Corporate Governance: Importance and Impact

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

Illustrious business enterprises which

witnessed spectacular growth in boom time

became disastrous failures later due to:-



Mismanagement;



Lack of effective internal controls and

financial reporting;



Poor governance standards.

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

WorldCom



Enron



Anderson



Waste Management

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

Polly Peck



Bank of Credit and Commerce International



British & Commonwealth



Robert Maxwell’s Mirror Group International

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

Harshad Mehta’s securities scam



Preferential Allotment scam



Vanishing Companies scam



Plantation companies scam



Non-banking finance companies scam



Mutual fund scam



Global Trust Bank scam



Satyam scam

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

The society, shareholders, MFs and large

institutional 

investors insisted that corporates

adopt better governance practices.



It led to formation of several committees to

study the issue and make recommendations,

codes, guidelines on CG.



The society’s response to these frauds was

reflected in the legislative & regulatory

changes made by governments.

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

CII’s Desirable CG Code, 1998



Kumar Mangalam Birla Committee, 2000



Task Force on Corporate Excellence, 2000



Naresh Chandra Committee, 2002



Narayan Murthy Committee, 2003



Dr. J J Irani Expert Committee, 2005



CG Voluntary Guidelines, 2009

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

Guidelines issued by the Department of

Public Enterprises for Central Public Sector

Undertakings, 2010



Adi Godrej Committee Report, 2012



The Companies Act, 2013



Revised Clause 49 of the Listing Agreement

by SEBI, 2014



SEBI Listing Regulations, 2015

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

Separation of Ownership from Management:



Promoters/Shareholders should exercise

their ownership rights in the general meetings

of the company and ought not to throw their

weight in the Board meetings.



Boards should be allowed to function and

decide with complete freedom 

what is good

for the company and its various stakeholders.

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

Establish Vision and Mission.



Strategic direction, policy and advice.



Overseeing implementation of its policies.



Appointment & evaluating performance of

CEO and senior management staff.



Ensuring stakeholder relationships.



Risk mitigation.



Procuring resources.

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

..act in accordance with 

articles of company

;



..act in good faith to 

promote company’s

objects

 in interest of company, employees,

shareholders, community & environment;



..exercise his duties with 

due and reasonable

care

, skill and diligence…;



.not to involve in 

conflict of interest 

with comp



.not to achieve any 

undue gain or advantage

;



..

not to assign his office

..

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14

In re Caremark International, Inc.



The company provides health care services

and products to patients  referred to them by

a physician. Since the 

business is based on

referrals, companies such as Caremark

compensate physicians.



 A federal law, the 

Anti-Referral Payments Law

(”ARPL”)  prevents such a system.



 In 1994, 

Caremark was indicted for violating

the ARPL.

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15

In re Caremark International, Inc.



The court  held  that a board’s sustained and

systematic failure to monitor its corporation’s

compliance with governing law would be

evidence of an 

absence of good faith

.



It was held that  a lack of good faith could be

demonstrated by a 

board’s failure

 to

undertake a pre-existing duty—the 

statutory

duty to monitor.

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

Leak of poisonous

gas from the plant 

on the

night of December 2–3, 1984 made its way in

and around the shantytowns located near

plant at Bhopal and 

destroyed & damaged

thousands of lives

, vegetation, etc.



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

The court has held 

Keshub Mahindra guilty 

&

sentenced him to 

2 years of imprisonment

along with seven other accused. 

He attended

only a few meetings in a year and took only

macro view of the company’s developments

.



A non-vigilant act of non-executive chairman,

accounted for death of thousands.



“

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t

h

i

s

c

a

s

e

i

s

q

u

e

s

t

i

o

n

a

b

l

e

.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

18

T

h

e

V

o

l

k

s

w

a

g

e

n

e

m

i

s

s

i

o

n

s

s

c

a

n

d

a

l



Olaf Lies, a Volkswagen board director who

represents the state of Lower Saxony, which

has a controlling stake in the carmaker, has

said some staff acted criminally in cheating

emissions tests.



CEO has quit after the firm admitted diesel

cars were designed to cheat in tests.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

19

T

h

e

V

o

l

k

s

w

a

g

e

n

e

m

i

s

s

i

o

n

s

s

c

a

n

d

a

l



Lies told BBC 

“We only found out about the

problems in the last board meeting... So we

need to find out why the board wasn’t

informed earlier.. when they were known

about over a year ago in the United States

.”



Fines in the US alone could be about $12bn.



Huge damage has been done as millions of

people have lost their faith in VW,” said Lies.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

20

T

h

e

V

o

l

k

s

w

a

g

e

n

e

m

i

s

s

i

o

n

s

s

c

a

n

d

a

l



VW has admitted that 11m diesel cars

worldwide have been fitted with a defeat

device. VW has put aside €6.5bn (£4.8bn) to

meet the costs of recalling the cars but also

faces the threat of fines and 

legal action from

shareholders and customers

.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

21

S

e

p

a

r

a

t

i

o

n

o

f

t

h

e

r

o

l

e

s

o

f

C

h

a

i

r

p

e

r

s

o

n

&

C

E

O



Chairperson leads the board.



CEO leads the senior management team



The board evaluates the performance of

senior executives including the CEO.



Combining the role of both the CEO and the

Chairman removes an important check on

senior management’s activities.



The  Chairman should be an ID  to provide

the appropriate counterbalance and to check

the power of the CEO. 

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

22

S

e

p

a

r

a

t

i

o

n

o

f

t

h

e

r

o

l

e

s

o

f

C

h

a

i

r

p

e

r

s

o

n

&

C

E

O



Sec.203 provides that 

an individual shall not

be appointed or re-appointed as Chairperson

as well MD or CEO of the company at the

same time 

after the date of commencement

of the Act unless the:-

a.

 article of the company provide otherwise; or

b.

company does not carry multiple businesses



Prescribed classes of companies engaged in

multiple businesses with CEO for each such

business may be exempted by Govt.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

23

C

o

m

p

o

s

i

t

i

o

n

o

f

B

o

a

r

d

S

e

c

.

1

4

9



Minimum Number of Directors:

a.

Public Company : 3 directors

b.

Private Company : 2 directors

c.

One Person Company : 1 director



Maximum number of directors restricted to 15



M

a

x

i

m

u

m

d

i

r

e

c

t

o

r

s

h

i

p

s

:

2

0

c

o

m

p

a

n

i

e

s

i

n

c

l

u

d

i

n

g

1

0

d

i

r

e

c

t

o

r

s

h

i

p

s

i

n

p

u

b

l

i

c

c

o

m

p

a

n

i

e

s



Listed public company to have at least 1/3

rd

of total directors as IDs.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

24

N

u

m

b

e

r

o

f

I

D

s

i

n

o

t

h

e

r

C

o

m

p

a

n

i

e

s

:

R

u

l

e

4



Following companies shall have 

at least  two

directors as IDs:-



Public companies having

:

i.

paid up share capital of  ₹ 10 cr. +; or

ii.

turnover of ₹ 100 cr. +; or

iii.

in aggregate, outstanding loans, debentures

and deposits exceeding ₹ 50 cr.

iv.

Where a company ceases to fulfil any of three

conditions for 3 consecutive years, it shall  not

be required to comply with this requirement

25

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

M

a

x

i

m

u

m

t

e

n

u

r

e

o

f

I

n

d

e

p

e

n

d

e

n

t

D

i

r

e

c

t

o

r

s



For a term 

up to 5 consecutive years 

& shall

be 

eligible for reappointment for another term

of up to 5 consecutive years

 on passing of a

special resolution by the company.



Any tenure of an ID on the date of

commencement of the Act not to be counted.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

26

C

o

o

l

i

n

g

p

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r

i

o

d

f

o

r

a

p

p

o

i

n

t

m

e

n

t

o

f

a

n

I

D



An independent director, who completes his

term shall be eligible for appointment as

independent director in the company only

after the expiration of 3 years 

of ceasing to

be an independent director in the company.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

27

I

D

-

R

e

w

a

r

d

s



IDs shall  be entitled to receive:-



sitting fee for attending meetings of the Board

or Committees thereof or for any other

purpose as may be decided by the Board;



reimbursement of expenses 

for participation

in such meetings; and



profit related commission 

as may be

approved by the members.



I

D

s

a

r

e

n

o

t

e

n

t

i

t

l

e

d

t

o

s

t

o

c

k

o

p

t

i

o

n

.

28

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

S

e

p

a

r

a

t

e

M

e

e

t

i

n

g

s

o

f

t

h

e

I

n

d

e

p

e

n

d

e

n

t

D

i

r

e

c

t

o

r

s



IDs shall 

hold at least one meeting in a year

,

without non-IDs and management.



IDs, in the meeting shall, 

review/assess:



performance of non-IDs 

& Board as a whole;



performance of the Chairperson

, taking into

account the views of EDs and non-EDs;



quality,

quantity and timeliness of flow of

information

 between management & Board

that is necessary for the Board effectiveness.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

29

F

a

m

i

l

i

a

r

i

s

a

t

i

o

n

P

r

o

g

r

a

m

m

e

f

o

r

I

n

d

e

p

e

n

d

e

n

t

D

i

r

e

c

t

o

r

s



Familiarise IDs with the company, their roles,

rights, responsibilities

, nature of  industry,

business model of the company etc.



Details of such familiarisation programmes

shall be disclosed on the company's website

and a web link shall also be given in the

Annual Report.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

30

W

o

m

a

n

D

i

r

e

c

t

o

r

S

e

c

.

1

4

9

(

1

)



The following  companies shall appoint at

least one WD :-

i.

 every listed company;

ii.

 every other public company having: -



 paid-up share capital of ₹100 crs or more; or



  turnover of ₹ 300 crs or more.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

31

W

o

m

a

n

D

i

r

e

c

t

o

r



Women are responsible for more than 75

percent of all buying decisions.



A diverse board leads to a smarter company.



Savvy women on board help to find business

solutions encompassing new perspectives

from the female population.



Gender diversity at the top accounts for 36%

better stock price growth and 46% better

return on equity.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

32

Vacation of Office of Director

Sec. 167(1),(3)



The office of a director shall become

vacant in case he absents  himself from all

the board meetings held during a period of

12 months 

with or without seeking leave of

absence of the Board.

K

e

y

M

a

n

a

g

e

r

i

a

l

P

e

r

s

o

n

n

e

l

S

e

c

.

2

0

3

&

R

u

l

e

8



Board of every 

listed company 

and every

other 

public company having a paid-up share

capital of ₹ 10 crs or more 

shall appoint the

following whole time KMPs :-



Managing Director or Chief Executive

Officer or Manager and in their absence a

Whole Time Director;



a Company Secretary; and



a Chief Financial Officer.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

34

N

a

t

i

o

n

a

l

F

i

n

a

n

c

i

a

l

R

e

p

o

r

t

i

n

g

A

u

t

h

o

r

i

t

y

(

N

F

R

A

)

-

S

e

c

.

1

3

2



The CG may constitute a NFRA to provide for matters

relating to accounting/auditing standards which shall:-

a)

 make recommendations to CG on the formulation of

accounting and auditing policies and standards for

adoption by companies and their auditors;

b)

 monitor and enforce compliance with accounting and

auditing standards;

c)

o

v

e

r

s

e

e

t

h

e

q

u

a

l

i

t

y

o

f

s

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r

v

i

c

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o

f

p

r

o

f

e

s

s

i

o

n

a

l

s

;

d)

perform such others functions as may be prescribed.

[This section not yet notified]

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

35

N

a

t

i

o

n

a

l

F

i

n

a

n

c

i

a

l

R

e

p

o

r

t

i

n

g

A

u

t

h

o

r

i

t

y

(

N

F

R

A

)

-

S

e

c

.

1

3

2



NFRA shall have 

power to investigate into

matters  of professional or other misconduct

committed by any member or firm of CAs

.



Where professional or other misconduct is

proved, NFRA shall have the power to make

order for imposing penalty of not less than

₹ 10 lac but which may extend to 10 times of

the fees received in case of firms.

[This section not yet notified]

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

36

R

o

t

a

t

i

o

n

o

f

A

u

d

i

t

o

r

s

S

e

c

.

1

3

9

&

R

u

l

e

6



No listed company or prescribed classes of

companies, 

excluding small and one person

companies,

 shall appoint/ re-appoint:-

i.

an individual as an auditor for more than 1 term

of 5 consecutive years; and

ii.

an audit firm as an auditor for more than 2

terms of 5 consecutive years.



Period for which individual/firm has  been auditor

prior to commencement of the Act shall be taken

into account for calculating period of 5/10 years.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

37

R

o

t

a

t

i

o

n

o

f

A

u

d

i

t

o

r

s

-

C

l

a

s

s

o

f

C

o

m

p

a

n

i

e

s

R

u

l

e

5

a.

Listed company;

b.

Unlisted public companies having paid up

share capital of ₹ 10 crs or more;

c.

Private limited companies having paid up

share capital of ₹ 20 crs or more;

d.

Companies having paid up share capital of

below threshold limit mentioned in 

(b) & (c)

above, but having public borrowings from

FIs, banks or public deposits of ₹ 50 crs or ^

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

38

R

o

t

a

t

i

o

n

o

f

A

u

d

i

t

o

r

s

S

e

c

.

1

3

9

R

u

l

e

6



An auditor/ audit firm which has completed its

term shall not be eligible for re-appointment

as an auditor in same company for 5 years.



A period of 3 years from the commencement

of the Act has been provided to every

company existing on or before such

commencement to comply with this provision.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

39

A

u

d

i

t

o

r

n

o

t

t

o

r

e

n

d

e

r

c

e

r

t

a

i

n

s

e

r

v

i

c

e

s

-

S

e

c

.

1

4

4



An Auditor appointed under the new law shall

provide to the company only such services as

are approved by the BOD or the Audit

Committee but which shall not include any of

the following services:-



Accounting and book keeping services;



Internal audit;



Design & implementation of any financial

information system;

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

40

A

u

d

i

t

o

r

n

o

t

t

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n

d

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t

a

i

n

s

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r

v

i

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s

-

S

e

c

.

1

4

4



Actuarial services;



Investment  advisory  and banking services;



Outsourced financial services; and



Management services.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

41

S

e

c

r

e

t

a

r

i

a

l

A

u

d

i

t

S

e

c

.

2

0

4

&

R

u

l

e

9



Every listed and every public company

having a paid-up share capital of ₹ 50 crs or

more or turnover of ₹ 250 crs or more shall

annex with its Board’s Report, a 

Secretarial

Audit Report given by a PCS

.



The BOD in its report shall explain in full any

qualification or observation or other remarks

made by the PCS in his report.

42

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

S

e

c

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a

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i

a

l

A

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d

i

t

S

e

c

.

1

4

3

(

1

2

)

,

(

1

5

)

&

2

0

4



If a PCS  conducting SA, has reason to

believe that an 

offence involving fraud 

is

being or has been 

committed against the

company by its officers/employees,

 he shall

immediately report the matter to the Central

Government.



If a PCS does not comply with the above

provision, he shall be punishable with 

fine

 of

minimum 

₹1 lac and may extend to ₹ 25 lac

.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

43

I

n

t

e

r

n

a

l

A

u

d

i

t

-

C

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m

p

a

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e

s

t

o

a

p

p

o

i

n

t

I

A

-

S

e

c

.

1

3

8

a)

Every listed company;

b)

Every unlisted public company having,

during the preceding financial year, :-

i.

paid up share capital of ₹50 crs or more; or

ii.

turnover of ₹ 200 crs or more; or

iii.

outstanding loan or borrowing from banks or

public FIs exceeding ₹ 100 crs or more ; or

iv.

outstanding deposits of ₹ 25 crs or more.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

44

I

n

t

e

r

n

a

l

A

u

d

i

t

-

C

l

a

s

s

o

f

C

o

m

p

a

n

i

e

s

t

o

a

p

p

o

i

n

t

I

A

c) 

Every private company having:-

i.

turnover of ₹ 200 crs or more during the

preceding financial year; or

ii.

outstanding loans or borrowing from banks

or public FIs exceeding ₹ 100 crs or more at

any point of time during the preceding FY ;



S

t

a

t

u

t

o

r

y

o

r

C

o

s

t

A

u

d

i

t

o

r

c

a

n

n

o

t

b

e

t

h

e

I

n

t

e

r

n

a

l

A

u

d

i

t

o

r

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

45

A

u

d

i

t

C

o

m

m

i

t

t

e

e

S

e

c

.

1

7

7

&

R

u

l

e

6



Class of companies to constitute AC:



Every listed company;



All public companies:



with a paid up capital of ₹ 10 crs or more;



having turnover of ₹ 100 crs or more;



having in aggregate, outstanding loans or

borrowings or debentures or deposits

exceeding ₹ 50 crs or more.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

46

A

u

d

i

t

C

o

m

m

i

t

t

e

e



A qualified & independent AC shall be set up.



AC shall have 

minimum 3 directors as

members with at least 2/3

rd

 IDs.



All members of AC shall be 

financially literate



At least 

1 member shall have accounting or

related 

financial management expertise;



Chairman of the AC shall be an ID 

and shall

be present at AGM to answer shareholder

queries.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

47

T

e

r

m

s

o

f

R

e

f

e

r

e

n

c

e



Appointment of Auditors



Monitor Auditor’s independence



Effectiveness of Audit process



Examination of FSs/audit report



Approval of Related Party Transactions



Scrutiny of inter-corporate loans



Valuation of undertakings/assets of company



Monitoring end use of funds raised through

public offers

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

48

N

o

m

i

n

a

t

i

o

n

&

R

e

m

u

n

e

r

a

t

i

o

n

C

o

m

m

i

t

t

e

e

-

S

e

c

.

1

7

8



Composition: 

at least 3 NEDs out of which

not less than ½ shall be IDs

.



Chairperson of the company may be a

member but shall not chair the NRC.



The NRC shall formulate and 

recommend to

Board a policy, relating to remuneration for

the Directors/KMPs/other employees

 which

shall be disclosed in the Board’s Report.



The Chairman of NRC shall attend General

Meetings of the company.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

49

B

o

a

r

d

E

v

a

l

u

a

t

i

o

n



NRC shall carry out evaluation of every

director’s performance

.



IDs in their separate meetings shall review

the performance of non-IDs, the Chairman of

the Board and the Board as a whole.



The performance evaluation of IDs shall be

done by the entire Board, excluding the

director being evaluated.



Report of performance evaluation shall

determine extension of term of appointment

.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

50

F

u

n

c

t

i

o

n

s

o

f

C

o

m

p

a

n

y

S

e

c

r

e

t

a

r

y

S

e

c

.

2

0

5



The functions of a CS shall include:-

a.

To report to the Board about 

compliance

with the provisions 

of the Act/ Rules  and

other laws applicable to the company

;

b.

To ensure that the company complies with

the applicable 

secretarial standards

;

c.

To discharge such 

other duties 

as may be

prescribed.

51

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

D

u

t

i

e

s

o

f

C

o

m

p

a

n

y

S

e

c

r

e

t

a

r

y

1.

To provide such 

guidance to

the directors

,

as they may require, about their

responsibilities, duties and powers;

2.

To assist the Board in the conduct of the

affairs of the company;

3.

To assist and advise the Board in ensuring

good corporate governance; 

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

52

S

e

c

r

e

t

a

r

i

a

l

S

t

a

n

d

a

r

d

s

S

e

c

.

1

1

8

(

1

0

)



Every company shall observe 

Secretarial

Standards with respect to General and Board

meetings

 specified by ICSI and approved by

the Central Government.



Secretarial Standard-1 on Board Meetings

and Secretarial Standard-2 on General

Meetings have come into force wef.  1

st

 July,

2015.

53

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

V

i

g

i

l

M

e

c

h

a

n

i

s

m

S

e

c

.

1

7

7

(

9

)

&

R

u

l

e

7



Following classes of companies shall

establish a vigil mechanism 

:-

i.

Every listed company;

ii.

Companies which accept deposits from the

public; and

iii.

Companies which have borrowed money

from banks and public financial institutions

in excess of ₹ 50 crs.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

54

V

i

g

i

l

M

e

c

h

a

n

i

s

m

S

e

c

.

1

7

7



D

irectors and employees 

to report concerns

about unethical behaviour, fraud or violation

of the company’s code of conduct or ethics

policy



Adequate safeguards shall be provided

against victimisation of employees/directors.



Suitable action against repeated frivolous

complaints including reprimand.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

55

R

e

l

a

t

e

d

P

a

r

t

y

T

r

a

n

s

a

c

t

i

o

n

s

-

S

e

c

.

1

8

8



Approval of the Audit Committee



Consent of the Board by a resolution at a

meeting of the Board



Prior approval of the company by a resolution

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

56

R

e

l

a

t

e

d

P

a

r

t

y

T

r

a

n

s

a

c

t

i

o

n

s



Exceptions:

A.

Transactions entered into by the company in

its ordinary course of business and on an

arm’s length basis.

B.

Transactions between:-



two government companies;



a holding company and its wholly owned

subsidiary whose accounts are consolidated

and placed before shareholders at GBM for

approval

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

57

N

o

n

c

a

s

h

t

r

a

n

s

a

c

t

i

o

n

s

i

n

v

o

l

v

i

n

g

d

i

r

e

c

t

o

r

s

S

e

c

.

1

9

2



A company 

shall not 

enter into any arrangement

by which 

a director 

of the company or of its

holding company or any person connected with

him can 

acquire company’s assets for

consideration other than cash & vice versa

without the  approval of company in GBM.



Where the director or connected person is a

director of its holding company, then resolution

from holding company will also be required.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

58

P

r

o

h

i

b

i

t

i

o

n

o

n

F

o

r

w

a

r

d

D

e

a

l

i

n

g

s

S

e

c

.

1

9

4



Sec.194(1) imposes a 

prohibition on forward

dealings in securities of the company,

 or in its

holding, subsidiary or associate company by

any director or KMP of a company.



A director/KMP shall be liable to surrender

the securities acquired in contravention of

Sec, 194(1) which shall continue to remain in

the name of the transferor.



Punishment: 

Imprisonment up to 2 years or

fine of ₹ 1lac to ₹ 5 lac or with both.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

59



No person including any director or KMP 

of a

company 

shall enter into insider trading 

in

respect of securities of the company.



P

u

n

i

s

h

m

e

n

t

f

o

r

c

o

n

t

r

a

v

e

n

t

i

o

n

:

I

m

p

r

i

s

o

n

m

e

n

t

u

p

t

o

5

y

e

a

r

s

o

r

w

i

t

h

f

i

n

e

o

f

₹

5

l

a

c

t

o

₹

2

5

c

r

s

o

r

3

t

i

m

e

s

t

h

e

a

m

o

u

n

t

o

f

p

r

o

f

i

t

m

a

d

e

o

u

t

o

f

i

n

s

i

d

e

r

t

r

a

d

i

n

g

,

w

h

i

c

h

e

v

e

r

i

s

h

i

g

h

e

r

o

r

w

i

t

h

b

o

t

h

.

B

y

:

N

K

J

a

i

n

60

P

r

o

h

i

b

i

t

i

o

n

o

n

I

n

s

i

d

e

r

T

r

a

d

i

n

g

S

e

c

.

1

9

5

R

a

j

a

t

G

u

p

t

a

f

i

n

e

d

$

1

3

.

9

m

i

l

l

i

o

n

i

n

i

n

s

i

d

e

r

t

r

a

d

i

n

g

c

a

s

e



Rajat Gupta

, convicted of insider trading has

been 

fined $13.9 million 

to settle related civil

charges of feeding inside information to his

friend Raj Rajaratnam.



Gupta was sentenced to 

two years in 

prison

for passing confidential information

 gained

from his position as a Goldman Sachs

director to Raj Rajaratnam, founder of the

Galleon group of 14 hedge funds.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

61

C

l

a

s

s

A

c

t

i

o

n

S

e

c

.

2

4

5



Class action is a collective action filed by the

plaintiff on behalf of a class of shareholders or

users of goods or services or in relation to

matters of public interest, seeking collective

remedy

.



Requisite number of members or depositors

may file an application before NCLT, if they are

of the opinion, that the management or conduct

of the affairs of the company are being

conducted in a manner prejudicial to the interest

of the company or its members or depositors.

62

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

C

l

a

s

s

A

c

t

i

o

n

S

e

c

.

2

4

5



The application for class action may claim

damages or compensation 

or demand any

other suitable action from :-

i.

the 

company

 or its 

directors

;

ii.

the 

auditor

 including audit firm of the co;

iii.

any 

expert or advisor or consultant 

or any

other person for any incorrect or misleading

statement made to the company etc.

63

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

D

i

s

c

l

o

s

u

r

e

s



Additional disclosures in:-



 Prospectus u/s 26 & Annual Return u/s 92;



Promoters’ Stake Changes u/s 93;



Statement with AGM Notice u/s 102;



Report on AGM u/s 121;



Board’s Report and DRS u/s 134;



Failure to spend requisite amount on CSR;



RPTs u/s 188;



Merger & Amalgamation u/s 232.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

64

E

-

G

o

v

e

r

n

a

n

c

e

f

o

r

v

a

r

i

o

u

s

c

o

m

p

a

n

y

p

r

o

c

e

s

s

e

s



Maintenance

 and inspection 

of documents

 in

electronic form;



Option of keeping of 

books of accounts

 in

electronic form;



Financial statements 

to be placed on

company's website;



Holding of 

board meetings through video

conferencing

/other electronic mode;



Voting

 through electronic means etc.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

65

E

-

G

o

v

e

r

n

a

n

c

e



Online   services would reduce the need for

hard copy paper forms and have a 

positive

impact on the environment.



 It will 

substantially improve the standards of

disclosure and transparency

, involve more

and more stakeholders in the company

processes and provide 

real time information

and service to the shareholders and other

stakeholders.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

66

M

c

K

I

N

S

E

Y

S

u

r

v

e

y

o

n

C

G



There has been a continuing debate among

those who hold divergent positions on CG

practices 

whether there is any quantifiable

connection between good CG and the market

valuation of the company

. McKinsey, carried

out a survey of 188 companies from India,

Malaysia, Mexico, South Korea, Taiwan and

Turkey to determine the correlation between

good CG and market valuation of company.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l

.

c

o

m

9

8

1

8

3

4

8

8

1

1

67

M

c

K

I

N

S

E

Y

S

u

r

v

e

y

o

n

C

G



The results of the survey pointed out to a

positive correlation 

between the two and

brought out that 

good CG increases market

valuation of the company

 in following ways:-



Increases financial performance;



Transparency of dealings, thereby reducing

the risk that boards will serve their own self

interest;



Increasing investor confidence.

n

k

j

a

i

n

1

9

5

3

@

g

m

a

i

l