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Clause 49 of Listing Agreement

"Clause 49" is the popular name for the governance contract between a Company and the Stock Exchange. (It is now physically located in SEBI LODR Regulations, but everyone still calls the spirit "Clause 49").

Major Provisions

1. Board Independence

(As discussed, 33% or 50% Independent Directors).

2. CEO/CFO Certification

  • The CEO and CFO must sign a certificate stating:
    • "We have reviewed the financial statements."
    • "They are true and fair."
    • "We accept responsibility for internal controls."
  • Importance: They can no longer say "I didn't know" (The Satyam excuse).

3. Quarterly Compliance Report

  • Companies must send a report to the Stock Exchange every quarter confirming they followed all governance rules.

4. Whistleblower Policy

  • Mandatory for listed companies to have a functional mechanism.

5. Related Party Transactions (RPT)

  • Strict approval needed if the company buys/sells services to the Promoter's other companies. (Audit Committee must approve).
Note

Listing Agreement: If a company violates Clause 49, the Stock Exchange can suspend its trading or delist it. This is the ultimate punishment (investors get trapped).

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