Question
Download Solution PDFComprehension
Read the following passage carefully, and answer the questions.
Securities and Exchange Board of India (SEBI) in 1999 set up a committee under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the standards of good corporate governance. The primary objective of the committee was to view corporate governance from the perspective of the investors and shareholders and to prepare a 'Code' to suit the Indian corporate environment.
The mandatory recommendations apply to the listed companies with paid up share capital of Rs. 3 crore and above. The composition of board of directors should be a combination of executive and non-executive directors. Audit committee should contain 3 independent directors with one having financial and accounting knowledge. The Board should hold at least 4 meetings in a year with a maximum gap of 4 months between 2 meetings to review operational plans, capital budgets, quarterly results, minutes of committee's meeting. The director shall not be member of more than 10 committee and shall not act as chairman of more than 5 committees across all companies.
The non-mandatory recommendations were to apply to all the listed private and public sector companies, their directors, management, employees and professionals associated with such companies. The committee recognizes that compliance with the recommendations would involve restructuring the existing boards of companies. It also recognizes that smaller ones will have difficulty in immediately complying with these conditions.
The Kumar Mangalam Birla Committee's recommendations are given in:
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is Two categories
Key Points
- Kumar Mangalam Birla Committee's recommendations are divided into two categories:
- The passage states that the recommendations are categorized into mandatory and non-mandatory guidelines.
- Mandatory recommendations are binding for listed companies with paid-up capital of ₹3 crore and above, focusing on board composition, audit committees, board meetings, and limits on committee memberships.
- Non-mandatory recommendations are intended for all listed private and public sector companies, aiming to promote good governance practices but without enforcement obligations.
- This two-tier structure allows flexibility for smaller firms while ensuring essential governance standards are maintained for larger ones in financial enterprises.
Additional Information
- Three categories:
- No mention in the passage of recommendations being split into three distinct categories.
- This would be inaccurate as the text clearly highlights only mandatory and non-mandatory types.
- Four categories:
- Incorrect assumption. The committee does not subdivide recommendations further into four sections such as audit, board structure, shareholders’ rights, etc.
- Five categories:
- This is incorrect as there is no evidence or mention in the text supporting five separate recommendation types. The bifurcation is clearly limited to two.