In this blog post, Abhishek Kumar, a student of law at Delhi University, who is currently also pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the essential clauses in a listing agreement.

The basic document which is executed between the company and the stock exchange (when the shares of the company are listed on any stock exchange) is the listing agreement. It is like an employment contract in which the broker is hired to represent the principal, but no real property is transferred between the two.

Different from a conventional agreement

According to law, the agreement is an act where two parties consents to the commission or omission of an act for mutual consideration which can be oral or in writing. It involves the express consent of both the parties.
However, Listing Agreement does not involve an actual involvement of two people. Here, in Listing Agreement entered with the Stock Exchanges, execution is done only by the Director on behalf of the Company, but the signature of the party representing the Stock Exchange is not found.

What is it?

Listing means an admission of the securities to dealings in a recognized stock exchange. There are separate listing departments to grant approval for listing of securities of Companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI and Rules, Bye-Laws and Regulations of the Exchange. Companies entering into this agreement with the Exchange have to make certain disclosures and perform certain acts. Listing departments monitor their compliances with respect to the agreement.

Important Clauses

Clause 16 – Notice for corporate action

• Give notice to SE stating the date & purpose for register closure or of the record
  
• SE to be intimated at least 7 days before such closure or record date.

-for purposes of the declaration of dividend or

-the issue of right or bonus shares or

-the issue of shares for conversion of debentures or of shares arising out of rights attached to debentures

-Close register of transfers once a year at time of AGM

• The company on whose stocks, derivatives are available or whose stocks form part of an index on which derivatives are available shall give a notice period of 30 days to stock exchanges for corporate actions like mergers, de-mergers, splits and bonus shares.
• Company not to have a gap of fewer than 30 days between two book

Clause 19 – Notice for board meeting to consider the prescribed matter

• At least 2 working days in advance of a Board meeting to decide the matters of the clause.
• No prior intimation is required about Board meeting in respect of the issue of bonus shares if the issue is not on the Agenda of the board meeting.

Clause 20 -Outcome of board meeting under clause 19

•  To intimate the outcome of the board meeting (as intimated under clause 19) immediately on the day of board meeting once concluded.
• Further, the company, shall intimate to the Exchange the date on which dividend shall be paid/dispatched.

Clause 20A – Declaration of dividend

• The Company has to declare and disclose the dividend on per share basis only.
  

Clause 22 – Credit of bonus shares

• The company shall intimate to the Exchange the date on which bonus shares, declared, if any, would be credited/dispatched.
  

Clause 21 – Interest on debentures, bonds, redemption amount of redeemable shares

• At least 21 days in advance, of the date on and from which the amounts will be paid.

Clause 24

• That it shall file any scheme or petition proposed to be filed before any Court or Tribunal; Auditor’s Certificate also needs to be filed.
• To ensure that any scheme of merger or acquisition, etc., does not violate or override the provisions of Securities Laws.

Clause 28 – Change in the form or nature of listed securities or change in the rights/ privileges thereof

• Give 21 days prior notice.
• Apply to exchange for listing of the securities as changed, if exchange so requires

Clause 31 – Submission of copies of annual reports, AGM/EGM

• Six Copies of the annual reports, notices, resolutions and circulars relating to new issue of capital.
• 3 copies of all the notices, call letters, etc.,
• Copy of proceedings at all Annual and Extraordinary General Meeting of the Company
• Three copies of all notices, circulars, etc., issued or advertised in the press in connection with any merger, amalgamation, reconstruction, reduction of capital, the scheme of arrangement.

 

Clause 32 – Disclosures in annual report/change in name

The Company is required to make the following disclosures in the Annual Report:

• To publish Consolidated Financial Statements in the annual report in addition to the individual financial statements. Further, Audit of Consolidated Financial Statements by the statutory auditors of the company and the filing of Consolidated Financial Statements audited by the statutory auditors of the company with the stock exchanges shall be mandatory.
• Disclosures in compliance with the Accounting Standard on “Related Party Disclosures”.
• Cash flow statement along with the Balance Sheet and Profit and Loss Account.
• All listed companies which decide to change their names shall be required to comply with the following conditions:
  • A period of at least 1 year should have elapsed from the last name change.
  • At least 50% of its total revenue in the preceding 1 year period should have been accounted for by the new activity suggested by the name.

Clause 33 – Amendment in memorandum of association and articles of association

•  The Company is required to submit to the Stock Exchange certified copy of amended
• Memorandum and Articles of Association of the company

Clause 35

• Within 21 days from the end of every quarter, file the shareholding pattern of the company with the Stock Exchanges.

Clause 36 – Disclosure of price sensitive information

• Events such as strikes, lock-outs, etc., disruption of operations due to natural calamity, the decision regarding the issue of shares, forfeiture of shares, alteration of shares, cancellation of declared dividend, merger, amalgamation, demerger, giving off, voluntary delisting and other material decisions.
• The Company has to intimate to the Stock Exchange about the material events which will have a bearing on the performance / operations of the company as well as price sensitive information both at the time of occurrence of the event and subsequently after the cessation of the event.

Clause 40(a)

• The provision requires a company to maintain on a continuous basis, the public shareholding of at least 25% of the total number of issued shares of a class or kind, for every such class or kind of its shares which are listed.

Clause 41 – Notice for board meetings and other submissions on finance

• The quarterly financial result of the company is required to include details of promoters and promoter group shareholding including the details of pledged shares, as specified in the Annexure.

• To make an announcement to SE regarding quarterly unaudited financial result within 15 minutes of closure of Board Meeting.
  To publish unaudited/audited financial results in one English daily newspaper circulating in the whole of India.

• Companies shall be required to furnish Segment wise Revenue, Results and Capital Employed along with and as a part of the quarterly financial results
• On a whole, this clause states that the listed companies have to disclose detailed results in a month from quarter-end. Clause 41 aims to rationalize formats for submission of financial results. The unaudited results limited review report also has to be submitted. The companies with subsidiaries have the option to publish standalone or consolidated results. This option cannot be changed during the year.

Clause 47(a)

• Appointment of Company Secretary to act as Compliance Officer who will be responsible for monitoring share transfer process and report to company’s Board of Directors at each meeting.

Clause 47(c)

• To ensure that the RTA or the in-house share transfer facility produces a certificate from Practicing company secretary certifying that all share certificates have been issued within one month of the date of lodgment for transfer, sub-division, consolidation, renewal, exchange or endorsement of calls/allotment monies and a copy of the same shall be made available to the Exchange within 24 hours of the receipt of the certificate by the Company
• Submit the Clause 47(c) RTA report from the end of each half of financial year within 24hrs of the receipt of the same from PCS to the SE.

Clause 49 – Corporate governance

Formulated for the improvement of corporate governance in all listed companies; discussing its various aspects with regards to:

• Board of Directors and Composition of Board
• Code of Conduct of Directors to be published on the website
• Audit Committee and its composition and frequency of its meetings.
• Mandatory review of certain information by Audit Committee.
• Subsidiary Companies
• Disclosures
• CEO/CFO certification
• Report on Corporate Governance
• Compliance
• Approval of Appointment of CFO

Clause 54

• To maintain a functional website containing basic information about the company e.g. details of its business, financial information, shareholding pattern, etc.
• The Company also agrees to ensure that the contents of the said website are updated at any given point of time.

Consequences for default

• Suspension
• Delisting
• Penalties