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CORPORATE GOVERNANCE IN INDIA

Yogesh Singh
Partner
Trilegal,
16th July 2015

The contents of this document are confidential

Corporate Governance
WHAT IS CORPORATE GOVERNANCE?
Mechanisms, processes and relations by which corporations are controlled and directed.
Framework to identify the distribution of rights and responsibilities among different
participants in a company such as the board of directors, managers, shareholders, creditors,
auditors, regulators, and other stakeholders.
Rules and procedures for decision making process in corporate affairs.

WHY IS CORPORATE GOVERNANCE SO RELEVANT?


Company is an artificial person defined by its charter documents and controlled by several
stakeholders- hence need to balance interests and provide adequate checks and balances.
Major corporate scams across the globe such as Enron and WorldCom. India has had its very
own scams (Satyam and Sahara ring a bell?) underlying importance of corporate governance.
Legal framework for corporate governance is based on Clause 49 of Listing Agreement
(only listed companies) and Companies Act, 2013 (applicable to all companies).
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Key Stakeholders

Board of
Directors

Shareholders

Independent
directors

Whole time/
executive and nonexecutive directors

Committees
Audit committee; Nomination & Remuneration
Committee [listed & public company if paid up capital
Rs. 100 cr & aggregate o/s debt Rs. 200 cr]

Stakeholders Relationship Committee [ co. 1000

Shareholders
approval
mandatory for
certain
matters.

Auditors
Mandatory
rotation
[Listed companies
and certain classes
of unlisted cos]

Non-audit
services
Independence of
auditor
Exposed to
liabilities under
Companies Act,
2013

Company
Secretary
Mandatory
appointment of
company secretary
[Listed co. & co. exceeding
prescribed paid up
capital]

Compulsory
execution of
documents
[Exception: One Person
Company and Small
Company]

Maintenance of
secretarial
standards.

shareholders/ debenture-holders/ deposit holders ]

CSR Committee [co. has net worth Rs. 500 crores;


turnover Rs. 1000 crores ; net profit Rs. 5 crores]

Disclosures and Transparency


Disclosures

Directors disclosure of interest- to be made to board of directors and filed with Registrar of Companies
(*Certain exceptions for private companies.)

Related party transactions


Related party means - director/KMP or their relative; firm, in which a director, manager or his relative is a
partner; pvt. co. in which a director or manager is a member or director; public co. in which director or
manager is director or holds along with relatives, more than 2% of its paid-up share capital; body
corporate whose board, MD or manager acts as per director or manager; person on whose directions a
director or manager acts; holding, subsidiary or associate co.; subsidiary of holding company to which
co. is also subsidiary.
Related party transactions to be approved by board of directors. Such transactions may also require
shareholders approval in case transaction exceeds prescribed value.

Financial statements, auditors report and directors report to be approved by shareholders and filed
with Registrar of Companies.

Certain matters require special resolutions to be passed in shareholders meetings.

Board resolutions with respect to transactions which only the Board is authorized to undertake.

Enforcing Authorities

Registrar of Companies
Reserve Bank of India
National Financial Reporting Authority
Serious Fraud Investigation Office
NCLT, NCLAT and Courts of Law

Equitable Treatment of Shareholders: Minority is


the new Majority
Class action suits
Minority has (thanks to an ambiguously drafted provision) right to sell its
shareholding to majority ( 90% shareholding) but minority not bound to
sell on offer to purchase made by majority
Listed companies may have one director elected by its small
shareholders [small shareholder means a shareholder holding shares
of nominal value of not more than twenty thousand rupees or such other
sum as may be prescribed]
Stakeholders relationship committee [ For co. 1000 shareholders/
debenture-holders/ deposit holders ]
Specific disclosures under scheme of merger or amalgamation with
respect to effect on minority shareholders
Option of exit to minority shareholders when variations in contracts or
objects in prospectus
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Loans and Investments


Loans to/from Directors

Loans to directors or any other person in whom a director is interested


Public companies not allowed with certain exceptions; private companies
allowed subject to certain conditions.
Loans from directors Company can accept loans from its directors only if
such director furnishes a declaration to the effect that the loan is not being
given out of borrowed funds.

Other Corporate Loans/Investments

Special resolution required for intercorporate loans/investments


exceeding 60% of companys paid up capital, free reserves & securities
premium account OR 100% of its free reserves and securities premium
account, whichever is more.
While a public company can accept deposits from its members and other
persons, a private company can accept deposits only from its members.

Corporate Social Responsibility


CSR Committee

Eligibility

Self
Execution

Implementation
Agency

In-House CSR Department


CSR Foundation [Registered
society/registered trust/section 8
company]

Penalty for non-compliance: No specific penalty for non-contribution towards CSR. However,
reasons for not making such contribution required to be set out in the boards report
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THANK YOU
These are presentation slides only and are intended solely for private circulation. The information within these slides does not purport
to be comprehensive or provide legal advice and should not be used as the basis for giving definitive advice without checking the
primary sources.
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