Certain recommendations that were already contained in the Report of the Naresh Chandra Committee on Corporate Audit and Governance (the "Naresh Chandra Committee") were also discussed briefly by the Narayanamurthi Committee. The members of the said Committee agreed in principle with the recommendations set out by the Naresh Chandra Committee that are directly related to corporate governance. It was therefore decided by the Committee, that in making the final recommendations to SEBI, the Committee would also recommend that the mandatory recommendations in the report of the Naresh Chandra Committee, insofar as they related to corporate governance, be mandatorily implemented by SEBI through an amendment to clause 49 of the Listing Agreement.

The Committee makes the following mandatory recommendation

Mandatory Recommendation
Management should provide a clear description in plain English of each material contingent liability and its risks, which should be accompanied by the auditor's clearly worded comments on the management's view. This section should be highlighted in the significant accounting policies and notes on accounts, as well as, in the auditor's report, where necessary.

This is important because investors and shareholders should obtain a clear view of a company's contingent liabilities as these may be significant risk factors that could adversely affect the company's future financial condition and results of operations.

The Committee makes the following mandatory recommendation

Mandatory Recommendation
For all listed companies, there should be a certification by the CEO (either the Executive Chairman or the Managing Director) and the CFO (whole-time Finance Director or other person discharging this function) which should state that, to the best of their knowledge and belief:

• They have reviewed the balance sheet and profit and loss account and all its schedules and notes on accounts, as well as the cash flow statements and the Directors' Report;

• These statements do not contain any material untrue statement or omit any material fact nor do they contain statements that might be misleading;

• These statements together present a true and fair view of the company, and are in compliance with the existing accounting standards and / or applicable laws / regulations;

• They are responsible for establishing and maintaining internal controls and have evaluated the effectiveness of internal control systems of the company; and they have also disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of internal controls, if any, and what they have done or propose to do to rectify these;

• They have also disclosed to the auditors as well as the Audit Committee, instances of significant fraud, if any, that involves management or employees having a significant role in the company's internal control systems; and

• They have indicated to the auditors, the Audit Committee and in the notes on accounts, whether or not there were significant changes in internal control and / or of accounting policies during the year.

This has been incorporated in clause 3.10.1.4 of this Report.

The Committee makes the following recommendation

Mandatory Recommendation
Legal provisions must specifically exempt non-executive and independent directors from criminal and civil liabilities under certain circumstances. SEBI should recommend that such exemptions need to be specifically spelt out for the relevant laws by the relevant departments of the Government and independent regulators, as the case may be.

However, independent directors should periodically review legal compliance reports prepared by the company as well as steps taken by the company to cure any taint. In the event of any proceedings against an independent director in connection with the affairs of the company, defense should not be permitted on the ground that the independent director was unaware of this responsibility.

The Committee also received certain other suggestions relating to corporate governance. Howwevere the committee has thouht it relevant to accept and make its recommendation only one of them, as given hereunder:

It was suggested that SEBI should work towards harmonizing the provisions of clause 49 of the Listing Agreement and those of the Companies Act, 1956. The Committee noted that major differences between the requirements underclause 49 and the provisions of the Companies Act, 1956 should be identified. SEBI should then recommend to the Government that the provisions of the Companies Act, 1956 be changed to bring it in line with the requirements of the Listing Agreement.