Disclosure requirements - Board's (Directors') Report and Annual Report -

02 April 2015

Disclosures to be made in Directors' Report / Annual Report – Companies Act, 2013 and Revised Clause 49 of the Listing Agreement

Please visit the blog for complete information: https://cssarada.blogspot.in/

Section 134 in the Companies Act, 2013 supersedes the provisions of Section 217 of the Companies Act, 1956 in regard to the disclosures in the Board’s Report. The disclosures to be given in the Board’s Report have been provided under various sections of the Companies Act, 2013 and also in the revised Clause 49 of the Listing Agreement.

The Companies Act, 2013 and the revised Clause 49 of the Listing Agreement have mandated some additional disclosures to the shareholders including Extract of Annual Return, Statement of Declaration by the Independent Directors, Policy on Related Party Transactions, provisions related to disclosure of remuneration of directors and key managerial personnel.

The gist of the disclosures required to be made in the Board’s Report under Companies Act, 2013 and Clause 49 of the Listing Agreement is as under:

Companies Act, 2013 and Rules thereupon

ESOP related [Section 67(3)]
Reasons for voluntary revision, if any, in the financial statements [Proviso to Sec 131(1)]
Section 134 (3) There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include

a. the extract of the annual return [Section 92 (3)];

b. number of meetings of the Board;

c. Directors’ Responsibility Statement; [Section 134 (5)]

d. a statement on declaration given by independent directors [section 149 (6)];

e. company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director [section 178 (1) & 178 (3)]

f. Explanations or comments to adverse qualifications, reservation or adverse remark or disclaimer made by the statutory auditor in his report; and by the company secretary in practice in his Secretarial audit report [Section 204(3)]

g. particulars of loans, guarantees or investments [section 186]

h. particulars of contracts or arrangements with related parties [section 188 (1)] in Form AOC-2 [Chapter IX - Rule 8.4].

i. the state of the company’s affairs;

j. the amounts, if any, which it proposes to carry to any reserves;

k. the amount, if any, which it recommends should be paid by way of dividend;

l. material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the financial statements relate and the date of the report;

m. the conservation of energy, technology absorption, foreign exchange earnings and outgo, in such manner as may be prescribed;

n. a statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

o. the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year;

p. statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;

q. such other matters as may be prescribed

The Board's report shall disclose the composition of the Corporate Social Responsibility Committee [Section 135 (2)]
If the company fails to spend CSR amount, the Board shall, in its report specify the reasons for not spending the amount [Section 135 (5)]
Disclosure of contents of CSR Policy as per Annexure to the CSR Rules, 2014
Statement containing salient features of financial statements (in case of Abridged financial statements)
Disclosure in case of reappointment of independent directors [Section 149(10)],
Composition of Audit Committee and where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed in such report along with the reasons therefor [Section 177(8)]
Details of establishment of vigil mechanism shall be disclosed by the company on its website and in the Board’s report. [Section 177(10)]
Nomination and Remuneration Policy [Section 178(4)]
Every contract or arrangement entered into under related party Transaction along with the justification for entering into such contract or arrangement. [Section 188(2)]
the ratio of the remuneration of each director to the median employee’s remuneration [Section 197(12)]
Disclosure of receipt of commission by director who is in receipt of any commission from the company from holding or subsidiary company [Section 197(14)]
Secretarial audit report to be annexed to Board Report [Section 204(1)]
Rules – Chapter IX

The report of the Board shall contain the following information and details (Chapter IX - Rule 8.3):

Conservation of energy-

the steps taken or impact on conservation of energy;
the steps taken by the company for utilising alternate sources of energy;
the capital investment on energy conservation equipments;

Technology absorption-

the efforts made towards technology absorption;
the benefits derived like product improvement, cost reduction, product development or import substitution;
in case of imported technology (imported during the last three years reckoned from the beginning of the financial year)-
1. the details of technology imported;
2. the year of import;
3. whether the technology been fully absorbed;
4. if not fully absorbed, areas where absorption has not taken place, and the reasons thereof; and
the expenditure incurred on Research and Development.

Foreign exchange earnings and Outgo-

The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.

a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors. (Chapter IX - Rule 8.4)

In addition to information under Rule 8.4, the report shall also contain (Chapter IX - Rule 8.5)

the financial summary or highlights;
the change in the nature of business, if any;
the details of directors or key managerial personnel who were appointed or have resigned during the year;
the names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate companies during the year;
the details relating to deposits, covered under Chapter V of the Act,-
1. accepted during the year;
2. remained unpaid or unclaimed as at the end of the year;
3. whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved-

(i) at the beginning of the year;

(ii) maximum during the year;

(iii) at the end of the year;

the details of deposits which are not in compliance with the requirements of Chapter V of the Act;
the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;
the details in respect of adequacy of internal financial controls with reference to the Financial Statements.

Rules – Chapter XIII

Every listed company shall disclose in the Board’s report-

the ratio of the remuneration of each director to the median remuneration of the employees of the company for the financial year;
the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year;
the percentage increase in the median remuneration of employees in the financial year;
the number of permanent employees on the rolls of company;
the explanation on the relationship between average increase in remuneration and company performance;
comparison of the remuneration of the Key Managerial Personnel against the performance of the company;
variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;
average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration;
comparison of the each remuneration of the Key Managerial Personnel against the Performance of the company;
the key parameters for any variable component of remuneration availed by the directors;
the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year; and
affirmation that the remuneration is as per the remuneration policy of the company.

Explanation.- For the purposes of this rule.

(i) the expression “median” means the numerical value separating the higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging all the observations from lowest value to highest value and picking the middle one;

(ii) if there is an even number of observations, the median shall be the average of the two middle values.

Employees drawing remuneration not less than Rs.60 lakhs [earlier section 217(2A)]. The statement referred to in sub-rule (2) shall also indicate –

designation of the employee;
remuneration received;
nature of employment, whether contractual or otherwise;
qualifications and experience of the employee;
date of commencement of employment;
the age of such employee;
the last employment held by such employee before joining the company;
the percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above; and
whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager:

Listing Agreement

Training of Independent Directors - details of such training imparted shall be disclosed in the Annual Report.

The Annual Report of the company to contain a declaration signed by the CEO affirming compliance with the Code of Conduct by directors and senior management on an annual basis.

Ø The company shall formulate a policy for determining ‘material’ subsidiaries and such policy shall be disclosed to Stock Exchanges and in the Annual Report.

Ø The company shall disclose the policy on dealing with Related Party Transactions on its website and also in the Annual Report.

Ø All pecuniary relationship or transactions of the non-executive directors vis-à-vis the company shall be disclosed in the Annual Report.

Ø In addition to the disclosures required under the Companies Act, 2013, the following disclosures on the remuneration of directors shall be made in the section on the corporate governance of the Annual Report:

o All elements of remuneration package of individual directors summarized under major groups, such as salary, benefits, bonuses, stock options, pension etc.

o Details of fixed component and performance linked incentives, along with the performance criteria.

o Service contracts, notice period, severance fees.

o Stock option details, if any - and whether issued at a discount as well as the period over which accrued and over which exercisable.

Ø The company shall disclose the number of shares and convertible instruments held by non-executive directors in the annual report.

Ø Management Discussion and Analysis report should form part of the Annual Report to the shareholders.

Ø Disclosure of relationships between directors inter-se shall be made in the Annual Report, notice of appointment of a director, prospectus and letter of offer for issuances and any related filings made to the stock exchanges where the company is listed.

Ø The company shall obtain a certificate from either the auditors or practicing company secretaries regarding compliance of conditions of corporate governance as stipulated in this clause and annex the certificate with the directors’ report, which is sent annually to all the shareholders of the company.

Ø The details of establishment of vigil mechanism shall be disclosed by the company on its website and in the Board’s report.

Ø The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.