shareholders (in case of nonpayment of declared dividends) and creditors.
  • 49. To review the functioning of the Whistle Blower mechanism, in case the same is existing.
  • 50. Carrying out any other function as it mentioned in the terms of reference of the Audit Committee.
  • 52. At least one independent director on the Board of Director of the holding company shall be a director on the Board of Directors of a material non listed Indian subsidiary company.
  • 53. The audit committee of the listed holding company shall also review the financial statements, in particular, the investment made by the unlisted subsidiary company.
  • 54. The minutes of the Board meeting of the unlisted subsidiary company shall be placed at the Board meeting of the listed holding company, the management should periodically bring to the attention of the Board of Directors of the listed holding company, a statement of all significant transaction and arrangements entered into by the unlisted subsidiary company.
  • 56. Basis of related party transactions:
  • 57. A statement in summary form of transactions with related parties shall be placed periodically before the audit committee.
  • 58. Details of material individual transactions with related parties which are not in the normal course of business shall be placed before the audit committee.
  • 59. Disclosure of Accounting Treatment: where in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management’s explanation as to why it believes such alternative treatment is more representative of the true and fair view of the underlying business transaction in the Corporate Governance Report.
  • 60. Board Disclosure- Risk Management: the company shall lay down procedures to inform Board members about the risk assessment and minimization procedures.
  • 61. Proceeds from public issues, rights issues , preferential issues etc. : When money is raised through an issue (public issues rights issues, preferential issues etc.), it shall disclose to the Audit committee, the uses/ applications of funds by major category (capital expenditure,, sales and marketing, working capital, etc.), on a quarterly and annual basis.
  • 63. All pecuniary relationship or transactions of the non- executive directors vis-à-vis the company shall be disclosed in the Annual Report.
  • 64. Further, certain prescribed disclosures on the remuneration of directors shall be made in the section on the corporation governance of the Annual Report;
  • 65. The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report.
  • 66. Non executive directors shall be required to disclose their shareholding (both own or held by/ for other persons on a (beneficial basis) in the listed company in which they proposed to be appointed as directors, prior to their appointment. These details should be disclosed in the notice to the general meeting called for appointment of such directors.
  • 67. Management: As part of the directors’ report or as an addition there to a Management Discussion and Analysis report, the following should form part of the Annual Report to the shareholders. This includes discussion on:
  • 68. industry structure and developments.
  • 70. Segment wise or product wise performance
  • 73. Internal control systems and their adequacy
  • 74. Discussion on financial performance with respect to operational performance.
  • 75. Material developments in Human resources/ industrial Relations front including number of people employed.
  • 77. In case of the appointment of a new directors or reappointment of a director the shareholders must be provided with the following information:
  • 78. A brief resume of the director
  • 79. Nature of his expertise in specific functional areas;
  • 80. Names of companies in which the persons also holds directorship and the membership Committees of the Board; and
  • 81. Shareholding of non – executive directors.
  • 82. A board committee under the chairmanship of a non- executive director shall be formed to specifically look into the redressal of shareholder and investor complaints like transfer of shares, non receipt of declared dividends etc. this committee shall be designated as ‘Shareholders/Investors Grievance Committee’.
  • 83. To expedite the process of share transfer, 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. There delegated authority shall attend to share transfer formalities and least once in a fortnight.
  • 85. Through the amendment made by SEBI vide circular SEBI /CFD/DIL CG DATED 12-1-06, in Clause 49 of the Listing Agreement, certification of internal controls and internal control system
  • 86. CFO/CEO would be for the purpose of financial reporting. Thus the CEO, i.e. the Managing Director or Manager appointed in terms of the Companies Act, 1956 and the CFO i.e. the whole – time Finance Director or any other Person heading the finance function discharging that function shall certify to the Board that:
  • 87. They have reviewed financial statements and the cash flow statement for the year and that to the best of their knowledge and belief:
  • 88. These statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;
  • 89. These statements together present a true and fair view of the company’s affairs and are in compliance within existing accounting standards, applicable laws and regulations.
  • 90. There are, to the best of their knowledge and belief, no transactions entered into by the company during the year which fraudulent, illegal or volatile of the company’s code of conduct.
  • 91. They accept responsibility for establishing and maintaining internal controls and they have evaluated the effectiveness of the internal control system of the company pertaining to financial reporting and they have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if an, of which they are aware and the steps they have taken or propose to take to rectify these deficiencies
  • 92. They have indicated to the auditors and the Audit Committee significant changes in internal control over financial reporting during the year, significant fraud of which they have become aware and the involvement there in if any, of the management or an employee having a significant role in the company’s internal control system over financial reporting.
  • 93. REPORT ON CORPORATE GOVERNANACE
  • 94. There shall be separate section on Corporate Governance in Annual Reports of Company with a detailed compliance report on Corporate Governance. Non compliance of any mandatory requirement of this clause with reason there of and the extent to which the non- mandatory requirements have been adopted should be specifically highlighted.
  • 95. The companies shall submit a quarterly compliance report to the stock exchange within 15 days from the close of quarter as per the format given in
  • 96. Annexure IB. the report shall be signed either by the Compliance Officer or the Chief Executive Officer of the company.
  • 98.
  • 99.
  • 100. Equitable treatment of shareholders: The OECD is concerned with protecting minority shareholders’ rights by setting up systems that keep insiders, including managers and directors, from taking advantage of their roles. Insider trading, for example, is explicitly prohibited and directors should disclose any material interest regarding transactions.
  • 101. The role of stakeholders in corporate governance: the OECD recognizes that there are other stakeholders in companies’ ion addition to shareholders. Banks, bondholders and workers, for example, are important stakeholders in the way in which companies perform and make decision. The OECD guidelines lay out several general provisions for protecting stake holder’s interests.
  • 102. Disclosure and transparency; The OECD lays down a number of provisions for the disclosure and communication of key facts about the company ranging from financial details to governance structures including the board of directors and their remuneration. The guidelines also specify that independent auditors in accordance with high quality standards should perform annual audits.
  • 103.
  • 104.
  • 106.
  • 107. No Special Resolution was passed through postal ballot at the last Annual General Meeting.
  • 108.
  • 109. As per Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors.
  • 110. In the case of a company with a non-executive Chairman, at least one-third of the board should be independent directors.
  • 111. It would be necessary for chief executives and chief financial officers to establish and maintain internal controls and implement remediation and risk mitigation towards deficiencies in internal controls, among others.
  • 112. Clause VI (ii) of Clause 49 requires all companies to submit a quarterly compliance report to stock exchange in the prescribed form. The clause also requires that there be a separate section on corporate governance in the annual report with a detailed compliance report.
  • 113. A company is also required to obtain a certificate either from auditors or practicing company secretaries regarding compliance of conditions as stipulated, and annex the same to the director's report.
  • 114. The clause mandates composition of an audit committee; one of the directors is required to be "financially literate".
  • 115. Clause 49, when it was first added, was intended to introduce some basic corporate governance practices in Indian companies and brought in a number of key changes in governance and disclosures (many of which we take for granted today).
  • 116. It specified the minimum number of independent directors required on the board of a company.
  • 117. The setting up of an Audit committee, and a Shareholders’ Grievance committee, among others, were made mandatory as were the Management’s Discussion and Analysis (MD&A) section and the Report on Corporate Governance in the Annual Report, and disclosures of fees paid to non-executive directors.
  • 118. A limit was placed on the number of committees that a director could serve on.
  • 119. In late 2002, SEBI constituted the Narayana Murthy Committee to assess the adequacy of current corporate governance practices and to suggest improvements. Based on the recommendations of this committee, SEBI issued a modified Clause 49 on October 29, 2004 (the ‘revised Clause 49’) which came into operation on January 1, 2006.
  • 120. The revised Clause 49 has suitably pushed forward the original intent of protecting the interests of investors through enhanced governance practices and disclosures.
  • 121.
  • 129. Books
  • 131. Arya P. P. Tandon B. B. Vashint A. K.
  • 134. Corporate Governance Putting Investors first
  • 135. Scott C. Newquist, Max B. Russell