Corporate Governance: Mandatory Policies

A company incorporated under the Companies Act, 2013 is required to mandatorily formulate policies, procedures and mechanisms (“Policies”) in order to ensure effective corporate governance.

This note focusses on the various key Policies that a company is required to frame under various laws.

Certain Policies do not apply to all companies - the note indicates these clearly. Broadly, such Policies are then optional and in the best practice area for exempted entities.

I. Applicable to companies under the Companies Act, 2013 (“Table 1”)

Sr. No.	Policy	​Relevant provision	Who has to prepare?
	Corporate Social Responsibility Policy	Section 135 of the Companies Act, 2013	Every company having: a. net worth of INR 500 Crores (Indian Rupees Five Hundred Crores) or more; or b. turnover of INR 1000 Crores (Indian Rupees One Thousand Crores) or more or a net profit of INR 5 Crores (Indian Rupees Five Crores) or more during the immediately preceding financial year.
2.	Nomination and Remuneration Policy	Section 178 read with Rule 6 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014	a. Every listed company; b. Public companies having paid up share capital of INR 10 Crores (Indian Rupees Ten Crores) or more; c. Public companies having turnover of INR 100 Crores (Indian Rupees One Hundred Crores) rupees or more; or d. Public companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding INR 50 Crores (Indian Rupees Fifty Cr ores). However, an unlisted public company (which is a joint venture, wholly owned subsidiary, or a dormant company) is not required to have this policy.
3.	Vigil mechanism	Section 177 read with Rule 7 of the Companies (Meetings of Board and its Powers) Rules, 2014	a. Every listed company; b. Companies which accept deposits from the public; and c. Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.
4.	Policy for formal annual evaluation by the board of directors of its own performance, that of its committees and individual director	Section 134 (3)(p) of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014	a. Every listed company; and b. every other public company having a paid-up share capital of INR 25 Crores (Indian Rupees Twenty-Five Crores) or more calculated at the end of the preceding financial year.
5.	Risk management policy	Section 134(3)(n) of the Companies Act, 2013	All companies
6.	Proper systems to ensure compliance with the provisions of all applicable laws to the company	Section 134(5)(f) of the Companies Act, 2013	All companies

II. Applicable to companies under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) and Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) (“Table 2”)

This applies to all companies with listed securities which include listed equity securities, listed convertible securities, and listed non-convertible securities. Table 2 will, therefore for example, also apply to a private company with listed debentures.

Please note that companies having non-convertible debt securities with outstanding value of such debt securities being INR 500 Crores (Indian Rupees Five Hundred Crores) or more should prepare Policies in Tables 1 and 2 along with all Policies in Table 3 (except Policies mentioned in item numbers 10 and 11 of Table 3)[1].

Sr. No.	Policy	Relevant provision
	An effective vigil mechanism/ whistle blower policy	Regulation 4(2)(d) of the LODR Regulations.
2.	A policy for preservation of documents	Regulation 9 of the LODR Regulations
3.	Code of conduct for inquiry in case of leak of unpublished price sensitive information or suspected leak of unpublished price sensitive information	Regulation 9A(5) of the PIT Regulations.
4.	Code of Practices and Procedures for fair disclosure of unpublished price sensitive information	Regulation 8(1) read with Schedule A of the PIT Regulations
5.	Code of Conduct to regulate, monitor and report trading by designated persons and immediate relatives thereof	Regulation 9(1) read with Schedule B and Schedule C of the PIT Regulations

III. Applicable to companies which have listed ‘specified securities’[2] under LODR Regulations (“Table 3”)

This applies exclusively to companies issuing equity shares and convertible securities.

Sr. No.	Policy	Relevant provision
	A policy for determining a ‘material’ subsidiary. “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds 10 % (ten per cent) of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.	Explanation to Regulation 16(1)(c) of the LODR Regulations
2.	Plans for orderly succession for appointments to the board of directors and to the senior management.	Regulation 17(4) of the LODR Regulations
3.	Code of conduct for all members of board of directors and senior management	Regulation 17(5) of the LODR Regulations
4.	Procedures to inform members of board of directors about risk assessment and minimization procedures	Regulation 17(9) of the LODR Regulations
5.	Nomination and Remuneration Policy relating to, the remuneration of the directors, key managerial personnel and other employees Note: This has to be prepared by nomination and remuneration committee and approved by board of directors	Regulation 19(4) read with Entry (1) of Para A of Part D of Schedule II of the LODR Regulations
6.	A policy on diversity of board of directors Note: This has to be prepared by nomination and remuneration committee and approved by board of directors	Regulation 19(4) read with Entry (3) of Para A of Part D of Schedule II of the LODR Regulations
7.	Risk management plan Note: This has be prepared by risk management committee and approved by board of directors.	Regulation 21(4) read with Entry (3) of Para C of Part D of Schedule II of the LODR Regulations
8.	A vigil mechanism/whistle blower policy for directors and employees to report genuine concerns	Regulation 22 of the LODR Regulations
9.	A policy on materiality of related party transactions and on dealing with related party transactions	Regulation 23 of the LODR Regulations
10.	A policy for determination of materiality for disclosure of events or information under Regulation 30(4) of LODR Regulations.	Regulation 30 read with Part A of Schedule III of the LODR Regulations
11	Dividend distribution policy	Regulation 43 of the LODR Regulations Note: Only applicable to the top 1000 listed entities based on market capitalization (calculated as on March 31 of every financial year)

Note: The compliance with the corporate governance provisions as specified in Regulations 17, 19, 21, 22, and 23 (i.e., item numbers 2-9 in Table 3) does not apply, in respect of (a) listed entity having paid up equity share capital not exceeding INR 10 Crores (Indian Rupees Ten Crores) and net worth not exceeding INR 25 Crores (Indian Rupees Twenty-Five Crores), as on the last day of the previous financial year; and listed entity which has listed its specified securities on the SME Exchange.[3]

II. There are other laws which require mandatory Policies particularly the following:

Sr. No.	Policy	Relevant Provision	Who has to prepare?
	An internal policy on prohibition, prevention and redressal of sexual harassment at the workplace	Section 19 of Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, Act read with Rule 13 of the Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Rules, 2013.	All companies/workplaces
2.	Adequate procedures to prevent persons associated with the company/commercial organisation from bribing public servants	Section 9 of the Prevention of Corruption Act, 1988.	All companies/ commercial organisations

III. Disclaimer: Please note that the list for general awareness purposes and does not constitute professional legal advice. If you have any questions, please contact srishti.ojha@veristlaw.com or umang.arya@veristlaw.com.

Footnotes

[1] Regulation 15(1A) of the LODR Regulations. [2] Regulation 2(1)(zl) of LODR Regulations defines ‘specified securities’ means ‘equity shares’ and convertible securities as defined under SEBI ICDR Regulations. [3] Regulation 15(2)(a) of the LODR Regulations.