ASSIGNMENT OF CORPORATE GOVERNANCE & BUSINESS ETHICS

Submitted To Submitted By

Prof. Hari Parmeshwar Shankar Sharan Tripathi

Roll.No. 34

JIMS KALKAJI

BACKGROUND OF SATYAM

On 24th June 1987, Satyam Computer Services Ltd (Popularly known as Satyam) was

incorporated by the two brothers, B Rama Raju and B Ramalinga Raju1, as a private limited

company with just 20 employees for providing software development and consultancy services

to large corporations (the company got converted into public in 1991). During the year 1996,

company promoted four subsidiaries including Satyam Renaissance Consulting Ltd, Satyam

Enterprise Solutions Pvt. Ltd., and Satyam Infoway Pvt. Ltd. Satyam Computer Services Ltd in

1997 was selected by the Switzerland-based World Economic Forum and World Link Magazine

as one of India's most remarkable and rapidly growing entrepreneurial companies. Satyam

Infoway (Sify), a wholly owned subsidiary of Satyam Computer Services Ltd, was the first

Indian Internet Company listed on NASDAQ. Mr. B. Ramalinga Raju, Chairman of Satyam, was

awarded the IT Man of the Year 2000 Award by Dataquest. In 2001, Satyam became world’s

first ISO 9001:2000 company to be certified by BVQI. In 2003, Satyam started providing IT

services to World Bank and signed up a long term contract with it. IN 2005, Satyam was ranked

3rd in Corporate Governance Survey by Global Institutional Investors.

PROBLEMS BEGIN

Problems in Satyam begin when on December the 16th, 2008; its chairman Mr Ramalinga Raju,

in a surprise move announced a $1.6 billion bid for two Maytas companies i.e. Maytas

Infrastructure Ltd and Maytas Properties Ltd saying he wanted to deploy the cash available for

the benefit of investors.

The two companies have been promoted and controlled by Raju’s family. The thumbs down

given by investors and the market forced him to retreat within 12 hours.2 Share prices plunges

by 55% on concerns about Satyam’s corporate governance3. In a surprise move, the World Bank

announced on December 23, 2008 that Satyam has been barred from business with World Bank4

for eight years for providing Bank staff with “improper benefits” and charged with data theft and

bribing the staff.5 Share prices fell another 14% to the lowest in over 4 years. The lone

independent director since 1991, US academician Mangalam Srinivasan, announced resignation

followed by the resignation of three more independent directors on December 28 i.e. Vinod K

Dham (famously known as father of the Pentium and an ex Intel employee), M Rammohan Rao

(Dean of the renowned Indian School of Business)

and Krishna Palepu (professor at Harvard Business School)6. At last, on January 7, 2009, B.

Ramalinga Raju announced confession of over Rs. 7800 crore financial fraud and he resigned as

chairman of Satyam. He revealed in his letter that his attempt to buy Maytas companies was his

last attempt to “fill fictitious assets with real ones”. He admitted in his letter, “It was like riding a

tiger without knowing how to get off without being eaten”.7 Satyam’s promoters, two brothers B

Ramalinga Raju and B Rama Raju were arrested by the State of Andhra Pradesh police and the

Central government took control of the tainted company.8 The Raju brothers were booked for

criminal breach of trust, cheating, criminal conspiracy and forgery under the Indian Penal Code.

The Central Government reconstituted Satyam's board that included three-members, HDFC

Chairman Deepak Parekh, Ex Nasscom chairman and IT expert Kiran Karnik and former SEBI

member CA chuthan. The Central Government added three more directors to the reconstituted

Board i.e., CII chief mentor Tarun Das, former president of the Institute for Chartered

Accountants (ICAI) TN Manoharan and LIC's S Balakrishnan.

A week after Satyam founder B Ramalinga Raju’s scandalous confession, Satyam’s auditors

Price Waterhouse finally admitted that its audit report was wrong as it was based on wrong

financial statements provided by the Satyam’s management.9 On January 22, 2009, Satyam’s

CFO Srinivas Vadlamani confessed to having inflated the number of employees by 10,000. He

told CID officials interrogating him that this helped in drawing around Rs 20 crore per month

from the related but fictitious salary accounts. Andhra Pradesh State CB-CID raided the house

of Suryanarayana Raju, the youngest sibling of Ramalinga Raju who owned 4.3 per cent in

Maytas Infra, and recovered 112 sale deeds of different land purchases and development

agreements.10 Senior partners S Gopalakrishnan and Srinivas Talluri of the auditing firm

PricewaterhouseCoopers (PwC) were arrested for their alleged role in the Satyam scandal. The

State’s CID police booked them, on charges of fraud (Section 420 of the IPC) and criminal

conspiracy (120B).

TECK MAHINDRA ACQUIRED SATYAM, RENAMED IT AS

MAHINDRA

SATYAM AND REPLACED ITS EXECUTIVE BOARD AND AUDITORS

The Mahindra Group, the new owner of Satyam and the largest shareholder in Tech Mahindra, is

set to merge the two companies to transform the combined entity into an Information and

Communication Technology (ICT). The merger can happen any time in the near future since the

accounts of Satyam have been re-stated.

SFIO INVESTIGATIONS

The Serious Fraud Investigation Office (SFIO), a multi-disciplinary investigating arm of the

Ministry of Corporate Affairs, set up in 2003 with officials from various law enforcement

agencies, was asked to investigate the fudging of accounts as admitted by B. Ramalinga Raju. It

submitted its preliminary report on April 13, 2009 that runs into 29 volumes contained in 14

thousand pages. On November 30, it filed case24 against Satyam promoter B Ramalinga Raju,

his brother B Rama Raju, ex-CFO Vadlamani Srinivas, senior finance manager D. Venkatapathy

Raju and finance manager C. Srisailan, along-with company’s former statutory auditors S

Gopalakrishna and Srinivas Talluri25 under various provisions of the Indian Penal Code,

Companies Act and IT Act. The SFIO report believed the confession was not out of Raju’s call

of conscience; rather it was deliberately painting a distressing face to keep the legal and public

dealings with a light hand. According to SFIO report, Satyam founders B Ramalinga Raju, B

Rama Raju and ex-CFO Vadlamani Srinivas, and ex-vice president (finance) G Ramakrishna,

together hatched a conspiracy to artificially increase the revenues and profits in the books. The

report highlights that the falsification was done by deliberately leaving loopholes in the

Computerized Accounting System which uses ERP modules. The high-level application

landscape of Satyam internal applications has many links between various systems where either

there was no integration or there was weak integration. These loopholes were deliberately left to

insert fictitious invoices and fictitious bank statements to balance them without being detected.

Very smartly fictitious invoices were created in the invoice management system using regular

login ids, falsely intimating that any of the employees could be involved in this. In order to cover

up these fictitious entries, the receipts were first accounted with Bank of Baroda, New York

branch, (account no- 120559) and they then were relocated as fixed deposits in other accounts.

With such artificial entries started giving a blooming picture of the company, the management

decided to put the surging profits in better investments. Unfortunately, Raju was now forced to

make investments from the non-existing investments. But fate had something else in store. After

raising money, Raju disembarked them in losing propositions. As the company was constantly

losing money, Raju decided to venture into brand building to avoid bad circumstances. It was

then the promoter-directors of the company started commissioning on these inflated profits,

which is again an offence under IPC. The SFIO probe also takes a call on the account statements

of the company with the Bank of Baroda highlighting jacking up of the books ever since 2001

02.

The report also clarifies that the company had booked false fixed deposits and interests in five

banks namely, ICICI, HSBC, HDFC, BNP Paribas and Citi Bank. On the reconciliation of these

statements the company books showed major gaps with the actual existing deposits. The SFIO

has also booked this offence under various sections of IPC and the Companies Act. The

investigation also throws light on the company's paying excess taxes on the non-existing assets

and also indulging in forging current account balance statements. This helped the company forge

quarterly details of outstanding balances of fixed deposits and interest earned on them. The

report says that by showing a rosy picture of the company, the promoters were jacking up the

share price and simultaneously selling off their holdings raking in handsome money. The

company, apart from this, is also believed to have issued American Depository Shares worth $

15.2 crore out of which only $ 5.25 crore were brought in to the country.

After detailed investigation, the company was unable to convince the SFIO on the false amount.

The allocation of this amount is now considered to be under the Enforcement Directorate. Thus,

the report unveils the entire scam with proofs of all false claims.

A CASE OF INSIDER TRADING

Investigations into Satyam scam by the Crime Investigation Department (CID) of the State

Police and Central agencies have established that the promoters indulged in nastiest kind of

insider trading of the company’s shares to raise money for building a large land bank. The funds

collected by the former chairman B. Ramalinga Raju, his brother Rama Raju and their relatives

were used to purchase lands in the names of 330 companies and about 30 individuals. All of

them had equity participation in these entities, of which 327 were linked to the family. They have

been charged to use money earned by offloading their shares in Satyam to purchase lands.

According to the SFIO findings, promoters of Satyam and their family members during April

2000 to January 7, 2009 sold almost 3.9 crore shares collecting in Rs 3029.67 crore as is revealed

in the table 3. The promoters on the basis of the inflated books posed a healthy financial state of

the company in the market. As the brand built strong amongst the peers, the share price started

shooting up. During this course of time, the promoters kept their objective straight of offloading

their shares at frequent intervals. Thus, the promoters not only manipulated share prices to make

personal gains but also cheated the other shareholders and investors. SFIO report also states how

the promoters during this time traded through 15 brokers, sub-brokers and investment companies

in the market, some considered market leaders, namely, the DBS Cholamandalam Securities Ltd,

DSP Merrill Lynch Ltd and BNP Paribas equity India Pvt Ltd. During this course, the founder

ex-chairman Ramalinga Raju sold 98 lakh shares collecting in Rs 773.42 crores, whereas, his

brother Rama Raju, sold 1.1 crore shares pocketing Rs 894.32 crores.

UNCONVINCED ROLE OF INDEPENDENT DIRECTORS

The Satyam episode has brought out the failure of the present corporate governance structure that

hinges on the independent directors,53 who are supposed to bring objectivity to the oversight

function of the board and improve its effectiveness. They serve as watchdogs over management,

which involves keeping their eyes and ears open at Board deliberations with critical eye raising

queries when decisions scent wrong. Stakeholders place high expectations on them but the

Satyam’s case reveals such expectations are misplaced. Six of the nine directors on Satyam’s

Board were independent directors including US academician Mangalam Srinivasan (the

independent director since 1991), Vinod K. Dham (famously known as father of the Pentium and

an ex Intel employee), M R ammohan Rao (Dean of Indian School of Business), US Raju

(former director of IIT Delhi), T.R. Prasad (former Cabinet Secretary) and Krishna Palepu

(professor at Harvard Business School). They were men of standing & reputation.

It is amazing that seven out of the nine directors were present at the board meeting where the

unanimous decision to acquire Maytas Infra and Maytas Properties was taken. To avoid any

controversy, the two founder directors did not participate in the decision making process for the

reason that the provisions of the Companies Act and SEBI regulations mandate presence of only

disinterested directors in board meeting where the agenda of such a nature is discussed. This

naturally causes suspicion on the role performed by the independent directors present in that

meeting. What concerns everyone is that those independent directors allowed themselves to be

party to the mysterious designs of the promoter directors. It is hard to believe that such eminent

and experienced personalities could not discover the well-planned massive fraud and

manipulations.

FAKE AUDIT

PricewaterhouseCoopers (PwC)’s audit firm, Price Waterhouse, was in the auditor for Satyam

and have been auditing their accounts since 2000-01. The fraudulent role played by the

PricewaterhouseCoopers (PwC) in the failure of Satyam matches the role played by Arthur

Anderson in the collapse of Enron. S Goplakrishnan and S Talluri, partners of PwC according to

the SFIO findings, had admitted they did not come across any case or instance of fraud by the

company.

However, Ramalinga Raju admission of having fudged the accounts for several years put the role

of these statutory auditors on the dock. The SFIO report stated that the statutory auditors instead

of using an independent testing mechanism used Satyam’s investigative tools and thereby

compromised on reporting standards. The last straw of deficiencies in statutory standards was

despite having observed control deficiencies in the Information Systems and the risk of exposure

to frauds, PwC chose to keep silent and did not report the matter to the shareholders. In an

admission before the SFIO, VSP Gupta, Global Head Internal audit had said that even though the

coverage and resources of internal audit was not commensurate with the size of the business,

PwC ignored this fact and certified the company. PwC did not check even one per cent of the

invoices, neither did they pay enough attention to verification of sundry debtors, which

according to Ramalinga Raju’s confession was overstated by 23 per cent (SFIO report says it

was overstated by almost 50 per cent).57 The Statutory auditors also failed in discharging their

duty when it came to independently verifying cash and bank balances, both current account and

fixed deposits. Ideally, if the company claims it has cash on its hand, that should be enough

signal for auditors to check whether that cash in hand is available or not; whether bank balance

has been invested properly of not; whether internal control mechanisms are in place. There needs

to be a physical verification of assets owned by the company rather than simply relying on the

books prepared by the company. Hence, it was required that the auditors (PwC) independently

checked with the banks on the existence of fixed deposits, but this was not done for as large as a

sum of Rs. 5040 crore. Thus, the statutory auditors on whom the general public relied on for

accurate information not only failed in their job but themselves played a part in perpetrating

fraud by preparing a clean audit report for fudged, manipulated and cooked books. Another

development that came under investigators lens was that between 2003- 2008, audit fee from

Satyam had increased three times. Price Waterhouse received an annual fee of 4.3 crore for

financial year 2007-2008, which is almost twice as what Satyam peers i.e. TCS, Infosys, Wipro,

on an average pay their auditors. This shows that the auditors were being lured by a monetary

incentive to certify the cooked and manipulated financial statements. Events of such nature raise

doubts about statutory auditors’ discharging their duty independently and consequently on 24 th

January 2009, senior partners of PwC, S Gopalakrishna (was due for retirement by March 09)

and Srinivas Talluri were booked by Andhra Pradesh CID police on charges of fraud (section

420 of IPC) and criminal conspiracy (120B).58 The PwC has suspended the two partners, who

signed on 20 Satyam’s balance sheet and are currently in prison. The SFIO report also states that

PwC outsourced the audit function to some audit firm, Lovelock and Lewis, without the approval

of Satyam.

PROMOTER’S PLEDGING OF SHARES

According to the SFIO findings, when the company started feeling a credit crunch, they had to

resort to share pledging to raise funds. To cover such an act, the promoters transferred their

individual shareholding to SRSR Holdings Private Limited (SRSRHP) and pledged shares as a

security for the loans obtained from various Private limited entities. These were later transferred

to it by the founder B. Ramalinga Raju and his wife and the money for the same were brought to

Satyam as a liability which was not recorded in the books of account of Satyam. It was in

September 2008 that the global crises made the existence of the company further stringent. Due

to a drop in the valuation of the 21 shares the promoters had to additionally pledge 3.61 crore

shares of Maytas Infra Ltd to meet the margins. In the last attempt to cover up the frauds, Raju

tried to make an acquisition of Maytas Properties and Maytas Infra Ltd, which led to the entire

fall out.

DESIRED POLICY ACTIONS TO PREVENT ANOTHER SATYAM

Some of the steps which could be taken to strengthen corporate governance are: have in all listed

companies a code on ethics; independent regulatory body on the lines of the Public Company

Accounting Oversight Board (PCAOB) of USA; rotation of external auditors in non-financial

institutions; Reform Audit Education; split offices of chairman and CEO; encourage competent

directors; abolish practice of nominating independent directors, exempt independent directors

from vicarious liability; provide insurance cover to them; review the definition of independent

director given in clause 49 of listing agreement; close supervision of rating agencies; superior

Board practices, improve remuneration policy; legislative sanction to insider trading laws;

introduce new audit standards; make audit committee strictly independent; prohibit political

funding; install whistleblower system; introduce class action suit & compensation; make CSR

compliance a mandatory provision; have in place permanent PPP system, and enhance criminal

and civil penalties.

ASSIGNMENT ON

The corporate governance status of three listed companies

What is corporate governance?

Corporate governance refers to the set of systems, principles and processes by which a company

is governed. They provide the guidelines as to how the company can be directed or controlled

such that it can fulfil its goals and objectives in a manner that adds to the value of the company

and is also beneficial for all stakeholders in the long term. Stakeholders in this case would

include everyone ranging from the board of directors, management, shareholders to customers,

employees and society. The management of the company hence assumes the role of a trustee for

all the others.

Corporate governance is based on principles such as conducting the business with all integrity

and fairness, being transparent with regard to all transactions, making all the necessary

disclosures and decisions, complying with all the laws of the land, accountability and

responsibility towards the stakeholders and commitment to conducting business in an ethical

manner. Another point which is highlighted in the SEBI report on corporate governance is the

need for those in control to be able to distinguish between what are personal and corporate funds

while managing a company.

Why is it important?

Fundamentally, there is a level of confidence that is associated with a company that is known to

have good corporate governance. The presence of an active group of independent directors on

the board contributes a great deal towards ensuring confidence in the market. Corporate

governance is known to be one of the criteria that foreign institutional investors are increasingly

depending on when deciding on which companies to invest in. It is also known to have a positive

influence on the share price of the company. Having a clean image on the corporate governance

front could also make it easier for companies to source capital at more reasonable costs.

Unfortunately, corporate governance often becomes the centre of discussion only after the

exposure of a large scam.

CORPORATE GOVERNANCE OF ICICI BANK

Company’s philosophy on code of governance

Our corporate governance policies recognize the accountability of the Board and the importance

of its decisions to all our constituents, including customers, investors, employees and the

regulatory authorities, and to demonstrate that the shareholders are the cause of and ultimate

beneficiaries of our economic activities. The functions of the Board and the executive

management are well-defined and are distinct from one another. We have taken a series of steps

including the setting up of sub-committees of the Board to oversee the functions of executive

management. These sub-committees of the Board which mainly consists of non-executive

directors meet regularly to discharge their objectives.

Board of Directors

Our Board consists of eight members, and is responsible for the management of our business.

The Board’s role, functions, responsibility and accountability are clearly defined. In addition to

its primary role of monitoring corporate performance, the functions of the Board include :

• approving corporate philosophy and mission;

• participating in the formulation of strategic and business plans;

• reviewing and approving financial plans and budgets;

• monitoring corporate performance against strategic and business plans, including overseeing

operations;

• ensuring ethical behaviour and compliance with laws and regulations;

• reviewing and approving borrowing limits;

• formulating exposure limits; and keeping shareholders informed regarding plans, strategies and

performance.

To enable the Board to discharge its responsibilities effectively, our executive management

places detailed reports on our performance on a quarterly basis.

Audit and Risk Committee

The Audit and Risk Committee consists of five directors, all of which are independent directors.

It provides direction to and oversees the audit and risk management function, reviews the

financial accounts, interacts with statutory auditors and reviews matters of special interest. Shri

Uday M. Chitale, Smt. Lalita D. Gupte, Shri R. Rajamani, Shri B. V. Bhargava and Dr. Satish C.

Jha are the members of the Committee.

Committee of Directors

The Committee of Directors consists of five directors, including the Managing Director and

Chief Executive Officer. This Committee has delegated financial powers and approves loan

proposals and expenditures within the broad parameters of the delegated authority. Shri K. V.

Kamath, Smt. Lalita D. Gupte, Shri B. V. Bhargava, Shri Uday M. Chitale and Shri H. N. Sinor

are the members of the Committee.

Compensation Committee

The Compensation Committee consists of four directors, including the Managing Director and

Chief Executive Officer. The functions of the committee include considering and recommending

to the Board the amount of compensation payable to the executive directors, fees payable to

other directors and framing the guidelines for and management of the employee stock option

scheme. Smt. Lalita D. Gupte, Shri Somesh Sathe, Shri Uday M. Chitale and Shri H. N. Sinor are

the members of the Committee.

Nomination Committee

The Nomination Committee consists of four directors, including the Managing Director and

Chief Executive Officer. The functions of the committee include the submission of

recommendations to the Board to fill vacancies on the Board or in senior management positions.

Share Transfer Committee

The Share Transfer Committee consists of four directors, including the Managing Director and

Chief Executive Officer. This committee reviews and approves transfers of equity shares and

debentures.

Smt. Lalita D. Gupte, Shri B. V. Bhargava, Shri Uday M. Chitale and Shri H. N. Sinor are the

members of the committee.

Means of Communication

• The Board of Directors of the Company approve the audited financial accounts on a quarterly

basis within one month of the quarter for which the accounts are adopted. The Board further

takes on record the audited financial results in the prescribed proforma of the stock exchanges

within one month of close of the quarter and announces forthwith the results to all the stock

exchanges where the shares of the Company are listed as also to various news and wire agencies

all over India. Further, the highlights of quarterly audited financial results are also published in

two newspapers within 48 hours of the conclusion of the meeting of the Board in which they are

taken on record. Generally, the quarterly results in the prescribed proforma is published in

Financial Express (in English) at Mumbai and in Sandesh (in Gujarati) at Vadodara, the place of

the Registered Office of the Company. The Management’s Discussion and Analysis about the

performance of the Bank for the year ended March 31, 2012 is included in the current annual

report.

• The quarterly results as well as press releases of the Company are put on the Company’s

Website at http://www.icicibank.com.

General Shareholder Information

• Share transfer system :

The Company has formed two committees viz., Share Transfer Committee of Executives and

Share Transfer Committee of Directors for considering transfers and allied activities.

The Share Transfer Committee of Executives comprises 4 members including the Managing

Director and Chief Executive Officer. The other members are senior officials of the Bank. This

committee considers transfer request for lodgement of transfers up to 1,000 shares per folio per

lodgement. This committee meets at an interval of 7 days or thereabout. The meetings are

generally chaired by the Managing Director and Chief Executive Officer. 38 meetings of the

committee were held during the year from April 1, 2011 to March 31, 2012.

CORPORATE GOVERNANCE OF JAI PRAKASH ASSOCIATES

LTD.

COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE

Any Corporate strategy needs to be dynamic, vibrant, responsive to the changing economic

scenario and flexible enough to absorb environmental and fiscal fluctuations. It must harness the

inherent strengths of available human resources and materials, have the capacity to learn from

success or failure and, more importantly, ensure growth with human face. This has always been

the guiding philosophy in the Company and will continue to be so in future.

The historic structural reforms initiated by the Government in early 90s have irrevocably

transformed the Indian business environment landscape. Deregulation and decontrol, dismantling

of trade barriers, partial convertibility and encouragement of foreign investment pose challenges

to industry but simultaneously have opened up new avenues for growth.

BOARD OF DIRECTORS

The constitution of the Board aims at ensuring Directors commitment to participate in the affairs

of the Company with understanding and competence to deal with current and emerging business

issues.

The Company’s policy does not prescribe any pre-determined or specific tenure for Directors

(except Whole-time Directors who are appointed for a term of five years) as this has the inherent

advantage of not losing valuable contribution from the Directors who, over the years, have

developed insight into the Company and its affairs.

The Board of Directors comprised 18 Directors as on March 31, 2009 out of which 8 are

Independent Directors. As per Clause 49 of the Listing Agreement, in case of an Executive

Chairman, at least half of the Board should comprise Independent Directors. Our Board, which is

headed by Executive Chairman, earlier had 10 Independent Directors, out of which nomination

of Shri M J Subbaiah has been withdrawn by ICICI Bank Ltd. and Shri ERC Shekar has since

resigned due to personal reasons. The Company will reconstitute the Board within the prescribed

period.

AUDIT COMMITTEE

As a measure of good Corporate Governance and to provide assistance to the Board of Directors

in fulfilling the Board’s oversight responsibilities, an Audit Committee has been constituted by

the Board comprising four Directors, all being Non-Executive with majority of them being

independent. The Chairman of the Audit Committee is an Independent Director. The Company

Secretary acts as the Secretary to the Audit Committee.

The constitution of the Audit Committee also meets the requirements under Section 292A of the

Companies Act, 1956 (The Act). The terms of reference and powers of the Audit Committee are

in keeping with those contained under Clause 49 of the Listing Agreement and the Act.

The Audit Committee inter-alia reviews:

• Management Discussion and Analysis of financial conditions and results of operations.

• Quarterly and Annual Financial Results.

• Annual Budget and Variance Reports.

• Significant related party transactions.

• Internal Audit Reports/ Cost Audit Reports including letters on internal control weaknesses, if

any, issued by Statutory/Internal Auditors.

• Recommendation for appointment of Statutory and Cost Auditors.

• Appointment and remuneration of Internal Auditors.

REMUNERATION COMMITTEE

The Remuneration Committee, constitution of which is a non-mandatory requirement, was

constituted by the Board to recommend/review the Remuneration package of the Whole-time

Directors. The Remuneration Committee comprises three independent Directors.

Two meetings of Remuneration Committee were held during the year on October 18, 2008 and

January 17, 2009.

SUBSIDIARY COMPANIES

The Company has two material non-listed subsidiary companies viz. Jaiprakash Power Ventures

Limited and Jaypee Karcham Hydro Corporation Limited. Names of the independent directors of

the Company who are represented as directors on the Board of these subsidiary companies are as

under:

Jaiprakash Power Ventures Limited Shri B.K. Goswami(Director)

Jaypee Karcham Hydro Shri Gopi K. Arora(Director)

The Audit Committee of the Company reviews the Financial Statements and investments made

by the above subsidiary companies.

The minutes of the Board meetings of the above subsidiary companies and statement of

significant transactions and arrangements entered into by these subsidiaries are also placed at the

Board Meetings of the Company.

RISK MANAGEMENT

The Company manages risks as an integral part of its decision making process. The Audit

Committee and the Board of Directors are regularly apprised regarding key risk assessment and

risk mitigation mechanisms.

CEO/CFO CERTIFICATION

In terms of the requirements of clause 49 (v) of the Listing Agreement, the Executive Chairman

& CEO and Whole-time Director (Finance) & CFO have submitted necessary certificate to the

Board of Directors stating the particulars specified under the said clause. This certificate has

been reviewed by the Audit Committee and taken on record by the Board of Directors at the

respective meetings held on June 6, 2009.

SECRETARIAL AUDIT FOR RECONCILIATION OF CAPITAL

A qualified practicing Company Secretary carried out quarterly Secretarial Audit to reconcile the

total admitted capital with National Securities Depository Limited (NSDL) and Central

Depository Services (India) Limited (CDSL) and the total issued and listed capital. The audit

confirmed that the total issued/paid-up capital was in agreement with the aggregate of the total

number of shares in physical form and the total number of dematerialized shares held with

NSDL and CDSL.

MEANS OF COMMUNICATION

The quarterly, half yearly and annual results were published in leading Newspapers which

included Economic Times, Business Standard, Financial Express, Hindustan Times, Dainik

Jagran and Swatantra Bharat. The same were sent to Stock Exchanges and were also displayed

on the website of the Company, www.jalindia.com and simultaneously posted on the Electronic

Data Information Filing and Retrieval website namely www.sebiedifar.nic.in. The website is also

accessible through a hyperlink ‘EDIFAR’ from SEBI’s official website, www.sebi.gov.in. The

data is also posted on Corporate Filing and Dissemination System (CFDS) website

www.corpfiling.co.in.

The Company also displays the Presentations made by the Company to Institutional investors or

to Analysts and the Official News Releases on its website.

LISTING ON STOCK EXCHANGES AND STOCK CODES

The Equity shares of the Company are currently listed on the National Stock Exchange of India

Limited (Code: JPASSOCIAT) and The Bombay Stock Exchange Limited (Code: 532532). The

Company has paid annual listing fees due to NSE and BSE for the year 2008-2009. The FCCBs

issued by the Company during the financial years 2004-05, 2005-06 and 2007-08 are listed on

Singapore Stock Exchange.

SHARE TRANSFER SYSTEM

The shares received in physical mode, for transfer by the Company, are transferred

expeditiously, provided the documents are complete and the relative shares are not under any

dispute. The share certificates duly endorsed in favour of the Transferees are returned promptly

to shareholders. Confirmations in respect of the requests for dematerialisation of shares are

expeditiously sent to the respective depositories i.e. NSDL and CDSL.

DEMATERIALISATION OF SHARES AND LIQUIDITY

The shares of the Company are in compulsory demat segment and are available for trading in the

depository systems of both NSDL and CDSL. As on March 31, 2009, 96.82% of the Share

Capital of the Company had been dematerialized. The shares of the Company have been

included as a part of BSE Sensex w.e.f. March 14, 2008 and continue to be part of NSE Junior

Nifty. The same are actively traded on both BSE and NSE.

SHARE WARRANTS

During the year under report, out of the 5,00,00,000 (Five Crore) Warrants issued on preferential

basis to a Promoter Group Company entitling the holder to apply for allotment of one Equity

share of Rs.2 at a premium of Rs.395 on full payment, per Warrant, in one or more tranches,

1,00,00,000 (One Crore) Warrants were converted into 1,00,00,000 (One Crore) Equity Shares of

Rs.2/- each at a premium of Rs.395 per share on October 10, 2008. The Conversion Option for

the balance Warrants can be exercised by July 21, 2009 whereafter, if not exercised, the same

shall elapse.

Further during the year, considering the growth opportunities in different fields of business

interest of the Company and with a view to further augment the long term resources for growth

and diversification plans, approval of shareholders was received through Postal Ballot on

October 18, 2008 for further issue and allotment of 12 Crore (Twelve Crore) Warrants on

preferential basis to a Promoter Group Company at premium on full payment. However, the

allotment of the said 12,00,00,000 (Twelve Crore) Warrants was not made as the Board of

Directors in their meeting held on 21st October, 2008 decided to raise a sum of approx. Rs. 1800

Crores through the Rights Issue to meet the Company’s requirements of funds instead of issuing

further Warrants to the Promoters on Preferential basis. Accordingly, the said allotment as

approved by the shareholders, was not made and, thus, the same elapsed. However, keeping in

view the capital market conditions during the relevant period, the Company has not so far

launched the said Rights Issue.

CORPORATE GOVERNANCE OF BAJAJ AUTO

The commitment of Bajaj Auto Limited (‘Bajaj Auto’, ‘BAL’ or ‘the Company’) to the highest

standards of good corporate governance practices predates SEBI and clause 49 of the Listing

Agreements. Transparency, fairness, disclosure and accountability are central to the working of

the Company and its Board of Directors. Given below are the company’s corporate governance

policies and practices for 2006-07.

Board of directors

Bajaj Auto had obtained approval of the central government to increase the number of directors

from 15 to 18. Recognizing the importance of having a broad-based board, the company has

appointed two additional directors during the year — P. Murari and Niraj Bajaj. Their details are

given in the notice to the annual general meeting. Tarun Das, a non-executive independent

director, resigned from the board on 9 April 2006.

Non-executive directors’ compensation

A sitting fee of Rs.20,000 per meeting is paid to non-executive directors, including independent

directors, for every meeting of the board or committees of the board attended. This has been

fixed by the board of directors. Based on the attendance at the board and the committee

meetings, non-executive directors are also paid commission within the overall ceiling of 1 per

cent on net profits. This is currently distributed at the rate of Rs.50,000 per meeting of the board

and its committees attended by them. Payment of such commission has been approved by the

shareholders at their meeting held on 15 July 2006 for an additional period of five years with

effect from 1 April 2006. The Company currently does not have a stock option programme.

Information supplied to the board

In advance of each meeting, the board is presented with all relevant information on various

matters related to the working of the Company, especially those that require deliberation at the

highest level. Directors have separate and independent access to senior management at all times.

In addition to items which are required to be placed before the board for its noting and / or

approval, information is provided on various significant items. In terms of quality and

importance, the information supplied by management to the board of Bajaj Auto is far ahead of

the list mandated under clause 49 of the listing agreement.

Audit committee

Constitution and composition

Bajaj Auto set up its audit committee in 1987. Since then, the company has been reviewing and

making appropriate changes in the composition and working of the committee from time to time

to bring about greater effectiveness, and comply with various requirements under the Companies

Act, 1956 and clause 49 of the listing agreement. The present audit committee consists of the

following directors:

1. S H Khan, Chairman

2. D J Balaji Rao

3. J N Godrej

4. Naresh Chandra

5. Nanoo Pamnani

All members of the audit committee are independent, non-executive directors and are

‘financially literate’ as required by clause 49. Moreover, S H Khan, D J Balaji Rao, J N Godrej

and Nanoo Pamnani have ‘accounting or related financial management expertise’.

Meetings, attendance and topics discussed

During 2006-07, the audit committee met four times: 18 May 2006, 15 July 2006, 18 October

2006 and 16 January 2007. The meetings were scheduled well in advance. In addition to the

members of the audit committee, these meetings were attended by the heads of finance and

internal audit functions, the statutory auditors and cost auditors of the Company, and those

executives who were considered necessary for providing inputs to the committee. The Company

Secretary acted as the secretary to the audit committee.

Subsidiary companies

During the year, the audit committee reviewed the financial statements (in particular, the

investments made) of each unlisted Indian subsidiary company - Bajaj Auto Holdings Ltd.

(BAHL), Bajaj Allianz General Insurance Company Ltd. (BAGICL) and Bajaj Allianz Life

Insurance Company Ltd. (BALICL). Minutes of the board meetings of these subsidiary

companies were regularly placed before the board of Bajaj Auto. So too was a statement of the

significant transactions and arrangements entered into by these subsidiary companies.

Disclosures

A summary statement of transactions with related parties was placed periodically before the

audit committee during the year. Suitable disclosures have been made in the financial statements,

together with the management’s explanation in the event of any treatment being different from

that prescribed in accounting standards. At its meeting of 16 July 2005, the board laid down

procedures to inform it of the Company’s risk assessment and minimization procedures.

These would be periodically reviewed to ensure that management identifies and controls risk

through a properly defined framework.

Remuneration committee

Bajaj Auto constituted a remuneration committee of the board on 16 January 2002. For 2006-07,

the committee consisted of the following non-executive independent directors :

1. D J Balaji Rao, Chairman

2. S H Khan

3. Naresh Chandra.

Non-executive directors

Non-executive directors are paid sitting fees and commission on net profits as separately stated

in this report.

Executive directors

There was no change in the terms of remuneration paid to Rahul Bajaj, Madhur Bajaj, Rajiv

Bajaj, Sanjiv Bajaj and D S Mehta during the year under review. On their retirement, all the

executive directors, excluding D S Mehta, are entitled to superannuation benefits payable in the

form of an annuity from the Life Insurance Corporation of India — and these form a part of the

perquisites allowed to them. No pension is paid by the Company. Bajaj Auto has no stock option

plans and hence it does not form a part of the remuneration package payable to any executive

and / or non-executive director. During the year under review, none of the directors was paid any

performance-linked incentive. In 2006-07, the Company did not advance any loans to any of the

executive and / or non-executive directors. Table 3 gives details of the remuneration paid or

payable to directors during 2006-07.

Management

Management discussion and analysis

This is given as a separate chapter in the annual report.

Disclosure of material transactions Senior management made periodical disclosures to the board

relating to all material financial and commercial transactions where they had (or were deemed to

have had) personal interest that might have been in potential conflict with the interest of the

company. Warning against insider trading Comprehensive guidelines in accordance with the

SEBI regulations are in place. The code of conduct and corporate disclosure practices framed by

the company has helped in ensuring compliance with the requirements.

Communication to shareholders

Quarterly, half-yearly and annual financial results are published in numerous leading dailies,

such as Hindustan Times, Times of India, The Economic Times, Sakal, Kesari, Financial

Express, Hindu Business line and Business Standard along with the official press release. In

addition, the half-yearly and annual financial results are published in the Financial Times, UK.

The company also sends the half-yearly financial results, along with a detailed write-up, to each

household of shareholders. Bajaj Auto has its own web-site, www.bajajauto.com which contains

all important public domain information, including presentations made to the media, analysts,

institutional investors. The web-site also contains information on matters such as dividend and

bonus history, answers to frequently asked queries (FAQs) by the various shareholder categories

and details of the corporate contact persons. All financial and other vital official news releases

are also communicated to the concerned stock exchanges, besides being placed on the

Company’s web-site. The company also files the following information, statements, reports on

the electronic data information filing and retrieval (EDIFAR) website maintained on-line by

National Informatics Centre (NIC) as specified by SEBI :

Full version of the annual report including the balance sheet, profit and loss account,

directors’ report and auditors’ report, cash flow statements, half-yearly financial

statements and quarterly financial statements.

Corporate governance report.

Shareholding pattern. The company further files on-line on the approved website of

London Stock Exchange such information on financial statements and other matters as

specified by it.

Shareholders’ and investors’ grievance committee

The board of directors of Bajaj Auto constituted its shareholders’ and investors’ grievance

committee in 2000. This committee specifically looks into the shareholders’ and investors’

complaints on matters relating to transfer of shares, non-receipt of annual report, non-receipt of

dividend etc. In addition, the committee also looks into matters that can facilitate better investor

services and relations.

The committee consisted of the following non-executive independent directors as on 31 March

2007 :

1. D J Balaji Rao, Chairman

2. J N Godrej

3. Naresh Chandra

4. S H Khan

During the year under review, the committee met on 17 March 2007 to review the status of

investors’ services rendered. All members were present at the meeting. The secretarial auditor as

well as the Company Secretary (who is also the compliance officer) was also present. All

physical transfers of shares as well as requests for dematerialisation / rematerialisation are

processed in weekly cycles. Bajaj Auto has not appointed any registrar or share transfer agent

and the work regarding dematerialization / Dematerializations’ is handled in-house through its

own connectivity with the National Securities Depository Limited and Central Depository

Services (India) Limited. No query / complaint received during the year under review remained

unattended / unresolved, except where the matters were sub-judice. More details have been

furnished in the chapter on Additional Shareholder Information.

CEO / CFO certification

The CEO and CFO have certified to the board with regard to the financial statements and other

matters as required by clause 49 of the listing agreement. The certificate is contained in this

annual report.

Report on corporate governance

This chapter, read together with the information given in the chapters on Management

Discussion & Analysis and Additional Shareholder Information, constitute the compliance report

on corporate governance during 2006-07.

Auditors’ certificate on corporate governance

The company has obtained the certificate from its statutory auditors regarding compliance with

the provisions relating to corporate governance laid down in clause 49 of the listing agreement.

This report is annexed to the directors’ report, and will be sent to the stock exchanges along with

the annual return to be filed by the company.

Combined code of governance of the London Stock Exchange

The London Stock Exchange has formulated a combined code, which sets out the principles of

good governance and code of best practice. The code is not legally applicable to the company.

However, given that Bajaj Auto’s GDRs are listed on the London Stock Exchange, the company

has examined the code and has noted that it is substantially in compliance with the critical

parameters, especially in matters of transparency and disclosures.