Corporate Governance

Module – IV Indian Scenario, Public Policies, SEBI & Corporation in Global Society
 Outline
2
• Corporate Governance – Indian Scenario

• Public Policies

• SEBI

• Corporation in Global Society

by Dr. P. K. Guru 4/12/2020

Indian Scenario & Public Policies
3 Big industrial houses like Tatas, Birla's have been following there
own ways of Corporate Governance and have been able to
establish big industrial conglomerates of reputation.

However, in absence of formal framework for Corporate

Governance there has been fraud and mismanagement of
organisations and Stock Market.

Thus the formal Corporate Governance Codes and Institutions

have started from 1990’s with stricter implementation by Govt.
and Industry Bodies.
Some of the Public policies responsible for Corporate Governance
in India are as follows: -

by Dr. P. K. Guru 4/12/2020

Continued…
4 The National Guidelines on Responsible Business Conduct
(NGRBC) by MCA is a template and guiding principle for
Corporate Governance in all organisations.
Listing Regulations & Discloser Requirements (LODR) Regulations
2015 by SEBI is another frame work for listed companies to follow.
Insolvency and Bankruptcy (IBR) Codes 2016 is another
mechanism to manage companies which collapse for various
reasons so that the stakeholders are protected.
Business Responsibility Report is another way of ensuring
Corporate Governance.

by Dr. P. K. Guru 4/12/2020

 Continued…
5 Class Action – A ‘Class’ action can be initiated by shareholders
(lesser of 2% of the issued capital, 100 share holders or 5% of the
total numbers of share holders) to recover losses from Directors
and Auditors for fraudulent, wrongful actions/omissions

by Dr. P. K. Guru 4/12/2020

NGRBC 2018
6
The Ministry of Corporate Affairs (MCA), has released a set of
guidelines called the National Voluntary Guidelines on the Social,
Environmental and Economic Responsibilities of Business (NVGs) in
2011 .
After revision and updation, it was titled the National Guidelines
on Responsible Business Conduct (NGRBC). It is designed to assist
businesses to perform beyond the regulatory compliance.
NGRBC reiterate the need to encourage businesses to ensure
that they also encourage and support their suppliers, vendors,
distributors, partners and other collaborators to follow them.
Responsibility for adoption and adherence to these guidelines is
of the highest governance structure of a company/corporation,
i.e. the Board.
by Dr. P. K. Guru 4/12/2020
Continued…
7 The principles are: -
Principle 1: Businesses should conduct and govern themselves with
integrity, and in a manner that is ethical, transparent, and
accountable.
Principle 2: Businesses should provide goods and services in a
manner that is sustainable and safe.
Principle 3: Businesses should respect and promote the well-being
of all employees, including those in their value chains.
Principle 4: Businesses should respect the interests of and be
responsive to all its stakeholders.
Principle 5: Businesses should respect and promote human rights.
by Dr. P. K. Guru 4/12/2020
 Continued…
8
Principle 6: Businesses should respect and make efforts to protect
and restore the environment.
Principle 7: Businesses, when engaging in influencing public and
regulatory policy, should do so in a manner that is responsible
and transparent.
Principle 8: Businesses should promote inclusive growth and
equitable development.

Principle 9: Businesses should engage with and provide value to

their consumers in a responsible manner.

by Dr. P. K. Guru 4/12/2020

LODR Regulations 2015
9 The LODR Regulations are applicable to an entity who has listed
any of the following designated securities on recognized stock
exchange(s):
a. Specified securities i.e. equity shares and convertible securities
listed on main Board, or SME Exchange or institutional Trading
Platform;
b. Non-convertible Debt Securities, Non-convertible Redeemable
Preference Shares, Perpetual Debt Instrument, Perpetual Non-
cumulative Preference Shares;
c. Indian depository receipts;
d. Securitised Debt Instruments;
e. Units issued by mutual funds;
f. Other securities as may be specified by SEBI

by Dr. P. K. Guru 4/12/2020

Continued…
10 All listed entities shall be required to execute a “Uniform Listing
Agreement” with recognized Stock Exchanges within six months
from effective date of the Listing Agreement.
1. The listed entity shall ensure that KMP (Key Managerial Persons),
Directors, Promoters or any other person dealing with the listed
entity, complies with responsibilities or obligations,
2. Company Secretary, who shall be “Compliance Officer” shall
ensure compliances under these regulations. Any qualified
Company Secretary can be appointed as Compliance Officer
approved by a resolution of the Board.
3. “Compliance Certificate” to be provided to Stock Exchanges by
Compliance Officer and Share Transfer Agent, with respect to all the
activities relating to Share Transfer.
by Dr. P. K. Guru 4/12/2020
 Continued…
11 4. Have a Policy for preservation of documents (classifying them in
at least two categories - documents to be preserved permanently
and documents for preservation for less than 8 years).
5. File the reports, statements, documents, filings and any other
information with the recognised stock exchange(s) on the
electronic platform and proper infrastructure shall be put in place
by listed entity.
6. Dividend/ Interest / Redemption or Repayment shall be paid in
electronic mode and if not possible than by warrant ‘payable at
par’ or cheque and if amount exceeds Rs. 1500 per warrant or
cheque it has to be delivered through Speed Post only and
Courier or ordinary post shall not be allowed.

by Dr. P. K. Guru 4/12/2020

 Continued…
12 7. File with the recognised stock exchange(s) on a quarterly basis,
within 21 days from the end of each quarter, a statement giving
the details of investor complaints received and action taken. The
said statement shall be placed before the Board on Quarterly
basis.

by Dr. P. K. Guru 4/12/2020

Continued…
13 Board of Directors.
(a) board of directors shall have at least one-woman director and
not less than fifty percent of the board of directors shall comprise of
non-executive directors.
(b) For a Board with non-executive chairperson, at least one-third of
the of board shall be independent directors and if there is no
regular non-executive chairperson, at least half of the board shall
be independent directors.
If the non-executive chairperson is a promoter or is related to any
promoter or person occupying management positions at the level
of board of director or at one level below, then half of the board of
directors shall consist of independent directors.

by Dr. P. K. Guru 4/12/2020

 Continued…
14 (c) The board of directors of the top 1000 listed entities (with effect
from April 1, 2019) and the top 2000 listed entities (with effect from
April 1, 2020) shall comprise of not less than six directors.

(d) where the listed company has outstanding SR (superior rights)

equity shares, at least half of the board of directors shall comprise
of independent directors.
(1A) No listed entity shall appoint a person or continue the
directorship of any person as a non-executive director who has
attained the age of seventy five years unless a special resolution is
passed to that effect,

by Dr. P. K. Guru 4/12/2020

 Continued…
15 (1B) With effect from April 1, 2022 , the top 500 listed entities shall
ensure that the Chairperson of the board of such listed entity shall –
(a) be a non-executive director;
(b) not be related to the Managing Director or the Chief Executive
Officer

This shall not be applicable to the listed entities which do not have
any identifiable promoters as per the shareholding pattern filed with
stock exchanges.
(2) The board of directors shall meet at least four times a year, with
a maximum time gap of one hundred and twenty days between
any two meetings.

by Dr. P. K. Guru 4/12/2020

Continued…
16 (2A) The quorum for every meeting of the board of directors of the
top 1000 listed entities with effect from April 1, 2019 and of the top
2000 listed entities with effect from April 1, 2020 shall be one-third of
its total strength or three directors, whichever is higher, including at
least one independent director;
(3) The board of directors shall periodically review compliance
reports pertaining to all laws applicable to the listed entity,
prepared by the listed entity as well as steps taken by the listed
entity to rectify instances of non-compliances.
(4) The board of directors of the listed entity shall satisfy itself that
plans are in place for orderly succession for appointment to the
board of directors and senior management.
by Dr. P. K. Guru 4/12/2020
Continued…
17 (5) (a) The board of directors shall lay down a code of conduct for
all members of board of directors and senior management of the
listed entity.

(b) The code of conduct shall suitably incorporate the duties of

independent directors as laid down in the Companies Act, 2013.

(6) (a) The board of directors shall recommend all fees or

compensation, if any, paid to non-executive directors, including
independent directors and shall require approval of shareholders
in general meeting.

by Dr. P. K. Guru 4/12/2020

Continued…
18 (b)The company can pay sitting fees to non-executive directors
without approval of shareholders, if the same is within the limits
prescribed under the Companies Act, 2013.
(c) Approval of shareholders required for the maximum number of
stock options that may be granted to non-executive directors, in
any financial year and in aggregate.

(ca) The approval of shareholders shall be obtained every year for

the annual remuneration payable to a single non-executive
director exceeding fifty per cent of the total annual remuneration
payable to all non-executive directors.

(d)Independent directors shall not be entitled to any stock option.

by Dr. P. K. Guru 4/12/2020

Continued…
19 (e) The fees or compensation payable to executive directors who
are promoters or members of the promoter group, shall be subject
to the approval of the shareholders by special resolution in general
meeting, if-
(i) the annual remuneration payable to such executive director
exceeds rupees 5 crore or 2.5 per cent of the net profits of the
listed entity, whichever is higher; or

(ii) where there is more than one such director, the aggregate
annual remuneration to such directors exceeds 5 per cent of the
net profits of the listed entity:
Provided that the approval of the shareholders under this provision
shall be valid only till the expiry of the term of such director.
by Dr. P. K. Guru 4/12/2020
Continued…
20 (7) The minimum information to be placed before the board of
directors is specified in Part A of Schedule II.
(8) The chief executive officer and the chief financial officer shall
provide the compliance certificate to the board of directors as
specified in Part B of Schedule II.
(9) (a) The listed entity shall lay down procedures to inform
members of board of directors about risk assessment and
minimization procedures.
(b) The board of directors shall be responsible for framing,
implementing and monitoring the risk management plan for the
listed entity.

by Dr. P. K. Guru 4/12/2020

Continued…
21 (10) The evaluation of independent directors shall be done by
the entire board of directors which shall include –
(a) performance of the directors; and
(b) fulfilment of the independence criteria as specified in these
regulations and their independence from the management:
Provided that in the above evaluation, the directors who are
subject to evaluation shall not participate.

(11) The statement to be annexed to the notice as referred to in

sub-section (1) of section 102 of the Companies Act, 2013 for
each item of special business to be transacted at a general
meeting shall also set forth clearly the recommendation of the
board to the shareholders on each of the specific items.

by Dr. P. K. Guru 4/12/2020

 Continued…
22 Maximum number of directorships.
(1) A person can be a director in maximum eight listed entities with
effect from April 1, 2019 and in maximum seven listed entities with
effect from April 1, 2020.
(2) Notwithstanding the above, any person who is serving as a
whole-time director / managing director in any listed entity (equity
shares only) shall serve as an independent director in not more
than three listed entities.

by Dr. P. K. Guru 4/12/2020

Insolvency and Bankruptcy (IBR) Codes 2016
23 The insolvency resolution process in India has in the past involved
the simultaneous operation of several statutory instruments.
These include: -
• The Sick Industrial Companies Act, 1985,
• The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002,
• The Recovery of Debt Due to Banks and Financial Institutions Act,
1993, and
• The Companies Act, 2013.
The IBR Code was introduced to streamline the process and create
a separate system to treat all the NPA related cases on time bound
manner.
by Dr. P. K. Guru 4/12/2020
 Continued…
24 The provisions of this Code shall apply to--

a) any company incorporated under the Companies Act, 2013 (18

of 2013) or under any previous company law;

b) any other company governed by any special Act for the time
being in force, except in so far as the said provisions are
inconsistent with the provisions of such special Act;

c) any Limited Liability Partnership incorporated under the Limited

Liability Partnership Act, 2008 (6 of 2009);

by Dr. P. K. Guru 4/12/2020

 Continued…
25 d) such other body incorporated under any law for the time being
in force, as the Central Government may, by notification,
specify in this behalf;

e) personal guarantors to corporate debtors;

f) partnership firms and proprietorship firms; and

g) individuals, other than persons referred to in clause (e)

by Dr. P. K. Guru 4/12/2020

Continued…
26 The Code has created several new institutions, all of which have
specialized roles in the insolvency resolution process.

A regulatory and supervisory body, the Insolvency and Bankruptcy

Board of India (“IBBI”), which has the overall responsibility to
educate, effectively implement and operationalize the Bankruptcy
Code.
The IBBI has the added responsibility to facilitate the functionality of
the Code by studying practical implications and framing
rules/regulations to overcome any difficulty or hurdle.

by Dr. P. K. Guru 4/12/2020

Continued…
27 The Code envisages the creation of a cadre of professional
insolvency practitioners, known as Resolution Professionals (“RP”),
who are tasked with overseeing various aspects of the resolution of
insolvency.

The Code also Insolvency Professional Agencies, which are

professional bodies that will regulate the practice of insolvency
professionals.

RPs are required to enrol with insolvency professional agencies, sets

up under the Code. These agencies certify professionals, conduct
examinations, and lay out a code of conduct.

by Dr. P. K. Guru
4/12/2020
Continued…
28 The Code envisages the establishment of information utilities, to
collect and supply information to various agencies involved in the
resolution process.
It is optional for operational creditors to provide financial
information to the information utility.
The records with the utilities can be used as evidence in the
initiation of insolvency resolution procedure, and can assist various
stakeholders in arriving at an ideal resolution of distressed
companies.

by Dr. P. K. Guru 4/12/2020

Continued…
29 National e-Governance Services Ltd. (NeSL), a government
entity, has become the first information utility after receiving the
required approvals from the IBBI.
National Company Law Tribunal (NCLT) has been designed as
Adjudicatory Authority in relation to insolvency of corporate
persons under the Code.
No other court or tribunal can grant a stay against an action
initiated before the NCLT.
Appeals from the orders of the NCLT lie before the National
Company Law Appellate Tribunal (“NCLAT”). All appeals from
orders of the NCLAT lie to the Supreme Court of India.

by Dr. P. K. Guru 4/12/2020

Continued…
30 Limitation Act, 1963 is also applicable to proceedings under the
Code. Thus, time-barred claims are outside the purview of the
Code.
The Code envisages a two-stage process, first, revival and second,
liquidation:
Corporate Insolvency Resolution Process (“Insolvency Resolution
Process”)
Fast Track Corporate Insolvency Resolution Process (“Fast Track
Resolution Process”)

by Dr. P. K. Guru 4/12/2020

Continued…
31 The process of resolution / liquidation can be initiated by any one
or all of the below entities: -

1. Initiation by Financial Creditor

2. Initiation by an Operational Creditor
3. Initiation by a Corporate Applicant

by Dr. P. K. Guru 4/12/2020

Continued…
32 Upon admission of the application by a Financial
Creditor/Operational Creditor, a moratorium is declared on the
continuation and initiation of all legal proceedings against the
debtor and an interim resolution professional (“IRP”) is appointed by
the NCLT within 14 days from the insolvency commencement date.
The Insolvency Resolution Process which is required to be completed
within 180 days of the application being admitted (extendable by a
maximum period of 90 days in case of delay).
During the continuation of the moratorium the debtor is not
permitted to alienate, encumber or sell any asset with the approval
of the Committee of Creditors (“COC”).

by Dr. P. K. Guru 4/12/2020

Continued…
33 Once an IRP is appointed, the board of directors is suspended
and management vests with the IRP.

IRP’s are required to conduct the insolvency resolution process,

take over the assets and management of a company, assist
creditors in collecting information and manage the Insolvency
Resolution Process.
The term of the IRP is to continue until an RP is appointed under
Section 22.

by Dr. P. K. Guru 4/12/2020

Continued…
34 The RP appointed by the NCLT would constitute a committee of
creditors comprising of all the Financial Creditors of the corporate
debtor (“Committee of Creditors”).

A decision of the Committee of Creditors would require to be

approved by a minimum of 51% of voting share of the Financial
Creditors.

For certain key decisions of the Committee of Creditors, including:

(i) appointment of the resolution professional, (ii) approval of the
resolution plan, and (iii) increasing the time limit for the insolvency
resolution process, the voting threshold is fixed at 66%.

by Dr. P. K. Guru 4/12/2020

Business Responsibility Report (BRR)
35
BRR is a disclosure of adoption of responsible business practices
by a listed company (top 1000 companies by market
capitalisation) to all its stakeholders.
At a time and age when enterprises are increasingly seen as
critical components of the social system, they are accountable
not merely to their shareholders from a revenue and profitability
perspective but also to the larger society which is also its
stakeholder.
As per clause (f) of sub regulation (2) of regulation 34 of Listing
Regulations, the annual report shall contain a BRR describing the
initiatives taken by the listed entity from an environmental, social
and governance perspective in the prescribed format

by Dr. P. K. Guru 4/12/2020

Continued…
36 The BRR framework is divided into five sections:
a) Section A: General Information about the Organisation –
Industry Sector, Products & Services, Markets, other general
information
(b) Section B: Financial Details of the Organisation – Paid up
capital, Turnover, Profits, CSR (Corporate Social Responsibility)
spend.
(c) Section C: Other Details – BR initiatives at Subsidiaries and
Supply-chain Partners
(d) Section D: BR Information – Structure, Governance & Policies
for Business Responsibility
(e) Section E: Principle-wise Performance – Indicators to assess
performance on the Business Responsibility principles as
envisaged by the National Voluntary Guidelines (NVGs)
by Dr. P. K. Guru 4/12/2020
Class Action
37 The class represented in a class-action lawsuit might consist of
groups such as employees, consumers, investors, or patients.
Lawsuits are designated, or certified, by the court with jurisdiction
as class actions if they meet certain criteria spelled out in the law.
Being certified as a class can enable litigation to proceed more
expeditiously and cost-effectively, particularly in cases pursued
against large corporations. Because they reduce the costs of legal
pursuit, class actions may provide the only means for some
individual claimants to pursue their case.
Individuals may also have a greater chance of successfully
pursuing their claims against a defendant or defendants. Even
when represented in a class, members may choose to opt-out of
any eventual settlement and pursue their claims individually.
by Dr. P. K. Guru 4/12/2020
Continued…
38 Successful class action cases often result in hefty pre-trial
settlements.

The lawsuit Enron shareholders filed after the company’s collapse

resulted in a $7.2 billion settlement.

Another famous class action was the product liability case filed
against Toyota for faulty brakes. It resulted in a costly recall and
a $1 billion settlement.

by Dr. P. K. Guru 4/12/2020

 SEBI
39 • SEBI was established on 12.04.1988 for protecting the rights of
small investors, regulate and develop the Stock Market.
• In 1992 saw the one of the major scams in stock market by
Harshad Mehta.
• Analysts unanimously felt that if more powers had been given
to SEBI, the scam would not have happened.
• As a result, GoI brought a separate legislation by the name SEBI
Act 1992 and conferred statutory powers to it.
• This Act also fulfilled the requirement of Financial Services
Assessment Programme, developed by the World Bank and
International Monetary Fund.

by Dr. P. K. Guru 4/12/2020

 Continued…
40 • Since then, SEBI had introduced several stock markets reforms.
These reforms significantly transformed the face of Indian Stock
Markets.
• SEBI sets governance standards in which the securities market
must operate, protecting the rights of issuers and investors.
• SEBI has power to investigate circumstances where the market
or its players have been harmed and can enforce governance
standards with directives.
• An appeal process in place ensures accountability and
transparency.
• SEBI may terminate from the securities list any company that
does not comply with its governance standards and
regulations.
by Dr. P. K. Guru 4/12/2020
 Continued…
41 • SEBI also establishes rules for the brokers and underwriters.
• Stock-broker, sub-broker, share transfer agent, banker to an
issue, trustee of trust deed, registrar to an issue, merchant
banker, underwriter, portfolio manager, investment adviser -
who may be associated with securities market shall buy, sell or
deal in securities only in accordance with the conditions of the
certificate of registration obtained from SEBI.
• Depository, participant, custodian of securities, foreign
institutional investor, credit rating agency, or any other
intermediary associated with the securities market can buy or
sell or deal in securities only in accordance with, the conditions
of a certificate of registration obtained from SEBI.

by Dr. P. K. Guru 4/12/2020

 Continued…
42
• SEBI can also control the Merger & Acquisition process of
companies. The reason for control is to see if the process will
harm the market and investors or not.

• SEBI can bar any broker, company or underwriters from the

stock business if they find any irregularities.

• In consultation with ICAI, SEBI tries to bring in transparency in

the auditing process and also checks the auditors

by Dr. P. K. Guru 4/12/2020

Corporation in Global Society
43 Globalisation, under the World Trade Organisation (WTO) has lead
to free movement of people, capital, jobs, trade and information.
Global businesses operate in an borderless society and have
considerable power to effect change.
This is also diminishing the direct role of nation states.
In this fast-changing scenario, there is an urgent need for a
sustained dialogue, initially among senior business leaders from
around the world, to define the critical role of the corporation in a
global society.
37 of the world’s largest economies are corporations. Most of
these are oil companies or banks.

by Dr. P. K. Guru 4/12/2020

Continued…
44 With just a few corporations comprising most of the world’s
economic activity, it has become easier to keep a check on them
and to hold them accountable for their effects on society.
Corporations are under pressure to be responsible for their impact
on environment and society.
Today no country can claim to be economically self-sufficient.
Even India with its vast human and natural resources, cannot
insulate herself from the world economy in spite of tremendous
political opposition.

by Dr. P. K. Guru 4/12/2020

 Continued…
45 Most business enterprises, big or small, are drawn to conduct
business across national borders by way of: -
• purchasing raw materials from foreign suppliers,
• assembling products from components made in several
countries,
• selling finished goods or services to customers in other nations.
In our day-to-day life we consume goods and services that have
an international character about them—clothes, books, CDs,
computers and soft drinks.
Many MNCs have subsidiaries, affiliates and joint venture partners in
most of the developing countries.
In some cases, the number of foreign employees of corporations
may exceed that of the home country.
by Dr. P. K. Guru 4/12/2020
 Continued…
46 In 1995, Shell and U.K government planned to sink Brent Spar, a
North Atlantic storage and tanker loading platform, operated by
Royal Dutch Shell as a method of low-cost disposal.
Greenpeace activists occupied the Brent Spar and a media
campaign was launched. Initially, Shell attempted to demoralize
those activists. But there was massive public support for the
campaign across Europe.
Consumers boycotted Shell, and this led to not only drop in sales but
also plummeted their share price.
In the Brent Spar campaign, Greenpeace demonstrated the new
power of civil society. Greenpeace hailed Shell’s decision a victory:
“it is a victory for us but more importantly it is a victory for all the
people who campaigned against the dumping.”
by Dr. P. K. Guru 4/12/2020
 Continued…
47 This was at the same time when Shell was allegedly involved in the
execution of Ken Saro–Wiwa and eight other Ogoni activists in
Nigeria.
The Niger delta had been targeted for crude oil extraction since
1950s and had suffered large environmental damage. Their
execution led to international outrage against corporate human
rights abuses and ecological depletion and showed Shell as a
corporate power in a globalized world as against human rights and
environmental sustainability.
On 9th June 2009, Shell agreed to an out – of – court settlement of
U.S $ 15.5 million to victim’s families. They still denied any liability for
the deaths and said that the money was to cover the legal costs for
the families.
by Dr. P. K. Guru 4/12/2020
 Continued…
48 In order to repair its reputation, and to inform consumers, Shell
issued a Corporate Social Responsibility (CSR) policy in 1998,
becoming the first large corporation to do so.
For this, Shell interviewed around 10,000 people across 56
countries, focusing on opinion formers in media, lobby groups,
analysts and academia.
John Elkington’s pioneering consultancy SustainAbility, formally
critical of Shell, worked with Shell on Profits and Principals (1998).
‘Profits and Principals’ was the first full CSR report of a
multinational company, reporting group wide on social and
environmental impacts: adopted the “triple bottom line” –
economic, environmental and social.

by Dr. P. K. Guru 4/12/2020

 Continued…
49 Economic globalization has increased the power of Corporations
over the State. Corporations and the powerful groups that
represent them and their interest (e.g. WTO) influence the laws and
regulations that effect their activities.

This has also lead to setting up of many organisations like The

Corporation in Global Society, stream and research group (CGS).

These groups seek to promote interdisciplinary research and

dialogue among scholars, policymakers and advocates interested
in the corporation as an institutional form with social, political and
economic significance on par the state and the family.

by Dr. P. K. Guru 4/12/2020