MOST IMMEDIATE

No. 18(8)/2005-GM
Government of India
Ministry of Heavy Industries and Public Enterprises
Department of Public Enterprises
Block No.14, CGO Complex,
Lodi Road, New Delhi - 110003
Dated, the 14th May, 2010

OFFICE MEMORANDUM

Subject: Guidelines on Corporate Governance for Central Public Sector

Enterprises (CPSEs)

The undersigned is directed to state that the Guidelines on Corporate

Governance for CPSEs were issued in June, 2007 for an experimental phase of
one year. The CPSEs have implemented these Guidelines, which were
voluntary in nature, for the full year 2008-09.

2. The Government has reviewed the above matter and in light of

experiences gained and also the need to adopt good corporate governance
practices in CPSEs, decided to continue these Guidelines on a mandatory
basis with minor modifications.

3. The revised Guidelines on Corporate Governance for CPSEs are available

on DPE website (url- http://dpe.nic.in/newsite/gcgcpse2010.pdf).

4. All administrative Ministries/Departments are requested to take note of

the above and issue suitable directions to all CPSEs under their respective
administrative jurisdiction to comply with the revised Guidelines on Corporate
Governance on a mandatory basis and also to submit quarterly progress
reports with regard to compliance in the prescribed format within 15 days from
the close of each quarter.

5. The Administrative Ministries are also requested to consolidate the

information obtained from the CPSEs and furnish a comprehensive report to
the Department of Public Enterprises by 31 st May of every financial year on the
status of compliance of Corporate Governance Guidelines.

6. This issues with the approval of Minister of Heavy Industries & Public
Enterprises. ..~

~ IlfJ:'t:J
(Rakesh Sarwal)
Joint Secretary to the Goverrtrnent of India
Tel: 2436-3411
To,

Secretaries of all administrative Ministries/Departments

.... 2
 - 2-

Copy to :- Chief Executives of all CPSEs

Copy also to :-

(i) Secretary, Department of Personnel & Training, North Block, New Delhi.
(ii) Secretary, Ministry of Corporate Affairs, Shastri Bhavan, New Delhi.
(iii)Secretary, Department of Expenditure, North Block, New Delhi.
(iv)Secretary, Planning Commission, Yojna Bhavan, New Delhi.
(v) Prime Minister's Office (Ms. Pallavi Jain, Director), South Block, New
Delhi.
(vi)Shri K.L. Sharma, Director (Cabinet), Rashtrapati Bhavan, New Delhi -
w.r.t. Cabinet Secretariat communication tio.] 14/CM/2010(i) dated
29.3.2010.
(vii) PS to Minister (HI & PE)
(viii) PS to MOS (HI & PE)
(ix) PS to Secretary (PE)
(x) PS to Secretary(BRPSE)
(xi)PS to AS & FA (HI & PEl
(xii) PS to Adviser (PE)

fe ,c..O'"
(Rakesh Sarwal)
Joint Secretary to the Government ofIndia
 Guidelines on
Corporate Governance
for Central Public Sector Enterprises
2010

Government of India
Ministry of Heavy Industries and Public
Enterprises
Department of Public Enterprises
Block 14, CGO Complex, Lodi Road,
New Delhi – 110 003

Website: www.dpe.nic.in
May 2010

1
 Contents
Chapter Subject Page
1 Introduction 3
2 Applicability of Guidelines 5
3 Board of Directors 6
4 Audit Committee 11
5 Remuneration Committee 16
6 Subsidiary Companies 17
7 Disclosures 18
8 Report, Compliance and Schedule of Implementation 21

Annexes
I Guidelines on Composition of Board of Directors of CPSEs 22
II Guidelines on Composition of Board of Directors of listed 27
CPSEs
III Definition of term „relative‟ 29
IV Information to be placed before Board of Directors 30
V Suggested list of items to be included in the Code of 31
Conduct
VI Model Code of Business Conduct and Ethics for Board 32
Members and Senior Management
VII Suggested list of items to be included in the Annual 42
Report of CPSEs
VIII Format of Quarterly Compliance Report by CPSEs to 44
nodal Administrative Ministries/Departments

2
 CHAPTER 1 - INTRODUCTION

1.1 Corporate Governance involves a set of relationships between a

company‟s management, its Board, its shareholders and other stakeholders.
Corporate Governance provides a principled process and structure through
which the objectives of the company, the means of attaining the objectives and
systems of monitoring performance are also set. Corporate Governance is a set
of accepted principles by management of the inalienable rights of the
shareholders as a true owner of the corporation and of their own role as
trustees on behalf of the shareholders. It is about commitment to values, ethical
business conduct, transparency and makes a distinction between personal and
corporate funds in the management of a company.

1.2 There are about 250 Central Public Sector Enterprises (CPSEs). Majority
of these CPSEs, including Maharatnas, Navratnas and Miniratnas, are earning
profit and have improved their financial performance over the years. In the
context of the policy of the government to grant more autonomy to the CPSEs
and encourage them to access the capital markets for their fund requirement,
Corporate Governance has become even more important. Under the recently
introduced Maharatna Scheme, CPSEs are expected to expand international
operations and become global giants, for which effective Corporate
Governance is imperative.

1.3 These guidelines on Corporate Governance are formulated with the

objective that the CPSEs follow the guidelines in their functioning. Proper
implementation of these guidelines would protect the interest of shareholders
and relevant stakeholders.

1.4 The Department of Public Enterprises (DPE) had issued guidelines on

composition of Board of Directors of Central Public Sector Enterprises (CPSEs)
in 1992 (Annex-I). According to these guidelines at least one-third of the
Directors on the Board of a CPSE should be non-official Directors. The
Maharatna, Navratna and Miniratna schemes provide that exercise of the
enhanced powers delegated to these CPSEs is subject to the condition that their
Boards are professionalised by inducting adequate number of non-official
Directors, with minimum of four in case of Maharatna, Navratnas and
minimum of three in case of Miniratnas. The schemes for Maharatna, Navratna
and Miniratna CPSEs also provide for setting up of Audit Committees.

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1.5 In November 2001, DPE issued further guidelines on the composition of
Board of Directors of listed CPSEs (Annex-II). It provided that the number of
Independent Directors should be at least one-third of the Board if the
Chairman is non-executive, and not less than 50% if the Board has an executive
Chairman. Relevant extracts of Clause 49 of the Listing Agreement with Stock
Exchanges issued by Securities and Exchange Board of India (SEBI) forms part
of the said guidelines.

1.6 To bring in more transparency and accountability in the functioning of

CPSEs, the Government in June, 2007 introduced, for an experimental period
of one year, the Guidelines on Corporate Governance for CPSEs. These
Guidelines were of voluntary nature. Since the issue of these guidelines, the
CPSEs have had the opportunity to implement them for the whole of the
financial year 2008-09. These Guidelines have been modified and improved
upon based on the experience gained during the experimental period of one
year. The Government have felt the need for continuing the adoption of good
Corporate Governance Guidelines by CPSEs for ensuring higher level of
transparency and decided to make these Guidelines mandatory and applicable
to all CPSEs.

1.7 Apart from these instructions of DPE, the CPSEs are governed by the
Companies Act, 1956 and regulations of various authorities like Comptroller
and Auditor General of India (C&AG), Central Vigilance Commission (CVC),
Administrative Ministries, other nodal Ministries, etc. The Right to Information
Act 2005 is also applicable to the CPSEs. The CPSEs fall under the definition of
„State‟ as provided in Article 12 of the Constitution of India. Further, some
principles of Corporate Governance are already in vogue in public sector
because (a) the Chairman, Managing Director and Directors are appointed
independently through a prescribed procedure; (b) Statutory auditors are
appointed independently by the C&AG; (c) Arbitrary actions, if any, of the
Management can be challenged through writ petitions; (d) Remuneration of
Directors, employees, etc. are determined on the basis of recommendations of
Pay Committees constituted for this purpose; etc.

*****

4
 CHAPTER 2 - APPLICABILITY OF GUIDELINES

2.1 For the purpose of evolving Guidelines on Corporate Governance,

CPSEs have been categorised into two groups, namely, (i) those listed on the
Stock Exchanges; (ii) those not listed on the Stock Exchanges.

CPSEs listed on Stock Exchanges:

2.2 In so far as listed CPSEs are concerned, they have to follow the SEBI
Guidelines on Corporate Governance. In addition, they shall follow those
provisions in these Guidelines which do not exist in the SEBI Guidelines and
also do not contradict any of the provisions of the SEBI Guidelines.

Non-listed CPSEs:

2.3 Each CPSE should strive to institutionalize good Corporate Governance

practices broadly in conformity with the SEBI Guidelines. The listing of the
non-listed CPSEs on the stock exchanges may also be considered within a
reasonable time frame to be set by the Administrative Ministry concerned in
consultation with the CPSEs concerned. The non-listed CPSEs shall follow the
Guidelines on Corporate Governance given in the subsequent chapters, which
are mandatory.

2.4 The guidelines on Corporate Governance for listed and unlisted CPSEs
are being dealt in the succeeding chapters under the following headings.

 Board of Directors
 Audit Committee
 Remuneration Committee
 Subsidiary Companies
 Disclosures
 Report, Compliance and Schedule of Implementation

*****

5
 CHAPTER 3 - BOARD OF DIRECTORS

3.1 Composition of Board

3.1.1 The Board of Directors of the company shall have an optimum

combination of Functional, Nominee and Independent Directors.

3.1.2 The number of Functional Directors (including CMD/MD) should not

exceed 50% of the actual strength of the Board.

3.1.3 The number of Nominee Directors appointed by Government/other

CPSEs shall be restricted to a maximum of two.

3.1.4 In case of a CPSE listed on the Stock Exchanges and whose Board of
Directors is headed by an Executive Chairman, the number of Independent
Directors shall be at least 50% of Board Members; and in case of all other CPSEs
(i.e. listed on Stock Exchange but without an Executive Chairman, or not listed
CPSEs), at least one-third of the Board Members should be Independent
Directors. The expression „Independent Director‟ shall mean a part-time
Director of the company who:

(a) apart from receiving Director‟s remuneration, does not have any material
pecuniary relationship or transaction with the company, its Directors, its
senior management or its holding company, its subsidiaries and associates
which may affect independence of the Director;
(b) is not related to persons occupying management positions at the Board
level or at one level below the Board;
(c) has not been a senior executive or managerial personnel of the company
in the immediately preceding three financial years;
(d) Is not a partner or an executive, or was not a partner or an executive
during the preceding three years, of any of the following:
i) the statutory audit firm or the internal audit firm or tax audit firm or
energy audit firm or management audit firm or risk audit firm or
insurance audit firm that is associated with the company, and
ii) the panel advocate(s) or legal firm(s) or consultant(s) and consulting
firm(s) or expert(s) that have a material association with the
company.

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(e) is not a material supplier, service provider or customer or a lessor or lessee
of the company, which may affect independence of the director;
(f) is not a substantial shareholder of the company i.e. owning two percent or
more of the block of voting shares.

Explanation
For the purposes of the sub-clause 3.1.4:
(i) “Associate” shall mean a company which is an “associate” as defined in
Accounting Standard 23 (AS-23), “Accounting for Investments in Associates in
Consolidated Financial Statements”, issued by the Institute of Chartered
Accountants of India.
(ii) “Senior management” shall mean personnel of the company who are
members of its core management team excluding Board of Directors. Normally,
this would comprise all members of management one level below the
Functional Directors, including all functional heads.
(iii) “Relative” shall mean “relative” as defined in Section 2(41) and Section
6 read with Schedule IA of the Companies Act, 1956 (Extract from the
Companies Act is at Annex III).

3.1.5 Nominee Directors appointed by an institution which has invested in or

lent to the company shall be deemed to be Independent Directors.

Explanation:

“Institution” for this purpose means a public financial institution as defined in

Section 4A of the Companies Act, 1956 or a “corresponding new bank” as
defined in section 2(d) of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 or the Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1980 [both Acts].”

3.2 Part-time Directors’ compensation and disclosures

All fees/compensation, if any, paid to part-time Directors, including

Independent Directors, shall be fixed by the Board of Directors subject to the
provisions in the DPE guidelines and the Companies Act, 1956.

3.3 Other provisions as to Board and Committees

3.3.1 Number of Board meetings:- The Board shall meet at least once in every
three months and at least four such meetings shall be held every year. Further,
the time gap between any two meetings should not be more than three months.

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The minimum information to be made available to the Board is given in
Annex-IV.

3.3.2 A Director shall not be a member in more than 10 committees or act as

Chairman of more than five committees across all companies in which he is a
Director. Furthermore it should be a mandatory annual requirement for every
Director to inform the company about the committee positions he occupies in
other companies and notify changes as and when they take place.

Explanation:

a. For the purpose of considering the limit of the committees on which a

Director can serve, all public limited companies, whether listed or not,
shall be included.
b. For the purpose of reckoning the limit under this sub-clause,
Chairmanship/membership of the Audit Committee and the
Shareholders‟ Grievance Committee alone shall be considered.

3.3.3 Compliance of Laws to be reviewed:- The Board shall periodically

review compliance reports of all laws applicable to the company, prepared by
the company as well as steps taken by the company to rectify instances of non-
compliances.

3.4 Code of Conduct

3.4.1 The Board shall lay down a code of conduct for all Board members and
senior management of the company. The code of conduct shall be circulated
and also posted on the website of the company.

3.4.2 All Board members and senior management personnel shall affirm
compliance with the code on an annual basis. The Annual Report of the
company shall contain a declaration to this effect signed by its Chief Executive.

3.4.3 Guidelines and policies evolved by the Central Government with

respect to the structure, composition, selection, appointment and service
conditions of Boards of Directors and senior management personnel shall be
strictly followed.

3.4.4 There shall be no extravagance in expenditure on the part of Board

members and senior management personnel. CPSEs executives shall be
accountable for their performance in conformity with established norms of

8
conduct.

Explanation: For this purpose, the term “senior management” shall mean
personnel of the company who are members of its core management team,
excluding Board of Directors. Normally, this would comprise all members of
management one level below the Functional Directors, including all functional
heads.

3.4.5 Any external/internal changes made from time to time, due to addition
of or amendment to laws/regulatory rules, applicable to CPSEs, need to be
dealt with carefully by the respective Boards/senior management personnel.

3.4.6 A suggested list of items to be included in the code of conduct is given at

Annex-V. Further, to assist the CPSEs in the formulation of the code, a model
Code of Business Conduct and Ethics for Board Members and Senior
Management is given at Annex-VI.

3.5 Functional Role Clarity between Board of Directors and Management

A clear definition of the roles and the division of responsibilities between the
Board and the Management is necessary to enable the Board to effectively
perform its role. The Board should have a formal statement of Board Charter
which clearly defines the roles and responsibilities of the Board and individual
Directors. The Board of each CPSE may be encouraged to articulate its
Corporate Governance objectives and approach (within the broad parameters
of these guidelines and the general perception of business risk) to satisfy the
expectations of its majority shareholders and other stakeholders.

3.6 Risk Management

Enterprise risk management helps management in achieving CPSE's

performance and profitability targets. It helps to ensure effective reporting and
compliance with laws and regulations, and helps avoid damage to the entity‟s
reputation and associated consequences. Considering the significance of risk
management in the scheme of corporate management strategies, its oversight
should be one of the main responsibilities of the Board/Management. The
Board should ensure the integration and alignment of the risk management
system with the corporate and operational objectives and also that risk
management is undertaken as a part of normal business practice and not as a
separate task at set times.

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3.7 Training of Directors

The company concerned shall undertake training programme for its new Board
members (Functional, Government, Nominee and Independent) in the business
model of the company including risk profile of the business of company,
responsibility of respective Directors and the manner in which such
responsibilities are to be discharged. They shall also be imparted training on
Corporate Governance, model code of business ethics and conduct applicable
for the respective Directors.

****

10
 CHAPTER 4 - AUDIT COMMITTEE

4.1 Qualified and Independent Audit Committee

A qualified and independent Audit Committee shall be set up, giving the terms
of reference.

4.1.1 The Audit Committee shall have minimum three Directors as members.
Two-thirds of the members of audit committee shall be Independent Directors.

4.1.2 The Chairman of the Audit Committee shall be an Independent Director.

4.1.3 All members of Audit Committee shall have knowledge of financial

matters of Company, and at least one member shall have good knowledge of
accounting and related financial management expertise.

Explanation 1: The term “knowledge of financial matters of Company” means

the ability to read and understand basic financial procedures and statements
i.e. balance sheet, profit and loss account, and statement of cash flows.

Explanation 2: A member will be considered to have accounting and related

financial management expertise if he or she possesses experience in finance or
accounting, or requisite professional certification in accounting, or any other
comparable experience or background which results in the individual‟s
financial sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with financial oversight
responsibilities.

4.1.4 The Chairman of the Audit Committee shall be present at Annual

General Meeting to answer shareholder queries; provided that in case the
Chairman is unable to attend due to unavoidable reasons, he may nominate
any member of the Audit Committee.

4.1.5 The Audit Committee may invite such of the executives, as it considers
appropriate (and particularly the head of the finance function) to be present at
the meetings of the Committee. The Audit Committee may also meet without
the presence of any executives of the company. The Finance Director, Head of
Internal Audit and a representative of the Statutory Auditor may be specifically
invited to be present as invitees for the meetings of the Audit Committee as
may be decided by the Chairman of the Audit Committee.

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4.1.6 The Company Secretary shall act as the Secretary to the Audit
Committee.

4.2 Role of Audit Committee: The role of the Audit Committee shall
include the following:

4.2.1 Oversight of the company‟s financial reporting process and the

disclosure of its financial information to ensure that the financial statement is
correct, sufficient and credible.

4.2.2 Recommending to the Board the fixation of audit fees.

4.2.3 Approval of payment to statutory auditors for any other services

rendered by the statutory auditors.

4.2.4 Reviewing, with the management, the annual financial statements

before submission to the Board for approval, with particular reference to:
a. Matters required to be included in the Directors‟ Responsibility
Statement to be included in the Board‟s report in terms of clause (2AA)
of section 217 of the Companies Act, 1956;
b. Changes, if any, in accounting policies and practices and reasons for the
same;
c. Major accounting entries involving estimates based on the exercise of
judgment by management;
d. Significant adjustments made in the financial statements arising out of
audit findings;
e. Compliance with legal requirements relating to financial statements;
f. Disclosure of any related party transactions; and
g. Qualifications in the draft audit report.

4.2.5 Reviewing, with the management, the quarterly financial statements

before submission to the Board for approval.

4.2.6 Reviewing, with the management, performance of internal auditors and

adequacy of the internal control systems.

4.2.7 Reviewing the adequacy of internal audit function, if any, including the
structure of the internal audit department, staffing and seniority of the official
heading the department, reporting structure, coverage and frequency of
internal audit.

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4.2.8 Discussion with internal auditors and/or auditors any significant
findings and follow up there on.

4.2.9 Reviewing the findings of any internal investigations by the internal

auditors/auditors/agencies into matters where there is suspected fraud or
irregularity or a failure of internal control systems of a material nature and
reporting the matter to the Board.

4.2.10 Discussion with statutory auditors before the audit commences, about
the nature and scope of audit as well as post-audit discussion to ascertain any
area of concern.

4.2.11 To look into the reasons for substantial defaults in the payment to the
depositors, debenture holders, shareholders (in case of non payment of
declared dividends) and creditors.

4.2.12 To review the functioning of the Whistle Blower Mechanism.

4.2.13 To review the follow up action on the audit observations of the C&AG
audit.

4.2.14 To review the follow up action taken on the recommendations of

Committee on Public Undertakings (COPU) of the Parliament.

4.2.15 Provide an open avenue of communication between the independent

auditor, internal auditor and the Board of Directors

4.2.16 Review all related party transactions in the company. For this purpose,
the Audit Committee may designate a member who shall be responsible for
reviewing related party transactions.

Explanation: The term “related party transactions” shall have the same
meaning as contained in the Accounting Standard 18, issued by the Institute of
Chartered Accountants of India.

4.2.17 Review with the independent auditor the co-ordination of audit efforts
to assure completeness of coverage, reduction of redundant efforts, and the
effective use of all audit resources.

4.2.18 Consider and review the following with the independent auditor and

13
the management:
-The adequacy of internal controls including computerized information
system controls and security, and
-Related findings and recommendations of the independent auditor and
internal auditor, together with the management responses.

4.2.19 Consider and review the following with the management, internal
auditor and the independent auditor:
-Significant findings during the year, including the status of previous
audit recommendations
-Any difficulties encountered during audit work including any
restrictions on the scope of activities or access to required information,

Explanation: If the company has set up an Audit Committee pursuant to

provision of the Companies Act, the said Audit Committee shall have such
additional functions/features as contained in these guidelines.

 Carrying out any other function as is mentioned in the terms of

reference of the Audit Committee.

4.3 Powers of Audit Committee

Commensurate with its role, the Audit Committee should be invested by the
Board of Directors with sufficient powers, which should include the following:

(i) To investigate any activity within its terms of reference.

(ii) To seek information on and from any employee.
(iii) To obtain outside legal or other professional advice, subject to the
approval of the Board of Directors.
(iv) To secure attendance of outsiders with relevant expertise, if it considers
necessary.
(v) To protect whistle blowers.

4.4 Meeting of Audit Committee

The Audit Committee should meet at least four times in a year and not more
than four months shall elapse between two meetings. The quorum shall be
either two members or one third of the members of the Audit Committee
whichever is greater, but a minimum of two independent members must be
present.

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4.5 Review of information by Audit Committee

The Audit Committee shall review the following information:

 Management discussion and analysis of financial condition and results

of operations;
 Statement of related party transactions submitted by management;
(iii) Management letters / letters of internal control weaknesses issued by
the statutory auditors;
(iv) Internal audit reports relating to internal control weaknesses;
(v) The appointment and removal of the Chief Internal Auditor shall be
placed before the Audit Committee; and
(vi) Certification/declaration of financial statements by the Chief
Executive/Chief Finance Officer.

*****

15
 CHAPTER 5 – REMUNERATION COMMITTEE

5.1 Each CPSE shall constitute a Remuneration Committee comprising of at

least three Directors, all of whom should be part-time Directors (i.e Nominee
Directors or Independent Directors). The Committee should be headed by an
Independent Director. CPSE will not be eligible for Performance Related Pay
unless the Independent Directors are on its Board. Remuneration Committee
will decide the annual bonus/variable pay pool and policy for its distribution
across the executives and non unionized supervisors, within the prescribed
limits.

*****

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 CHAPTER 6 - SUBSIDIARY COMPANIES

6.1 At least one Independent Director on the Board of Directors of the

holding company shall be a Director on the Board of Directors of its subsidiary
company.

6.2 The Audit Committee of the holding company shall also review the
financial statements of its subsidiary company.

6.3 The minutes of the Board meetings of the subsidiary company shall be
placed at the Board meeting of the holding company. The management should
periodically bring to the attention of the Board of Directors of the holding
company, a statement of all significant transactions and arrangements entered
into by its subsidiary company.

Explanation: For the purpose of these guidelines, only those subsidiaries

whose turnover or net worth is not less than 20% of the turnover or net worth
respectively of the Holding company in the immediate preceding accounting
year may be treated as subsidiary companies.

*****

17
 CHAPTER 7 - DISCLOSURES

7.1 Transactions

7.1.1 A statement in summary form of transactions with related parties in the

normal and ordinary course of business shall be placed periodically before the
Audit Committee.

7.1.2 Details of material individual transactions with related parties, which

are not in the normal and ordinary course of business, shall be placed before
the Audit Committee.

7.1.3 Details of material individual transactions with related parties or others,

which are not on an arm‟s length basis should be placed before the Audit
Committee, together with Management‟s justification for the same.

7.2 Accounting Standards

7.2.1 Where in the preparation of financial statements, a treatment different

from that prescribed in an Accounting Standard has been followed, the fact
shall be disclosed in the financial statements, together with the management‟s
explanation in the Corporate Governance Report as to why it believes such
alternative treatment is more representative of the true and fair view of the
underlying business transaction.

7.2.2 The Companies Act, 1956 as well as many other statutes require that
financial statements of an enterprise should give a true and fair view of its
financial position and working results. That requirement is implicit even in the
absence of a specific detailed provision to this effect. However, what
constitutes a true and fair view has not been defined either in the Companies
Act, 1956 or in any other statute. The Accounting Standards as well as other
transactions of the Institute of Chartered Accountants of India on accounting
matters seek to prescribe the accounting principles and the methods of
applying these principles in preparation and presentation of financial
statements so that they give a true and fair view.

7.2.3 Consolidated financial statements present financial information about

the parent company, its subsidiaries, its associates and joint ventures as an
economic entity to show the economic resources controlled by the group, the
obligation of the group and the results the group achieved with its resources,

18
which is not determinable from individual financial statements of parent,
subsidiaries, associates and joint ventures. All CPSEs shall prepare
consolidated financial statements as per Accounting Standards, namely, AS21,
AS23 and AS27 issued by the Institute of Chartered Accountants of India
(ICAI) in relation to the Consolidation of Financial Statements.

7.2.4 Many CPSEs provide groups of products and services or operate in

geographical areas that are subject to differing rates of profitability,
opportunities for growth, future prospects, and risks which may not be
determinable from the aggregated data. Reporting of segment information is
widely regarded as necessary for meeting the needs of users of financial
statements. Hence, all CPSEs are required to publish segment wise profit and
loss as per Accounting Standard 17 “Segment Reporting” issued by ICAI.

7.3 Board Disclosures – Risk management

7.3.1 The company shall lay down procedures to inform Board members
about the risk assessment and minimization procedures. These procedures
shall be periodically reviewed to ensure that executive management controls
risk through means of a properly defined framework. Procedure will be laid
down for internal risk management also.

7.3.2 The Board should implement policies and procedures which should
include:
(a) staff responsibilities in relation to fraud prevention and
identification
(b) responsibility of fraud investigation once a fraud has been identified
(c) process of reporting on fraud related matters to management
(d) reporting and recording processes to be followed to record
allegations of fraud
(e) requirements of training to be conducted on fraud prevention and
identification.

7.4 Remuneration of Directors

7.4.1 All pecuniary relationship or transactions of the part-time Directors vis-

à-vis the company shall be disclosed in the Annual Report.

7.4.2 Further the following disclosures on the remuneration of Directors shall

be made in the section on the Corporate Governance of the Annual Report.
a. All elements of remuneration package of all the directors i.e. salary,

19
 benefits, bonuses, stock options, pension, etc.
b. Details of fixed component and performance linked incentives, along
with the performance criteria.
c. Service contracts, notice period, severance fees.
d. Stock option details, if any – and whether issued at a discount as well as
the period over which accrued and over which exercisable.

7.5 Management

7.5.1 As part of the Directors‟ Report or as an addition thereto, a Management

Discussion and Analysis Report should form part of the Annual Report. This
Management Discussion and Analysis should include discussion on the
following matters within the limits set by the company‟s competitive position:

i. Industry structure and developments

ii. Strength and weakness
iii.Opportunities and Threats
iv. Segment–wise or product-wise performance
v. Outlook
vi. Risks and concerns
vii.Internal control systems and their adequacy
viii.Discussion on financial performance with respect to operational
performance
ix. Material developments in Human Resources, Industrial Relations front,
including number of people employed.
x. Environmental Protection and Conservation, Technological
conservation, Renewable energy developments, Foreign Exchange
conservation
xi. Corporate social responsibility

7.5.2 Senior management shall make disclosures to the board relating to all
material financial and commercial transactions, where they have personal
interest that may have a potential conflict with the interest of the company (e.g.
dealing in company shares, commercial dealings with bodies, which have
shareholding of management and their relatives, etc.)

Explanation: For this purpose, the term “senior management” shall mean
personnel of the company who are members of its core management team
excluding Board of Directors. Normally, this would comprise all members of
management one level below the Functional Directors, including all functional
heads.
*****

20
 CHAPTER 8 - REPORT, COMPLIANCE AND
SCHEDULE OF IMPLEMENTATION

8.1 Report on Corporate Governance

There shall be a separate section on Corporate Governance in each Annual

Report of company, with details of compliance on Corporate Governance. The
suggested list of items to be included in the report on Corporate Governance is
in Annex-VII.

8.2 Compliance

8.2.1 The company shall obtain a certificate from either the auditors or
practicing Company Secretary regarding compliance of conditions of
Corporate Governance as stipulated in these Guidelines and Annexes. The
aforesaid certificate with the Directors‟ Report, which is sent annually to all the
shareholders of the company, should also be included in the Annual Report.

8.2.2 Chairman‟s speech in Annual General Meeting (AGM) should also carry
a section on compliance with Corporate Governance guidelines/norms and
should form part of the Annual Reports of the concerned CPSE.

8.2.3 The grading of CPSEs may be done by DPE on the basis of the
compliance with Corporate Governance guidelines/norms.

8.3 Schedule of implementation

These Guidelines on Corporate Governance are now mandatory. The CPSEs

shall submit quarterly progress reports, within 15 days from the close of each
quarter, in the format (Annex VIII) to respective Administrative Ministries/
Departments. The Administrative Ministries will consolidate the information
obtained from the CPSEs and furnish a comprehensive report to the DPE by
31st May of every financial year on the status of compliance of Corporate
Governance Guidelines during the previous financial year by the CPSEs under
their jurisdiction.

8.4 DPE will, from time to time, make suitable modifications to these
Guidelines in order to bring them in line with prevailing laws, regulations,
acts, etc., DPE may also issue clarifications to the concerned Administrative
Ministries/CPSEs on issues relating to the implementation of these Guidelines.

******

21
 ANNEX-I

GUIDELINES ON COMPOSITION OF BOARD OF DIRECTORS OF CPSEs

I. Composition of Board of Directors of Public Sector Enterprises.

The question of Composition of the Board of Directors of PSEs has been

considered from time to time and various guidelines have been issued in this
regard by the Bureau of Public Enterprises. The Members of the Board of PSEs
generally consist of the following three categories:–

i. Functional Directors:– These are full time operational Directors responsible

for day to day functioning of the enterprise. The Economic Administrative
Reform Commission (EARC) had recommended that each Board should have
an adequate number of Functional Directors on it. This was considered by the
Govt. and the Bureau of Public Enterprises had issued guidelines in 1984 that
the posts of Director (Finance) and Director (Personnel) be created in all
Schedule „A‟ and Schedule „B‟ enterprises and on a selective basis in Schedule
„C‟ Companies. Apart from these two functions, the enterprises could have
representation at Board level for other disciplines such as production,
marketing, project, planning etc. It is, however, observed that these guidelines
are not being followed by the Administrative Ministries while constituting the
Boards of PSEs. While in some cases the Boards are functioning without a
single Functional Director, in others there is preponderance of such Directors.

ii. Government Directors:– These are appointed by the Administrative

Ministries and are generally the officers dealing with the concerned enterprise.
In most cases there are two such Directors on a Board; the Joint Secretary or
Additional Secretary dealing with particular enterprise and the Financial
Adviser of the Ministry. The question of representation of Government
Directors on the Boards of PSEs was examined by the Arjun Sengupta
Committee and following its recommendation, the Bureau of Public
Enterprises have issued guidelines in 1986 that the Administrative Ministry
concerned should not have more than one nominee Director on the Board of a
PSE. In case of PSEs engaged in trading or dealing with important and
exclusive items the number of Government Directors could be two. It is,
however, noticed that in actual practice the number of Government Directors
on the Boards of PSEs continues to be large.

iii. Non-Official Directors:– The induction of Non-Official Directors on the

Boards of PSEs has been considered essential by various Committees and
Commissions in order to make the Boards more professional. They are to be
drawn from the public men, technocrats, management experts and consultants,
and professional managers in industry and trade with a high degree of proven
ability. The Bureau of Public Enterprises have issued guidelines in 1983 that the
number of such Directors on a Board should be one-third of its total strength.

22
This input is considered very important as it plays a complementary role in
providing professional and managerial advice to the Board. It has, however,
been the experience that the vacancies of these Directors are not filled up to
stipulated levels in many enterprises by the Ministries.

2. The Department of Public Enterprises has recently considered the

question of professionalization of the Boards of PSEs in pursuance of the New
Industrial policy Statement made in the parliament on 24th July, 1991 and it
has been decided that the composition of the Boards of Directors in PSEs
should be broadly on following lines:–

(A) Functional Directors:

Every Board should have some full time Functional Directors. The
number of such Directors on a Board should not exceed 50% of the actual
strength of the Board.
i. In cases where the number of Functional Directors on the Board is more
than the 50% of its actual strength (not sanctioned strength),
Administrative Ministries will immediately undertake a review of the
strength of the Board in consultation with Department of Public
Enterprises and PESB.
ii. On such Boards where the posts of Functional Directors do not exist,
Administrative Ministries will take immediate steps to create such posts
in accordance with the prescribed guidelines.

(B) Government Directors:

The number of the Government Directors on the Board of Directors of an
enterprise should not exceed one-sixth of the actual strength of the Board.
i. It will be preferable to have only one Government Director from the
concerned Administrative Ministry on each Board. The choice of the
nominee Director would vest with the Secretary of the concerned
Department.
ii. In case of PSEs where it is considered essential to give representation
on the Boards to other concerned Government
agencies/Ministries/State Governments, only one representation from
the Group could also be appointed on the Board as part-time
Government Director.
iii. The number of Government Directors on a Board should in no case
exceed two.

(C) Non official Directors

i. The number of Non-Official Part-time Directors on a Board should be at
least one-third of its actual strength. Wherever there is under
representation of such Directors on the Board the concerned Ministries
should take immediate steps to fill up the vacancies to stipulated level.
ii. A Panel of suitable persons who could be considered for appointment as
Non-Official Part-Time Director on the Boards of PSEs will be
maintained centrally by Department of Public Enterprises. This Panel

23
 will be prepared in consultation with PESB and the Secretary of the
concerned Administrative Ministry.

(DPE O.M. No. 18 (6)/91-GM dated 16th March, 1992.)

II. Composition of Board of Directors of Public Sector Enterprises.

Reference is invited to this Department‟s O.M. of even number dated the
16th March, 1992 on the above mentioned subject. In para 2 (B) (ii) of the said
O.M., it was, inter-alia, mentioned that the choice of the Nominee Director
would vest with the Secretary of the concerned Department. The matter was
reconsidered in this Department and it has now been decided that the choice of
the Nominee Director would vest with the administrative Ministry of the
concerned Department.

(DPE O.M. No. 18 (6)/91-DPE (GM) dated 13th November, 1995)

III. Age of retirement of part-time Chairmen and criteria for appointment of

part-time non-official Directors in Central PSUs.

The question of prescribing age of retirement for part-time Chairmen of

Central Public Sector Enterprises as also laying down requisite criteria for
appointment of part-time nonofficial Directors on the Boards of PSUs were
under consideration of the Government.

2. Government have now decided that the age of retirement of part-time

Chairmen of public enterprises should be 62 years.

3. As regards the selection and appointment of part-time non-official Directors,

the following criteria will come into force forthwith:
(a) Qualification: Minimum qualification for part-time non-official Directors
would be graduate degree from a recognized university.

(b) Experience: Not less than 10 years at the level of Joint Secretary and above
in the Government; CMD/MD in Corporate Sector/PSU; Professor level in
an Academic Institution or professionals of repute like eminent Chartered
Accountants/Cost Accountants at the level of Directors of
Institutes/Heads of Department.

In selecting academics at the level of Professors, these academics should be

in fields relevant to the company‟s area of operation, e.g. management,
finance, marketing, technology, human resources, or law, as Professors of
some other disciplines may have little to contribute.

(c) Age: The age band should be between 45-65 years (minimum/maximum
limit). This could however, be relaxed for eminent professionals, for
reasons to be recorded, being limited to 70 years.

24
4. It has also been decided that the above criteria should be applied for
Navratna/Miniratna enterprises in such a way as to ensure that they could be
globally competitive and have a level playing field with the Corporates.

(DPE O.M. No. 18(10)/2003-GM-GL-55 dated 11th March, 2004)

IV Criteria for appointment of non-official (Independent) Directors in

Central PSEs.

The undersigned is directed to refer to this Department‟s O.M. of even

number dated 11th March, 2004 wherein the criteria for appointment of part-
time non-official Directors in Central PSEs were laid down.

2. The criterion relating to „Experience‟ has been reviewed by the

Government and para 3(b) of the above referred OM has been modified as
under:-

“(b) Experience: Not less than 10 years at the level of Joint Secretary
and above in the Government; CMD/MD in Corporate
Sector/PSE; Professor level in an Academic Institution or
professionals of repute like eminent Chartered Accountants/
Cost Accountants at the level of Directors of Institutes/ Heads of
Department; persons of eminence with proven track record from
Industry, Business or Agriculture.”

3. All the administrative Ministries/Departments are requested to take

note of the above modifications in the criteria for appointment of non-official
(Independent) Directors for guidance and compliance.

(DPE O.M. No. 18(10)/2003-GM-GL-75 dated 10th November, 2005)

V. Turning selected Public Sector Enterprises into Global Giants –

Operational and Administrative modalities – Restructuring of the
Boards.

The Common Minimum Programme of the Government states, inter-

alia, that Government will identify public sector enterprises that have
comparative advantages and support them in their drive to become global
giants. In pursuance of these objectives, the government have decided to grant
enhanced autonomy and delegation of powers to nine selected public sector
enterprises, namely BHEL, BPCL, HPCL, IOC, IPCL, NTPC, ONGC, SAIL and
VSNL.

2. The exercise of the enhanced autonomy and authority shall be

exercisable only after the Boards have been restructured, as indicated below. It
must be ensured that each of these PSEs inducts in the first instance at least
four non-official part-time Directors of an impeccable stature and background.

25
This number should be more for those PSEs which have a very large number of
Functional Directors. It should also be ensured that within six months, the
number of non-official part-time Directors in increased to reach at least 1/3rd of
the total strength of the Board.

3. The above is in partial modification to the general guidelines issued by

the Department of Public Enterprises vide OM No.18(6)/91-GM dated 16th
March, 1992.

4. While selection of full-time Directors and part-time Government

nominees Directors would continue to be done as per the existing procedures,
for selection of the non-official part time Directors in these companies, a Search
committee comprising Chairman-PESB, Secretary-DPE, Secretary of the
Administrative Ministry and an eminent person (s) to be nominated by
Industry Minister has been set up.

(DPE OM No.DPE/11(2)/97-Fin. dated 22nd July, 1997)

26
 ANNEX-II

COMPOSITION OF BOARD OF DIRECTORS OF

LISTED CENTRAL PUBLIC SECTOR ENTERPRISES

According to the existing policy, as contained in this Department‟s O.M.

No. 18(6)/91-GM dated 16.3.1992, the Board of Directors of Public Sector
Undertakings should consist of (i) Full time Functional Directors whose
number should not exceed 50% of the actual strength of the Board; (ii)
Government Directors whose number should not exceed one-sixth of the actual
strength of the Board subject to the condition that in no case the number should
exceed two; and (iii) Non-official part-time Directors whose number should be
at least one-third of the actual strength of the Board.

2. The Securities & Exchange Board of India (SEBI) has issued guidelines
regarding Listing Agreements with Stock Exchanges, which include a new
Clause 49 on Corporate Governance, an extract of which is enclosed
(Annexure-I). It provides that in the cases of companies with non-Executive
Chairmen at least one-third of the Board should comprise Independent
Directors and in the cases of companies with Executive Chairmen at least half
of the Board should comprise Independent Directors. The definition of
Independent Directors is also given under the Clause 49. The SEBI has clarified
that in the case of Public Sector Undertakings the Government nominee
Directors cannot be considered as Independent Directors for the purpose of
constitution of Board of Directors. The SEBI has, however, subsequently agreed
that the nominees of Financial Institutions would be treated as Independent
Directors for listed public sector companies. A schedule of implementation is
also enclosed (Annexure-II).

3. As all listed companies including PSUs have to comply with the SEBI
guidelines, there may be a need to reconstitute the Boards of Directors of some
of the listed PSUs so that the requisite number of Independent Directors is
inducted in order to avoid de-listing.

4. All the administrative Ministries/Departments are, therefore, requested

to take appropriate action, if not already taken, to reconstitute the Board of
Directors of listed PSEs in accordance with the SEBI guidelines within the time
schedule prescribed. In case there is a need to increase the maximum number
of Directors permissible under the Articles of Association, the respective PSEs
may be advised to take steps to amend the relevant Article suitably.

(DPE O.M. No. 18(6)/2000-GM dated 26th November, 2001)

ANNEXURE-I of O.M. dated 26.11.2001 - Clause 49: Corporate Governance -

Board of Directors
A. The company agrees that the board of directors of the company shall have
an optimum combination of executive and non-executive directors with

27
 not less than fifty percent of the board of directors comprising of non-
executive directors. The number of independent directors would depend
whether the Chairman is executive or nonexecutive. In case of a non-
executive chairman, at least one-third of board should comprise of
independent directors and in case of an executive chairman, at least half of
board should comprise of independent directors.
Explanation: For the purpose of this clause the expression „independent
directors‟ means directors who apart from receiving director‟s
remuneration, do not have any other material pecuniary relationship or
transactions with the company, its promoters, its management or its
subsidiaries, which in judgement of the board may affect independence of
judgement of the director. Except in the case of government companies,
institutional directors on the boards of companies should be considered as
independent directors whether the institution is an investing institution or
a lending institution.
B. The company agrees that all pecuniary relationship or transactions of the
non-executive directors vis-à-vis the company should be disclosed in the
Annual Report.

ANNEXURE-II of O.M. dated 26.11.2001 -

Schedule of Implementation

The above amendments to the listing agreement have to be implemented

as per schedule of implementation given below:
 By all entities seeking listing for the first time, at the time of listing.
 Within financial year 2000-2001, but not later than March 31, 2001 by all
entities, which are included either in Group „A‟ of the BSE or in S&P
CNX Nifty index as on January 1, 2000. However to comply with the
recommendations, these companies may have to begin the process of
implementation as early as possible.
 Within financial year 2001-2002, but not later than March 31, 2002 by all
the entities which are presently listed, with paid up share capital of
Rs.10/- crore and above, or networth of Rs.25 crore or more any time in
the history of the company.
 Within financial year 2002-2003, but not later than March 31, 2003 by all
other entities, which are presently listed, with paid up share capital of
Rs.3 crore and above.
 As regards the non-mandatory requirement given in Annexure-3, they
shall be implemented as per the discretion of the company. However,
the disclosures of the adoption/non-adoption of the non-mandatory
requirements shall be made in the section on corporate governance of
the Annual Report.

28
 ANNEX-III

EXTRACTS FROM THE COMPANIES ACT, 1956

Section 2 (41) “relative” means, with reference to any person, any one who is
related to such person in any of the ways specified in section 6, and no others;

Section 6 - Meaning of “relative”

A person shall be deemed to be a relative of another, if, and only if, -
(a) they are members of a Hindu undivided family; or
(b) they are husband and wife; or
(c) the one is related to the other in the manner indicated in Schedule IA.]

[SCHEDULE IA) [See section 6(c)]

List of Relatives

1. Father.
2. Mother (including step-mother).
3. Son (including step-son).
4. Son‟s wife.
5. Daughter (including step-daughter).
6. Father‟s father.
7. Father‟s mother.
8. Mother‟s mother.
9. Mother‟s father.
10. Son‟s son.
11. Son‟s Son‟s wife.
12. Son‟s daughter.
13. Son‟s daughter‟s husband.
14. Daughter‟s husband.
15. Daughter‟s son.
16. Daughter‟s son‟s wife.
17. Daughter‟s daughter.
18. Daughter‟s daughter‟s husband.
19. Brother (including step-brother).
20. Brother‟s wife.
21. Sister (including step-sister).
22. Sister‟s husband.

29
 ANNEX-IV

INFORMATION TO BE PLACED BEFORE BOARD OF DIRECTORS

1. Annual operating plans and budgets and any updates.

2. Capital budgets and any updates.
3. Quarterly results for the company and its operating divisions or business
segments.
4. Minutes of meetings of audit committee and other committees of the board.
5. The information on recruitment and remuneration of senior officers just
below the board level, including appointment or removal of Chief Financial
Officer and the Company Secretary.
6. Show cause, demand, prosecution notices and penalty notices which are
materially important.
7. Fatal or serious accidents, dangerous occurrences, any material effluent or
pollution problems.
8. Any material default in financial obligations to and by the company, or
substantial nonpayment for goods sold by the company.
9. Any issue, which involves possible public or product liability claims of
substantial nature, including any judgment or order which, may have
passed strictures on the conduct of the company or taken an adverse view
regarding another enterprise that can have negative implications on the
company.
10. Details of any joint venture or collaboration agreement.
11. Transactions that involve substantial payment towards goodwill, brand
equity, or intellectual property.
12. Significant labour problems and their proposed solutions. Any significant
development in Human Resources/Industrial Relations Front like signing
of wage agreement, implementation of Voluntary Retirement Scheme, etc.
13. Sale of material nature, of investments, subsidiaries, assets, which is not in
normal course of business.
14. Quarterly details of foreign exchange exposures and the steps taken by
management to limit the risks of adverse exchange rate movement, if
material.
15. Non-compliance of any regulatory, statutory or listing requirements and
shareholders service such as nonpayment of dividend, delay in share
transfer, etc.

30
 ANNEX-V
SUGGESTED LIST OF ITEMS TO BE
INCLUDED IN THE CODE OF CONDUCT

The Board of Directors of the company will formulate the code of

conduct for the Directors and senior Management Personnel and while doing
so the code of conduct would, inter alia, include the following:
1. Act in the best interests of, and fulfill their fiduciary obligations to the
Company
2. Act honestly, fairly, ethically and with integrity;
3. Conduct themselves in a professional, courteous and respectful manner
and not take improper advantage of the position of Director;
4. Act in a socially responsible manner, within the applicable laws, rules
and regulations, customs and traditions of the countries in which the
Company operates.
5. Comply with communication and other policies of the Company;
6. Act in good faith, responsibly, with due care, competence and diligence,
without allowing their independent judgment to be subordinated;
7. Not to use the Company‟s property or position for personal gain;
8. Not to use any information or opportunity received by them in their
capacity as Directors in a manner that would be detrimental to the
Company‟s interests;
9. Act in a manner to enhance and maintain the reputation of the
Company;
10. Disclose any personal interest that they may have regarding any matters
that may come before the Board and abstain from discussion, voting or
otherwise influencing a decision on any matter in which the concerned
Director has or may have such an interest;
11. Abstain from discussion, voting or otherwise influencing a decision on
any matters that may come before the board in which they may have a
conflict or potential conflict of interest;
12. Respect the confidentiality of information relating to the affairs of the
Company acquired in the course of their service as Directors, except
when authorized or legally required to disclose such information;
13. Not to use confidential information acquired in the course of their
service as Directors for their personal advantage or for the advantage of
any other entity;
14. Help create and maintain a culture of high ethical standards and
commitment to compliance;
15. Keep the Board informed in an appropriate and timely manner any
information in the knowledge of the member which is related to the
decision making or is otherwise critical for the company.
16. Treat the other members of the Board and other persons connected with
the Company with respect, dignity, fairness and courtesy.

31
 ANNEX-VI

MODEL CODE OF BUSINESS CONDUCT AND ETHICS FOR BOARD

MEMBERS AND SENIOR MANAGEMENT

1.0 Introduction
1.1 This Code shall be called “The Code of Business Conduct & Ethics for
Board Members and Senior Management”
of……………………………….(hereinafter referred to as “the Company”)
1.2 The purpose of this Code is to enhance ethical and transparent process
in managing the affairs of the Company.
1.3 This Code for Board Members and Senior Management has been framed
specially in compliance of the provisions of Clause 49 of the Listing
Agreement with Stock Exchanges and as per the Guidelines of DPE.
1.4 It shall come into force with effect from the ……………………….(year
and month).

2.0 Definitions and Interpretations:

2.1 The term “Board Members” shall mean Directors on the Board of
Directors of the Company
2.2 The term “Whole-time Directors” or “Functional Directors” shall be the
Directors on the Board of Directors of the Company who are in whole-
time employment of the company.
2.3 The term “Part-time Directors” shall mean Directors on the Board of
Directors of the Company who are not in whole time employment of the
Company.
2.4 The term “Relative” shall have the same meaning as defined in Section 6
of the Companies Act, 1956.
2.5 The term “Senior Management” shall mean personnel of the Company
who are members of its core management team excluding Board of
Directors and would comprise all members of management one level
below the Whole time Directors, including all functional heads.
2.6 The term “the Company” shall mean …………………(name of the
Company)

Note: In this Code, words importing the masculine gender shall include
feminine gender and words importing singular shall include the plural
or vice-versa.

3.0 Applicability

3.1 This code shall be applicable to the following personnel:

a) All Whole-time Directors including the Chairman & Managing

Director of the Company.

32
 b) All Part-time Directors including Independent Directors under
the provisions of law.
c) Senior Management
3.2 The Whole-time Directors and Senior Management should continue to
comply with other applicable/to be applicable policies, rules and
procedures of the Company.

4.0 Contents of Code

Part I General Moral Imperatives

Part II Specific Professional Responsibilities

Part III Specific Additional Provisions for Board Members and Senior
Management

This code is intended to serve as a basis for ethical decision making in the
conduct of professional work. It may also serve as a basis for judging the merit
of a formal complaint pertaining to violation of professional ethical standards.

It is understood that some words and phrases in the code of ethics and conduct
document are subject to varying interpretations. In case of any conflict, the
decision of the Board shall be final.

33
 PART – I

5.0 General Moral Imperatives

5.1 Contribute to society and human well being

5.1.1 This principle concerning the quality of life of all people, affirms an
obligation to protect fundamental human rights and to respect the
diversity of all cultures. We must attempt to ensure that the products of
our efforts will be used in socially responsible ways, will meet social
needs and will avoid harmful effects to health and welfare of others. In
addition to a safe social environment, human well being includes a safe
natural environment.

5.1.2 Therefore, all Board Members and Senior Management who are
accountable for the design, development, manufacture and promotion of
company‟s products, must be alert to, and make others aware of, both a
legal and a moral responsibility for the safety and the protection of
human life and environment.

5.2 Be honest and trustworthy & practice integrity

5.2.1 Integrity and honesty are essential components of trust. Without trust an
organization cannot function effectively.

5.2.2 All Board Members and Senior Management are expected to act in
accordance with highest standards of personal and professional
integrity, honesty and ethical conduct, while conducting business of the
Public Enterprise.

5.3 Be fair and take action not to discriminate

5.3.1 The values of equality, tolerance, respect for others, and the principles of
equity & justice govern this imperative. Discrimination, on the basis of
race, sex, religion, caste, age, disability, national origins or other such
factors, is an explicit violation of this Code.

5.4 Honour confidentiality

5.4.1 The principle of honesty extends to issues of confidentiality of

information. The ethical concern is to respect all obligations of
confidentiality to all stakeholders unless discharged from such
obligations by requirements of the law or other principles of this Code.

34
5.4.2 All Board Members and Senior Management, therefore, shall maintain
the confidentiality of all confidential unpublished information about
business and affairs of the CPSE.

5.5 Pledge & Practice

5.5.1 To strive continuously to bring about integrity and transparency in all

spheres of the activities.

5.5.2 Work unstintingly for eradication of corruption in all spheres of life.

5.5.3 Remain vigilant and work towards growth and reputation of the
Company.

5.5.4 Bring pride to the organization and provide value-based services to

Company‟s stakeholders.

5.5.5 Do duty conscientiously and without fear or favour.

35
 PART II

6.0 Specific Professional Responsibilities

6.1 Live the Vision, Mission and Values of CPSE – each day

Live the Vision, Mission and Values of ………….(name of CPSE) each

day. For quick reference they are as under:

Vision
[Incorporate here vision of the CPSE – for example - A World-class
Engineering Enterprise committed to enhancing Stakeholder Value]

Mission
[Incorporate here the mission of the CPSE – for example To be an Indian
Multinational Engineering Enterprise providing total business solutions
through quality products, systems and services in the fields of
……………………… and other potential areas]

Values
 Zeal to excel and zest for change
 Integrity and fairness in all matters
 Respect for dignity and potential of individuals
 Strict adherence to commitments
 Ensure speed of response
 Foster learning, creativity and team-work
 Loyalty and pride in the CPSE

6.1 Strive to achieve the highest quality, effectiveness and dignity in both
the processes and products of professional work: - Excellence is
perhaps the most important obligation of a professional. Everyone,
therefore, should strive to achieve the highest quality, effectiveness and
dignity in their professional work.

6.2 Acquire and maintain professional competence: Excellence depends on

individuals who take responsibility for acquiring and maintaining
professional competence. All are, therefore, expected to participate in
setting standards for appropriate levels of competence, and strive to
achieve those standards.

6.4 Compliance with Laws:- The Board Members and Senior Management
of the CPSE shall comply with all the applicable provisions of existing
local, state, national, and international laws. They should also follow
and obey the policies, procedures, rules and regulations relating to
business of the CPSE.

36
6.5 Accept and provide appropriate professional review: Quality
professional work depends on professional review and comments.
Whenever appropriate, individual members should seek and utilize peer
review as well as provide critical review of the work of theirs.

6.6 Manage personnel and resources to enhance the quality of working

life:- Organizational leaders are responsible for ensuring that a
conducive working and business environment is created for fellow
employees to enable them delivering their best. The Board Members and
Senior Management would be responsible for ensuring human dignity
of all employees, would encourage and support the professional
development of the employees of the CPSE by providing them all
necessary assistance and cooperation, thus enhancing the quality of
working.

6.7 Be upright and avoid any inducements:- The Board Members and
Senior Management shall not, directly or indirectly through their family
and other connections, solicit any personal fee, commission or other
form of remuneration arising out of transactions involving Company.
This includes gifts or other benefits of significant value, which might be
extended at times, to influence business for the organization or
awarding a contract to an agency, etc.

6.8 Observe Corporate Discipline:- The flow of communication within the

CPSE is not rigid and people are free to express themselves at all levels.
Though there is a free exchange of opinions in the process of arriving at
a decision, but after the debate is over and a policy consensus has been
established, all are expected to adhere and abide by it, even when in
certain instances one may not agree with it individually. In some cases
policies act as a guide to action, in others they are designed to put a
constraint on action. All must learn to recognize the difference and
appreciate why they need to observe them.

6.9 Conduct in a manner that reflects credit to the Company:- All are
expected to conduct themselves, both on and off duty, in a manner that
reflects credit to the Company. The sum total of their personal attitude
and behaviour has a bearing on the standing of Company and the way
in which it is perceived within the organization and by the public at
large.

6.10 Be accountable to Company’s stakeholders:- All of those whom we

serve, be it our Customers, without whom the Company will not be in
business, the Shareholders, who have an important stake in its business,
the Employees, who have a vested interest in making it all happen, the
Vendors, who support the Company to deliver in time and Society to
which Company is responsible for its actions – are stakeholders of the
Company. All, therefore, must keep in mind at all times that they are

37
 accountable to Company‟s stakeholders.

6.11 Prevention of Insider Trading:- The Board Members and Senior

Management shall comply with the code of Internal Procedures and
conduct for prevention of Insider Trading in dealing with Securities of
the Company.

6.12 Identify, mitigate and manage business risks:- It is everybody‟s

responsibility to follow the Risk Management Framework of the
Company to identify the business risks that surround function or area of
operation of the Company and to assist in the company-wide process of
managing such risks, so that Company may achieve its wider business
objectives.

6.13 Protect properties of the Company:- The Board Members and Senior
Management shall protect the assets including physical assets,
information and intellectual rights of the Company and shall not use the
same for personal gains.

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 PART – III

7.0 Specific Additional Provisions for Board Members and Senior

Management

7.1 As Board Members and Senior Management: They shall undertake to

actively participate in the meetings of the Board and Committees on
which they serve.

7.2 As Board Members

7.2.1 Undertake to inform the Chairman and Managing Director/ Company

Secretary of the Company of any changes in their other Board positions,
relationship with other business and other events/ circumstances /
conditions that may interfere with their ability to perform Board/ Board
Committee duties or may impact the judgement of the Board as to
whether they meet the independence requirements of Listing
Agreement with Stock Exchanges and the Guidelines of DPE.

7.2.2 Undertake that without prior approval of the disinterested members of

the Board, they will avoid apparent conflict of interest. Conflict of
interest may exist when they have personal interest that may have a
potential conflict with the interest of the Company. Illustrative cases can
be:

Related Party Transactions: Entering into any transactions or

relationship with Company or its subsidiaries in which they have a
financial or other personal interest (either directly or indirectly such
as through a family member or relation or other person or other
organization with which they are associated).

Outside Directorship: Accepting Directorship on the Board of any

other Company that competes with the business of the Company.

Consultancy/Business/Employment: Engaging in any activity (be it

in the nature of providing consultancy service, carrying on business,
accepting employment) which is likely to interfere or conflict with
their duties/ responsibilities towards Company. They should not
invest or associate themselves in any other manner with any supplier,
service provider or customer of the company.

Use of Official position for personal gains: Should not use their
official position for personal gains.

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7.3 Compliance with the Code of Business Conduct and Ethics

7.3.1 All Members of the Board and Senior Management of Company shall
uphold and promote the principles of this code.

The future of the organization depends on both technical and ethical

excellence. Not only it is important for Board Members and Senior
Management to adhere to the principles expressed in this Code, each of
them should also encourage and support adherence by others.

7.3.2 Treat violations of this code as inconsistent association with the

organization

Adherence of professionals to a code of ethics is largely and generally a

voluntary matter. However, if any of Board Members and Senior
Management does not follow this Code, the matter would be reviewed
by the Board and its decision shall be final. The Company reserves the
right to take appropriate action against the defaulter.

7.3 Miscellaneous Points

7.4.1 Continual updation of Code

This Code is subject to continuous review and updation in line with any
changes in law, changes in Company‟s philosophy, vision, business
plans or otherwise as may be deemed necessary by the Board and all
such amendments / modifications shall take effect prospectively from
the date stated therein.

7.4.2 Where to seek clarifications

Any member of Board or Senior Management requiring any clarification

regarding this code of conduct may contact Director (HR)/ Company
Secretary/ any officer specifically designated by the Board of Directors.

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 ACKNOWLEDGEMENT OF RECEIPT OF
CODE OF BUSINESS CONDUCT AND ETHICS FOR
BOARD MEMBERS AND SENIOR MANAGEMENT

I have received and read the code of Business Conduct and Ethics for Board
Members and Senior Management of ……………………… (name of the
Company) I understand the standards and policies contained in the said Code
of Business Conduct and Ethics and understand that there may be additional
policies or laws specific to my job. I further agree to comply with the said Code
of Business Conduct and Ethics.

If I have questions concerning the meaning or application of the said Code of

Business Conduct and Ethics, any policies of the CPSE or the legal and
regulatory requirements applicable to my job, I know I can consult Director or
Company Secretary concerned the CPSE knowing that my questions or reports
will be maintained in confidence.

Further, I undertake to provide following Affirmation on an Annual basis to

the Company within 30 days from the end of 31st March every year.

AFFIRMATION

(By Board Members/ Senior Management of the Company on Annual basis by

30th April of every year)
I,…………………………………(name),…………………..(designation), having
read and understood the Code of Business Conduct and Ethics for Board
Members and Senior Management, hereby solemnly affirm that I have
complied with and has not violated any of the provisions of the Code during
the year ended 31st March ………..
Signature
____________________
Name
____________________
Designation
____________________
Place: Employment Number
____________________
Telephone No.
____________________
Date:

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 ANNEX-VII

SUGGESTED LIST OF ITEMS TO BE INCLUDED IN

THE REPORT ON CORPORATE GOVERNANCE IN
THE ANNUAL REPORT OF COMPANIES

1. A brief statement on company‟s philosophy on Guidelines on

Corporate Governance.

2. Board of Directors:
i. Composition and category of directors, for example, promoter, executive,
non-executive, independent nonexecutive, nominee director.
ii. Attendance of each director at the Board meetings and the last AGM.
iii. Number of other Boards or Board Committees in which he/she is a
member or Chairperson
iv. Number of Board meetings held, dates on which held.
v. In case of appointment of new Director/re-appointment of a Director
following information may be provided:
a. brief resume of Director
b. nature of his expertise in specific functional areas; and
c. names of companies in which the person holds the Directorship and
the membership of committees of the Board.

3. Audit Committee:
i. Brief description of terms of reference
ii. Composition, name of members and Chairperson
iii. Meetings and attendance during the year

4. Remuneration Committee:
i. Brief description of terms of reference
ii. Composition, name of members and Chairperson
iii. Meetings and attendance during the year
iv. Remuneration policy/Details of remuneration to all the Directors

5. General Body meetings:

i. Date, Time and Venue of the last three AGMs
ii. Whether any special resolutions passed in the previous three AGMs
iii. AGM of the current year: Date, Time and Venue

6. Disclosures:
i. Disclosures on materially significant related party transactions that may
have potential conflict with the interests of company at large.
ii. Details of non-compliance by the company, penalties, strictures imposed
on the company by any statutory authority, on any matter related to any
guidelines issued by Government, during the last three years.
iii. Whistle Blower policy and affirmation that no personnel has been denied
access to the Audit Committee.

42
 iv. Details of compliance with the requirements of these guidelines
v. Details of Presidential Directives issued by the Central Government and
their compliance during the year and also in the last three years.
vi. Items of expenditure debited in books of accounts, which are not for the
purposes of the business.
vii. Expenses incurred which are personal in nature and incurred for the
Board of Directors and Top Management.
viii. Details of Administrative and office expenses as a percentage of total
expenses vis-a-vis financial expenses and reasons for increase.

7. Means of communication:

i. Quarterly results
ii. Newspapers wherein results normally published
iii.
Any website, where displayed
iv. Whether it also displays official news releases;

8. Audit qualifications:
Company may move towards a regime of unqualified financial statements.

9. Training of Board Members:

A company may train its Board members (Functional, Government Nominee
and Independent) in the business model of the company as well as the risk
profile of the business parameters of the company, their responsibilities as
directors, and the best ways to discharge them.

10. Whistle Blower Policy:

The company may establish a mechanism for employees to report to the
management concerns about unethical behaviour, actual or suspected fraud, or
violation of the company‟s General guidelines on conduct or ethics policy. This
mechanism could also provide for adequate safeguards against victimization of
employees who avail of the mechanism and also provide for direct access to the
Chairman of the Audit Committee in exceptional cases. Once established, the
existence of the mechanism may be appropriately communicated within the
organization.

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 ANNEX-VIII

Format of Quarterly Compliance Report by CPSEs to nodal Administrative

Ministries/Departments under Para 8.3 of DPE’s Guidelines on Corporate
Governance for CPSEs

Name of the CPSE:

Administrative Ministry/Department:
Whether listed or unlisted:
Quarter ending on:

S. No. Activity CG Status of Remarks

Guidelines compliance
Clause1 with the CG
guidelines
(Yes/No/NA)

1 2 3 4 5
I Board of Directors
1. Composition of Board 3.1
2. Non-official Directors 3.1
3. Part-time directors 3.2
compensation and disclosures
4. Number of Board meetings 3.3.1
5. Review of compliance of laws 3.3.3
6. Code of Conduct 3.4
7. Risk management 3.6
8. Training for new Board 3.7
members
II Audit Committee
9. Constitution of Audit 4.1
Committee
10. Audit Committee assigned 4.2
due role
11. Audit Committee vested 4.3
adequate powers
12. Meetings of Audit Committee 4.4
13. Review of information by 4.5
Audit Committee
III Remuneration Committee
14. Constitution of remuneration 5.1
Committee

1 Refers to the relevant provision in the Guidelines on Corporate Governance issued by DPE

44
IV Subsidiary Companies
15. Board of subsidiary companies 6.1
16. Review of financial statements 6.2
of subsidiary by Audit
Committee
17. Review of performance of 6.3
subsidiary by Board
V Disclosures
18. Transactions 7.1
19. Accounting Standards 7.2.1
20. Consolidated financial 7.2.3
statements
21. Segment-wise profit and loss 7.2.4
statement
22. Board Disclosures - Risk 7.3
management
23. Remuneration of directors 7.4
24. Management Discussion and 7.5
Analysis
25. Disclosures by Senior 7.5.2
management.
VI Report and Compliance
26. Report on Corporate 8.1
Governance
27. Compliance Certificate 8.2.1
28. Chairman‟ speech in AGM 8.2.2
and annual report
29. Holding of AGM, Adoption of
audited accounts and filing of
adopted accounts with the
Registrar of Companies within
the stipulated time@
30. Timely submission of 8.3
Compliance report

@ Information in respect of this item should be furnished at the end of the

relevant quarter of the relevant year.

(Name and Signature of the Chief Executive)

Date:-

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