Corporate Governance, is a set of standards, which aims to improve the Companys image, efficiency, effectiveness and social responsibilities.

According to KUMAR MANGALAM BIRLA COMMITTEE The fundamental objective of Corporate Governance is the enhancement of the shareholders value, keeping in view the interest of other stakeholders. In fact, Corporate Governance is an Endeavour to become a model corporate citizen. Aristotle said: "it is not the same thing to be a good man and a good citizen." One may be a good man because he is nice to his near and dear ones. But unless one is nice to the large body of the unseen people (i.e., Society), he is not a good citizen. Thus, in essence, Corporate Governance translate into conducting the affairs of a Company in a manner that ensures fairness to customers, employees, shareholders, fund providers, suppliers, the regulators and the society as a whole. The Companies (Amendment) Act, 2000 has introduced good Corporate Governance leading to more transparent, ethical and fair business practice to be adopted by Corporate at large. The following provisions may be noted: Section 217(2AA) deals with Directors Responsibility Statement to be included in the Directors Report. Section 292A provides for constitution of Audit Committee. Section 274(1)(g) debars a person to act as a Director of a public Company if default in filing Annual Return/Accounts for continuous three financial years or repayment of deposits/ interest/debentures/dividend has taken place, and such failure continues for a period of one year or more. Section 275 provides for appointment of a person as a Director in a maximum of 15 companies.

Clause 49 of the Listing Agreement of the Stock Exchanges also provides for promoting and raising the standards of Corporate Governance in respect of listed companies. DIRECTORS 217(2AA)) The Directors Report shall now include a DRS on the following aspects: 1. Applicable accounting standards have been followed in preparation of financial statements along with proper reasons/explanations for material departures. 2. Accounting policies as prescribed are consistently applied. 3. Judgments and estimates are made in a reasonable and prudent manner to ensure true and fair view of the state of affairs and of the Profit & Loss Account. 4. Adequate accounting records are maintained in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities. 5. Financial statements have been drawn up on a going concern basis. SALIENT FEATURES OF SECTION 292A Every listed Public Company and unlisted companies having a paid-up capital of at least Rs. 5 crores shall constitute a Committee of the Board to be known as Audit Committee. The provisions in respect of the same are as follows: 1. The Committee shall have at least three (3) members. RESPONSIBILITY STATEMENT (DRS) (SECTION

2. Two-thirds (2/3) of the members shall be non-executive directors other than managing director or whole-time director. 3. The Board of Directors shall prescribe the Committees terms of reference in writing. 4. The members of Audit Committee shall elect a Chairman from amongst themselves. 5. The statutory auditor, the internal auditor and director-in- charge of finance shall attend every meeting of the Audit Committee but shall not have the right to vote. 6. Half-yearly and Annual accounts will be discussed by the Audit Committee with auditors before presenting the same to the Board. 7. The Audit Committee shall have the right to investigate any matter covered by the terms of reference. 8. The recommendations of the Audit Committee on any matter relating to financial management will be binding on the Board. Though the Board is a superior body, yet it cannot override the recommendation of the Committee. 9. In case the Board does not accept the recommendations of the Audit Committee, it will have to record the reasons and communicate the same to the shareholders. 10.The Chairman of the Audit Committee shall attend the annual general meeting to provide clarifications on matters relating to audit. 11.The composition of the Audit Committee shall be disclosed in the annual report of the Company.

12.The minutes of the Audit Committee are required to be placed before the next Board Meeting. 13.Provision regarding quorum of the Audit Committee, needs to be laid down by the Board while constituting the Committee, If not spelt out, the whole of the committee, it appears must meet. [Liverpool Household Stores Association Ltd. (1890) 59 LJ Ch 616, ref. Companies Act by A. Ramaiya page 2620 of 2001 edn.] 14.Any default in complying the said provisions may entail prosecution up to one year or fine up to Rs. 50,000 or both. The prosecution lies against the Company and every officer of the Company who is in default. The offence is compoundable u/s 621A. DISQUALIFICATION u/s 274(1)(g) A person would not be eligible to be appointed as a Director if such person is a Director of a public company which 1. Has not filed its annual returns/accounts for continuous 3 years commencing on/after 1-4-1999; or 2. Has failed to repay its deposits/interest/debenture redemption on due date or failed to pay dividend and such failure continues for more than 1 year. Such a Director shall not be eligible to be appointed as a Director of any other public company for a period of 5 years from the date of the above referred default.

This restrictive provision shall not be applicable to: 1. A special Director appointed by BIFR under section 10(4) of SICA. 2. Default of privately placed bonds/debentures of public Financial Institutions (Circular No. 5/200 dt. 14-1-2003). CLAUSE 49 of the LISTING AGREEMENT The provisions in clause 49 of the Listing Agreements as required by the Stock Exchanges are not identical with the above provisions. It seems that all listed companies having a paid-up capital of minimum Rs. 5 cores will have to follow two sets of requirements. Detailed provisions of clause 49 are available on websites of Stock Exchanges (www.bseindia.com).

N.R Narayan Murthy Committee

With the belief that the efforts to improve corporate governance standards in India must continue because these standards themselves were evolving in keeping with the market dynamics, the Securities and Exchange Board of India (SEBI) had constituted a Committee on Corporate Governance in 2002 , in order to evaluate the adequacy of existing corporate governance practices and further improve these practices. It was set up to review Clause 49, and suggest measures to improve corporate governance standards. The SEBI Committee was constituted under the Chairmanship of Shri N. R. Narayana Murthy, Chairman and Chief Mentor of Infosys Technologies Limited.

The Committee comprised members from various walks of public and professional life. This included captains of industry, academicians, public accountants and people from financial press and industry forums. The terms of reference of the committee were to:

review the performance of corporate governance; and determine the role of companies in responding to rumour and other price sensitive information circulating in the market, in order to enhance the transparency and integrity of the market.

The issues discussed by the committee primarily related to audit committees, audit reports, independent directors, related parties, risk management, directorships and director compensation, codes of conduct and financial disclosures. The committee's recommendations in the final report were selected based on parameters including their relative importance, fairness, accountability,

transparency, ease of implementation, verifiability and enforceability. The key mandatory recommendations focused on:

strengthening the responsibilities of audit committees; improving the quality of financial disclosures, including those related to related party transactions and proceeds from initial public offerings;

requiring corporate executive boards to assess and disclose business risks in the annual reports of companies;

introducing responsibilities on boards to adopt formal codes of conduct; the position of nominee directors; and

stock holder approval and improved disclosures relating to compensation

paid to non-executive directors. Non-mandatory recommendations included:

moving to a regime where corporate financial statements are not qualified; instituting a system of training of board members; and Evaluation of performance of board members.

As per the committee, these recommendations codify certain standards of 'good governance' into specific requirements, since certain corporate responsibilities are too important to be left to loose concepts of fiduciary responsibility. Their implementation through SEBI's regulatory framework will strengthen existing governance practices and also provide a strong incentive to avoid corporate failures. The Committee noted that the recommendations contained in their report can be implemented by means of an amendment to the Listing Agreement, with changes made to the existing clause 49.