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Corporate Governance in the Indian backdrop
Till now, we have been discussing corporate governance at a broader level. Here in this section, we will discuss corporate governance in the Indian context.
The organizational framework for corporate governance initiatives in the country is undertaken by the Ministry of Corporate Affairs (MCA) alongside The Securities Exchange Board of India (SEBI). The SEBI monitors corporate governance standards in the case of listed entities through Clause 49. The SEBI is equivalent to the Securities Exchange Commission (SEC) in the United States. On the other hand, The MCA is more like a father figure & performs regulatory & policy functions. The objective of both these organizations is the same & they work in sync with each other. Other government bodies responsible for the enforcement of corporate governance standards include:
1) The National Company Law Tribunal
2) Registrar of Companies
3) The Regional Director
4) The Competition Commission of India
Besides these, sector-specific regulatory bodies such as TRAI (Telecom Regulatory Authority of India) & IRDA (Insurance Regulatory & Development Authority) also exist.
The concept of Corporate governance gained prominence in India after the advent of the Companies Act, 2013 which together with other laws put in place strict provisions on governance. It also introduced penal consequences for non-compliance with these provisions.
The Companies Act, 2013 along with the SEBI guidelines are the principal sources of the Indian Corporate Governance regime. The provisions of the Company Act have been updated from time to time & must be read in conjunction with the rules, notifications, orders, circulars, and forms issued. Unlisted & systemically important companies are also required to comply with the Corporate Governance norms in the Companies Act.
The SEBI LODR (Listing Obligations & Disclosure Requirements) Regulations of 2015 specifies the guidelines to be adopted by listed entities. It includes all those companies that have their securities such as equity shares, bonds, mutual fund units, preference shares, debt instruments, etc listed on the exchange. The act lays down certain requirements such as the inclusion of Independent Directors, Disclosures on Related Party transactions, Accounting treatments, Formation of sub-committees of the board, Frequency of board meetings, Regulation of remuneration, and others. There is also a written code of conduct that must be adopted by all the board members as well as the senior management.
Additionally, the following laws also deal with corporate governance initiatives:
(i) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder;
(ii) The Depositories Act, 1996 and the Regulations and Bye Laws framed thereunder to the extent of Regulation 76 of SEBI (Depositories and Participants) Regulations, 2018;
(iii) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment, and External Commercial Borrowings;
(iv) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):-
(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;
(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;
(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;
(d) The Securities and Exchange Board of India (Share Based employee Benefits) Regulations, 2014;
(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;
(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Act and dealing with client to the extent of securities issued;
(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and
(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018;
The domain of Corporate Governance extends beyond laws & regulations. The fundamental objective behind corporate governance is not just mere formalities & documentation but ensuring the commitment of the board in managing the affairs of the company in a transparent manner ethically for maximization of shareholder value.
A plethora of laws already exist to take note of investor grievances. However, poor implementation & lack of penal provisions leave a lot more room for improvement. The responsibility for good governance rests more on proactive initiatives taken by the company instead of external agencies.