Correct option is D

The Securities and Exchange Board of India (SEBI) set up the Kumar Mangalam Birla Committee in 1999 to improve corporate governance. The committee provided both mandatory and non-mandatory recommendations for listed companies.

The mandatory recommendations included:

1. Board Composition: The board should have a mix of executive and non-executive directors.

2. Audit Committee: It should consist of at least three independent directors, with at least one having financial and accounting knowledge.

3. Meeting Frequency: The board should hold at least four meetings per year, with a maximum gap of four months between any two meetings.

4. Committee Membership Restrictions: A director cannot be a member of more than 10 committees and cannot act as chairman of more than 5 committees across all companies.

However, the requirement that the auditor of the company must have 10 years of experience is not mentioned in the passage under mandatory recommendations. This means option (d) is not a part of the mandatory recommendations.

Information Booster:

• The SEBI committee's mandatory recommendations were aimed at ensuring better corporate governance practices in India.

• Audit Committees play a crucial role in financial transparency, which is why SEBI required them to include independent directors with financial expertise.

• The board’s four meetings per year requirement ensures that companies stay accountable to their investors.

• Limiting committee memberships and chairmanships prevents overburdening directors, ensuring efficient decision-making.

• These recommendations apply to all listed companies with paid-up share capital of ₹3 crore and above.

Additional Knowledge:

(a) Audit committee should contain 3 independent directors with one having financial and accounting knowledge- Correct as a Mandatory Recommendation

• The committee emphasized that at least one independent director in the audit committee should have financial and accounting expertise to ensure proper oversight.

• This requirement helps in preventing financial frauds and ensuring compliance with regulations.

(b) 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- Correct as a Mandatory Recommendation

• Holding regular meetings ensures that the board stays updated on operational plans, capital budgets, and quarterly results.

• This helps in better governance and financial management.

(c) Director shall not be a member of more than 10 committees and shall not act as chairman of more than 5 committees across all companies- Correct as a Mandatory Recommendation

• This restriction prevents overburdening directors and ensures that they can effectively contribute to corporate governance.

• A director holding too many responsibilities may not be able to attend meetings and fulfill duties properly.

Correct option is B

The Kumar Mangalam Birla Committee on Corporate Governance set forth two types of recommendations:

1. Mandatory Recommendations – Applied specifically to listed companies with a paid-up share capital of ₹3 crore and above and included governance measures such as audit committees, board structure, and meeting frequency.

2. Non-Mandatory Recommendations – These were suggested for broader adoption but were not compulsory.

According to the passage, non-mandatory recommendations were applicable to:

• Listed Private Companies (A)

• Listed Public Sector Companies (B)

• Their Directors, Management, Employees, and Professionals Associated (D)

There is no mention in the passage of non-mandatory recommendations applying directly to shareholders (C).

Information Booster:

• Non-mandatory recommendations were introduced to encourage better governance without forcing smaller companies to comply immediately.

• Listed private and public sector companies were advised to voluntarily follow these guidelines to improve transparency and accountability.

• Professionals associated with these companies, such as auditors, financial analysts, and board advisors, play a crucial role in implementing these recommendations.

• These recommendations often covered best practices related to risk management, whistle-blower policies, and corporate ethics.

Additional Knowledge:

(C) Shareholders were not explicitly included in non-mandatory recommendations.

• The recommendations focused on corporate entities, directors, and professionals, not on individual shareholders.

• Shareholders do play a key role in corporate governance by voting on major company decisions, but they were not the primary target of these recommendations.

• The passage mentions governance reforms applying within companies, rather than external investors or shareholders.

• Shareholders are generally impacted by governance reforms, but they do not directly implement or comply with governance policies.

Thus, since shareholders were not included in the passage’s list of affected entities, option C is incorrect.

Correct option is A

The Kumar Mangalam Birla Committee on Corporate Governance, set up by SEBI in 1999, was formed to improve corporate governance standards in India. The committee classified its recommendations into two categories:

1. Mandatory Recommendations – These were legally enforceable and applicable to listed companies with a paid-up share capital of ₹3 crore and above. They covered:

   • Composition of the board (executive and non-executive directors).

   • Audit committee requirements (at least 3 independent directors, one with financial expertise).

   • Board meetings (minimum of four per year with a gap of no more than four months).

   • Restrictions on directorships (a director cannot be a member of more than 10 committees and cannot be the chairman of more than 5 committees).

2. Non-Mandatory Recommendations – These were suggested best practices but were not legally binding. They applied to:

   • Listed private and public sector companies.

   • Their directors, management, employees, and professionals associated.

   • These recommendations encouraged additional transparency, ethical practices, and independent decision-making.

Thus, the committee’s recommendations were clearly divided into two categories.

Information Booster:

• SEBI implemented mandatory recommendations to ensure basic governance standards in all listed companies.

• Non-mandatory recommendations were left to companies’ discretion to promote corporate self-regulation.

• This two-category approach helped smaller companies gradually adapt to governance reforms.

• The committee understood that immediate compliance with all recommendations might be difficult, which is why it separated them into mandatory and non-mandatory sections.

Additional Knowledge:

(b) Three categories (Incorrect)

• The passage does not mention three categories of recommendations.

• The committee divided the recommendations only into mandatory and non-mandatory, making this option incorrect.

(c) Four categories (Incorrect)

• There is no mention of four different recommendation categories.

• The classification was simple: either companies were required to comply (mandatory) or they could voluntarily adopt the practices (non-mandatory).

(d) Five categories (Incorrect)

• The committee’s report did not introduce five separate recommendation categories.

• Such a classification would have made compliance unnecessarily complex.

Correct option is A

The Kumar Mangalam Birla Committee on Corporate Governance, set up by SEBI in 1999, aimed to enhance transparency, accountability, and governance standards in Indian companies.

One key point mentioned in the passage is that compliance with the committee’s recommendations would require restructuring the existing boards of companies. This means that:

• Companies would need to reorganize their board composition, ensuring a proper balance of executive and non-executive directors.

• The audit committee would need at least three independent directors, one of whom should have financial expertise.

• The new governance rules would affect the management structure, requiring adjustments to ensure compliance.

Information Booster:

• The board restructuring was necessary to improve governance, transparency, and investor confidence.

• Companies had to comply with SEBI's mandatory recommendations if they had a paid-up share capital of ₹3 crore and above.

• The restructured boards were required to meet at least four times a year, ensuring continuous monitoring and oversight.

• Board members had to adhere to limits on the number of committees they could be part of, preventing overburdening and inefficiency.

• The introduction of independent directors in audit committees was a significant step toward corporate accountability.

Additional Knowledge:

(b) Foreign companies can list in the Indian stock exchanges (Incorrect)

• The passage does not mention any provisions for foreign companies listing in India.

• The recommendations primarily focused on improving governance for domestic listed companies.

• While SEBI has separate regulations for foreign listings, they were not part of the Kumar Mangalam Birla Committee's recommendations.

(c) There will be only two categories of companies (Incorrect)

• The passage discusses two categories of recommendations (mandatory and non-mandatory), not two categories of companies.

• The committee's recommendations applied to both private and public sector listed companies, but it did not categorize companies into two types.

(d) Directors will have to be re-elected (Incorrect)

• The passage does not mention any specific requirement for the re-election of directors.

• While good corporate governance may involve periodic board elections, this was not highlighted as a direct outcome of the committee’s recommendations.

Correct option is C

The Kumar Mangalam Birla Committee on Corporate Governance was established by SEBI in 1999 to improve corporate governance practices in India.

• The primary objective of the committee was to view corporate governance from the perspective of investors and shareholders and prepare a Code of Corporate Governance suited to the Indian corporate environment.

• The report focused on governance structures, accountability, transparency, and ethical business conduct.

• The recommendations included board composition, audit committees, board meetings, and limits on directorships to ensure companies followed strong governance practices.

• The passage explicitly mentions corporate governance as the focus.

Information Booster:

• Corporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled.

• It ensures transparency, fairness, and accountability in a company's relationship with its stakeholders (investors, employees, customers, and regulators).

• The Kumar Mangalam Birla Committee was one of SEBI's first major steps in improving governance in Indian companies, leading to significant reforms.

• The committee’s recommendations became the foundation for Clause 49 of SEBI’s Listing Agreement, which strengthened governance norms for listed companies in India.

Additional Knowledge:

(a) Investors' Protection (Incorrect)

• While good corporate governance indirectly protects investors, the primary focus of the committee was on governance frameworks, not direct investor protection.

• SEBI has separate regulations and committees for investor protection, but this report was not specifically about that.

(b) Investors and Shareholders Awareness (Incorrect)

• The committee aimed to improve governance standards, not directly educate investors or shareholders.

• While better governance benefits investors, the report was not focused on awareness programs.

(d) SEBI Guidelines on Market Operations (Incorrect)

• The report did not deal with SEBI’s market operation guidelines, such as stock trading, derivatives, or regulatory frameworks for stock exchanges.

• It focused on company governance structures rather than SEBI’s operational policies.