New Clause Top 5 Amendments!
Jun 12, clarifications on the matters relating to pecuniary relationships, appointment and tenure of independent directors (IDs). These issues and. An independent director in relation to a company, means a director other than a (c) who has or had no pecuniary relationship with the company, its holding. Defining independent directors: The way forward As far as the criteria relating to pecuniary relationship of directors for listed companies is.
Pecuniary insurance can be a smart investment for protecting your business as it covers different types of unforeseen financial losses. Defining Pecuniary Insurance Having your own business can be precarious especially when unforeseen events may expose it to many ups and downs, either external or internal.
But back up can be available during uncertain times.
Pecuniary Insurance: Definition & Types | catchsomeair.us
One protection available to business owners and something worth checking out is pecuniary insurance. Pecuniary stems from the Latin word ''pecunia'' which means ''money.
So, any money lost under conditions specified in your policy will be reimbursed once a claim is made to the company who issued your policy.INDEPENDENT DIRECTORS ISSUE
All financial losses must be reported to your insurance company according to your plan specifications. Types of Pecuniary Insurance Coverage Pecuniary insurance covers a small group of casualties related to financial loss.
Some of these are: Financial loss due to theft or an accident -- An example would be losing money stored inside your business due to a natural disaster such as a fire or hurricane, or theft of your cash on the way to the bank. Financial loss due to embezzlement or fraud -- This is usually due to money lost from criminal activity within the company. An example would be a dishonest employee, perhaps a secretary or an accountant.
In furtherance of the enactment of the Act, the Securities and Exchange Board of India "SEBI" on April 17, modified the Listing Agreement to bring it in line with the provisions of the Act and the Rules which would be applicable to all listed companies with effect from October 01, However, as detailed hereinafter, the amendments impose more stringent restrictions on listed companies than those contemplated under the Act.
MCA Clarification on Independent Directors
In a further attempt to harmonize the provisions, SEBI on September 15, notified further amendments to the Listing Agreement "September Amendment" to suitably align it with the provisions of the Act.
Vide the September Amendment, SEBI has clarified that compliance with the provisions of Clause 49 shall not be mandatory, for the time being, in respect of the following class of companies: It is essential to note that with respect to the exception carved out under point i SEBI has explicitly specified that when the provisions of Clause 49 become applicable to a company at a later date, such company shall comply with the requirements of Clause 49 within six months from the date on which the provisions became applicable.
The new provisions under the Act and the Listing Agreement entail discussion, especially because as has been detailed hereinafter, two sets of overlapping and at times contradictory requirements have been brought into force.
The way forward Section 2 47 of the Act defines an independent director to mean the director referred to under Section 5 of the Act. In what may have been an oversight, it is in fact Section 6 that defines an independent director to mean a director other than a managing director or a whole-time director or a nominee director who conforms to the criteria mentioned therein. One of the crucial criteria that warrants discussion is one set out under section 6 c of the Act.
The said section states that independent directors shall have or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two preceding financial years or during the current financial year.
Additionally, another criteria prescribed under section 6 d of the Act is that an independent director's relatives should not have or had pecuniary relationship amounting to two percent or more of the gross turnover or total income or fifty lakhs or such higher amount as may be prescribed, whichever is lower, during the two preceding financial years or during the current financial year.
With regard to which transactions will be covered under the ambit of 'pecuniary relationship', for the purposes of section 6 c of the Act, the Ministry of Corporate Affairs "MCA" has issued a clarification3 "MCA Clarification".
The MCA Clarification states that a transaction entered into by an independent director with the company concerned, which is at par with a transaction with any member of the general public and at the same price as is payable by such member of public, will not be covered under the purview of 'pecuniary relationship' and is as such exempted from the provisions of Section 6 c of the Act.
It is interesting to note that the reasoning provided by MCA for this exemption is that since transactions in the ordinary course of business at arm's length price are excluded from the purview of related party transactions, the same logic must apply to adjudge a pecuniary relationship.
It is pertinent to note that this exemption shall not apply to listed companies i. Additionally, pecuniary relationship does not include receipt of remuneration, from one or more companies, by way of fee, reimbursement of expenses for participation in the board and other meetings and profit related commission approved by the members, in accordance with the provisions of the Act.
What is interesting to note however is that the MCA Clarification only elucidates the stance on the pecuniary relationship covered under section 6 c of the Act but excludes the transactions covered under section 6 d i. This suggests that while the 'arm's length test' would be applicable to an independent director, the same will not be applicable to the relative of the independent director.
This indicates a lacuna in law and requires to be addressed. The Act also requires the individuals to submit a self-declaration confirming that they have satisfied the criteria prescribed under the Act. The amended Clause 49 of the Listing Agreement defines independent director to mean a non- executive director, other than a nominee director, who possesses certain criteria, which have been elaborated in the Listing Agreement and which are mostly similar to those laid down under the Act and the Rules.
In addition to the criteria laid down under the Act and the Rules, the Listing Agreement states that an independent director or any of his relatives shall not be a material supplier, service provider or customer or a lessor or lessee of the company.
Further, an age qualifier has been prescribed to say that independent director will not be less than 21 years of age. It is worthwhile to note that the age qualifier of 21 years has been prescribed under the Act only for whole time directors, managers and managing directors6. This appears to be a blatant omission on part of the legislators.
As far as the criteria relating to pecuniary relationship of directors for listed companies is concerned, pursuant to the September Amendment, pecuniary relationship is now preceded by 'material'.
This appears to be a watering down of the provision for listed companies which may owe its addition to the fact that the MCA Clarification does not apply to listed companies and the arm's length exemption is not applicable to listed companies. However, material has not been defined, nor any rationale given as to why this addition has been brought into force. Irani dated May 31, Inan expert committee constituted under the chairmanship of Dr.
Irani "Committee" dealt with the concept of independent directors when discussing the issue of Management and Board Governance. The Report outlined certain requisites when attempting to define independent directors, one of which was that the independent director should not have material pecuniary relationship with the company, promoters, directors, senior management, holding company, subsidiary and associate companies.
What would amount to a material transaction, was clarified in the Report as below: