CORPORATE GOVERNANCE COMMITTEE IN INDIA: A LEGAL STUDY

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INTRODUCTION

We all are well aware of the term ‘corporate governance.’ In general understanding, it means the steps to set up a firm that will look over the framework of a company along with the principles and system based on which the governance of the company depends. This field of study is a field of multiple domains as it covers an array of disciplines like – accountancy, economics, ethics, financial, legal and management.[1] Even though this does not help in developing the economic prosperity of the country, it helps to shape the economic framework of the country. The most important role played by corporate governance is to maintain a balance between finance and human resource utilization to improvise corporate performance and to prevent corporate failure.

This domain of the study has gained great importance not only on the national platform but also on the international platform. The 1997 Asian financial crisis has featured genuine shortcomings in the Asian capital markets system which incorporate into its regime of the corporate governance system, and along with this, also showed the greater need for a successful corporate governance society in each and every country of the world.[2] It helps to keep transparency and accountability of the corporate sector which ultimately helps in promoting corporate fairness.

The subject of corporate administration has gained importance especially in the year 1980 and over the years when the code of corporate organization was given by the Cadbury advisory group. “According to this group the term “corporate governance ” is defined as “the structure by which organizations or corporations are facilitated and controlled” as per the report on Corporate Governance report on economical perception published in the year 1992.[3] This shows it’s clear how important it is to have a corporate committee so that the foreign countries will not feel unsafe while investing in a national company as this committee will help to show the transparency of the company.

In this paper, the author will analyze the corporate committee in India, its legal perspective, the evolution it has been through till the course of time, its need in Indian society, its importance, and its objectives. The scope of the research is only confined to the Indian Legal system where the author will analyze the Indian legal provisions dealing with the same.

WHAT IS CORPORATE GOVERNANCE?

Corporate Governance is an expression which removes the barriers of the executive’s frameworks of management of both private and public sector which are related to the corporate field of business and industry fields. Corporate administration is a bunch of principles, which intends to improvise the organization’s picture, proficiency, adequacy, and social duties.

The idea of Corporate Governance is not something which is limited to the national level it has also been covered at the international level, out of which as per the Cadbury Committee of United Kingdom this term is defined “as the framework by which organizations are coordinated and controlled.”[4] Similarly, the committee has also stated that “the function of corporate governance is to guarantee that the heads of an organization are dependent upon their obligations, commitments, and duties, to act to the greatest advantage of their organization, to provide guidance and to stay responsible to their investors and different recipients for their activities.”[5] As per the Kumara Mangalam Birla Committee set up by Security and Exchange Board of India “solid corporate governance is fundamental to versatile and lively capital business sectors and is a significant instrument of speculator assurance. The blood fills the veins of straightforward corporate revelation and excellent bookkeeping rehearses. It is the muscle that moves a practical and available budgetary announcing structure.”[6]

Types of Committees on Corporate Governance

  • CII- Confederation of Indian Industry

The CII is an organization of the business sector that attempts to establish a climate helpful for the development of the industrial sector in the nation. It is a non-government organization, is also not driven towards revenue, it is purely an industry-oversaw association, which plays a proactive function to contribute to India’s advancement process or towards the country’s development. This non-profit organisation was founded in 1895, with more than 7200 individuals as part of the organisation, all these people were from both private and public sector, imbibes Small Medium Enterprises and Multinational Corporations, and a roundabout enrolment of more than 1,00,000 people. Without any kind of precedent for the historical backdrop of corporate governance in India, this organisation outlined a wilful code of corporate administration.

This organisation intimately uses to work with the Government authorities on strategy concerning points, interfacing with thought leaders, along with upgrading proficiency, seriousness, and open pathway for the industrial sector through a path of specific administrations and international linkages. The organisation has 64 workplaces, which also includes 9 workplaces, in India, and 7 abroad workplaces in Australia, China, Egypt, France, Singapore, UK, and the USA, just as associations with two twenty-four partner associations in 90 nations. The organisation fills in as a source of perspective for Indian industry and the international business network.[7] 

  • Kumar Mangalam Birla Committee (2000)

The committee was set up by SEBI in the year 2000. The idea of the formation of the committee was proposed in the draft of Clause 49 of the Listing Agreement which is needed to be confirmed by the listed organizations/companies. Essentially the majority of the proposals were acknowledged and included by SEBI in its new Clause 49 of the Listing Agreement in 2000. The main reason for the formation of the committee is to advance and increase the expectations of good corporate governance.[8]

First report presented by is the main formal endeavor taken to formulate the “Code of Corporate Governance,” with regards to states winning of administration in organizations of Indian origin, just as the condition of capital business sectors.[9] The committee provided the suggestions into two classes, specifically, obligatory and non-obligatory also known as mandatory and non-mandatory. The proposals set-forth stood significant for corporate administration subjected to accuracy and which can be upheld through the correction of the posting arrangement is named required. However, which are either attractive or which may require change of legislative framework be non-mandatory.[10]

  • Advisory Group on Corporate Governance (2000)

This committee on corporate administration under the guidance of Dr. Patil, at that point MD’s, NSE was established by a council of Reserve Bank of India in 2000 which presented their report in March 2001, which contained a few suggestions on governance of the corporate sector.[11] This group which was formed by the Reserve Bank of India has endeavoured to think about the regulations of corporate administration in India versus the globally perceived best norms and has proposed a strategy to improve corporate administration principles in India which will also result in economic growth of the country.

  • Naresh Chandra Committee (2002)

The Committee presented its report to the MCA on December 8, 2003, recommending changes to rejuvenate the common flight of India area zeroing in on privatization, empowering unfamiliar speculation, reasonableness, feasibility, and security. After few businesses in the USA in 2001, along with severe institutions of Sarbanes Oxley Act, the Government of India designated this committee in the year 2002 to analyze and prescribe radical alterations to the law relating to evaluator customer connections and the part of free chiefs.[12] The sole purpose was set up to investigate the issues tormenting the aviation domain.

  • Narayana Murthy Committee (2003)

This committee was constituted by SEBI under the chairmanship of N.R. Narayana Murthy, executive and coach of Infosys, and commanded the Committee to audit the presentation of corporate governance in India and make fitting suggestions. The Committee presented its report in February 2003.[13]

  • J. J. Irani Committee (2005)

The committee was established by the Government of India in December 2004 with a plan to assess the remarks and proposals on ‘concept paper’ and also to give suggestions to the Government in making more effective and beneficial modern law which can meet the needs of the society.[14] The Committee presented its first report to the Government in May 2005, which is being looked at to date.  The reason behind constituting this committee is to make suggestions on[15] 

  1. Type of responses got from different partners of the company on the concept paper,
    1. issues emerging from the update of the Companies Act, 1956,
    1. achieving conservativeness by decreasing the size of the Act and eliminating excess arrangement,
    1. empowering simple and unambiguous understanding by reworking the arrangements of the law,
    1. giving more noteworthy adaptability in rulemaking to empower ideal reaction to ever-developing plans of action,
    1. securing the interests of the partners and financial specialists, including little speculators; and others…

LEGAL INTERPRETATION:

“If legitimacy is to be restored to the system, the chain of accountability must be made more effective” in the words of David S. R. Leighton and Donald H. It is well explained Corporate Governance is not just confined to corporate legislations; along with this its objective is not mere fulfillment of the requirements of the statutory framework in ensuring legitimate commitment of the board in transparently dealing with the company but also for maximizing long-term shareholder value. They are an alternative set of boards, which provide them with the authority which is driven from the powers delegated to them by the board which enables it to sub-delegate its power to committees under the Companies Act, 1956. In light of the above-stated fact, it becomes very necessary to throw light upon the legitimate, legal expectation of such committed in due consideration of the statutory framework of the legislation by which it governs and secondly whether its recommendation possesses legal compliance or not which is explained in the chapter.

  • Confederation of Indian Industry 1998[16]

The CII has been at the front line of corporate administration development in India. In April 1998, it delivered a Task report named “Desirable Corporate Governance: A Code,” which delineated a progression of deliberate suggestions concerning best-in-class practices of corporate administration for recorded organizations. Additionally, the Code was the first and likely an interesting case where an industry affiliation started to lead the pack in endorsing corporate administration norms for recorded organizations. Besides, this code is in view to provide companies to diversify and grow economically, legally through corporate administration—despite its conceivable lacunae this committee in legal context provides a legitimate view in its application and recommendations which can turn into reality taking into consideration other factors.

It is a genuinely considerable and revolutionary code; it will in this way have its doubters; and placing it into impact will be a long stretch which is indispensable for the corporate well-being of India. To value this, it is helpful to take a peep at the vision of the not-so-distant future. It is a dream that will more likely shape the upcoming corporate administration in the legal context.

  • Kumar Mangalam Birla Committee, 2000[17]

The draft report which was completed by the Committee was unveiled through the electronic form of media and furthermore put on the site of Securities and Exchange Board of India for remarks. The report was likewise shipped off to the Business chambers, Financial Institutions, stock trades, speculator affiliations, the Association of Merchant Bankers of India, in the country. The Chartered Accountants organization of India, Company Secretaries academic organization of India, academicians, masters’ well-known characters in the Capital Market new theorists, etc.

Taking due consideration of the recommendation set forth by such eminent personalities it can be duly noted that the recommendation in an application by the committee lead to an addition of provision 49 of the agreement on listing which aims at fulfilling the statutory vacuum along with aims at improving the standards of governance in corporate administration via both mandates as well as no- mandate guidelines. Lastly, the committee provides a legal application of its guidelines to all directors, Management, Employees along with other professionals associated with companies coming under the compliance of the committee recommendation. On a concluding note, it can be inferred that the legal interpretation of the committee’s recommendation provides a responsible attribute towards the management of the company which aims at an efficient corporate administration.

  • Committee on IFSC – March, 2001[18]

Corporate Governance systems contrast between nations. The corporate administration system of every nation is formed by its political, financial, and social history along with its lawful system. The committee recommendation in legal context can be determined as there have been numerous instances in the report which initiated the efficient governance policies of the UK and USA in the Indian listed companies especially in the domains of audit, board appointment of directors to calibrate its effectiveness in deliberation and performances. Lastly, the Committee recommendation provides a comparative status of recognized best standards of international organization compliances on corporate governance with the effective practice of the course of action in the legal context.

  • SEBI Committee on Corporate Governance – 2003[19]

Pool capital of companies from a huge speculator base both in the homegrown and in the worldwide capital business sectors. The recommendation of the committees can be classified on grounds of the legal domain as the primary issue dealt with the committee members is the audit transparency, risk management policy transparency, director compensation policy accountability issues along with it the recommendation set forth provides a legitimate view in respect of the above-stated issues; lastly the final parameters set forth in order to deal with the issues were fair, transparent, verifiable and enforceable providing a much more legitimate view to the existing statutory framework compliance.

  • Irani Committee on Corporate Law and Governance[20]

In order to undertake an initiative to revise the statutory framework of the company law of India with respect to an international and national dynamic environment. The committee set forth its recommendations to provide enough flexibility for the timely arrangement of the legislation as the need of the hour. The committee can be better classified on legal grounds as its suggestions provided considerate perspectives and proposals received from various segments of the general public, on the Concept Paper on organization law which was broadly circled. In conclusion, it can be induced from the announcement of the then clergyman for organization undertakings Mr. Prem Chand Gupta that the proposal of the JJ. Irani board of trustees will give amicability among the proposed organization law changes and posting arrangement of stock trades alongside the legal system of SEBI guidelines.

NEED AND IMPORTANCE OF CORPORATE GOVERNANCE COMMITTEE

The requirement for corporate administration has emerged in view of the expanding attention towards the rebelliousness principles of monetary revealing and responsibility by the board of directors of a company and the executives of corporate dispensing substantial misfortunes on financial specialists. “The breakdown of globally recognized goliaths like Enron, World Com of the US, and Xerox of Japan is supposed to be because of the negligence of good corporate administration and degenerate practices embraced by the executives of these organizations and their financial counseling firms.[21]

The downfall of these globally recognized goliaths draws the significance of an effective corporate administration model for the growth of the company, and also for the economic growth of the country. To stay away from such mishaps in India, the Security and Exchange Board of India determined the need for good corporate administration and for this reason delegated boards of trustees, for example, KM Birla Committee, NC Committee, and NM Committee. Some of such points are discussed below:

  1. Looking at the current transformation towards globalization, an organization may have investors spread over the entire nation or the world. The sloppy idea of the investors calls for ensuring their inclinations through a standard legitimate structure. This shows a perfect need for an effective corporate proprietorship which can additionally constrain the hand of the corporate administration to stick to the code to maintain their image.
  2. It gives importance to the independence of the Board of Directors who can settle on free choices and can have their own independent decisions for the benefit of the organization just as the speculator. Simultaneously, it likewise considers them responsible for their decisions.
  3. It also permits the company authorities to self-assess their practices in their internal executive gatherings to correct their slip-ups to keep away from administrative fines. An Independent Board can bring up any possible perils in the Company’s Management.
  4. Shareholders of the company in a corporate organization need due assurance for their capital because of the absence of guidelines of money related to revealing and responsibility. It has been seen in India in many instances that the organizations raise their capital from the market at a high valuation of their offers by anticipating an incorrect image of the organization’s exhibition and benefit. To protect the investors and shareholders from such unfair activity it is important to incorporate the corporate administration in the system so that there can be transparency of the work.
  5. It is considered a significant method for paying adequate importance to speculators’ complaints. Kumar Manglam Birla Committee on corporate administration found that organizations were not giving satisfactory consideration to the convenient scattering of expected data to financial specialists in India. Despite the fact that a few measures have been taken by SEBI and RBI yet significantly more steps needed to be taken by the organizations themselves to pay notice to the speculator’s complaints and assurance of their venture by embracing great principles of corporate administration.

CONCLUSION

It is pretty evident as per the above study articulated in the paper that the term ‘corporate governance’ isn’t just a norm for a synchronized and well-managed society, it is the very establishment of monetary development by keeping a caution of an abundance. The general public hopes for something more reliable from the corporate area and to meet those social desires, corporate administration is important.

The compliance of good administration would ensure financial specialists trust in the corporate sector which will prompt prominent interest of the people of society in guaranteeing they’re supported towards the development of the companies which will ultimately result in the economic growth of the country. In this manner, great corporate administration would extraordinarily profit the organizations empowering them to flourish and succeed.


[1] Shaomin Li & Anil Nair, Asian Corporate Governance or Corporate Governance in Asia? 17 Corporate Governance: An International Review 407–410 (2009).

[2] Fatimah mat yasin et al., Corporate Governance Research: A Review of Qualitative Literature (2014).

[3] Devika, Evolution of Corporate Governance in India, SCC Blog (2019), https://www.scconline.com/blog/post/2019/11/13/evolution-of-corporate-governance-in-india/.

[4] corporate governance defined, Corporate GOVERNANCE, https://www.corpgov.net/library/corporate-governance-defined/.

[5] Corporate Governance – Overview, Principles, Importance, Corporate Finance Institute , https://corporatefinanceinstitute.com/resources/knowledge/other/corporate-governance/.

[6] kumarmbirla1999.pdf, , http://www.nfcg.in/UserFiles/kumarmbirla1999.pdf.

[7] Pallav Tyagi, CII-Confederation of Indian Industry-corporate governance code https://www.slideshare.net/PallavTyagi2/ciiconfederation-of-indian-industrycorporate-governance-code.

[8] kumarmbirla1999.pdf, supra note 11.

[9] Suaj, Kumar Mangalam Birla committee, https://www.slideshare.net/Suaj/birlacommitte-120924091148phpapp02.

[10] Key Recommendations of Kumar Mangalam Birla committee Report – GK Today, https://www.gktoday.in/gk/key-recommendations-of-kumar-mangalam-birla-committee-report/.

[11] Reserve Bank of India – Reports, https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=219.

[12] Nishith Desai Associates: Naresh Chandra Committee Report on the Civil Aviation Sector, https://nishithdesai.com/information/news-storage/news-details/article/naresh-chandra-committee-report-on-the-civil-aviation-sector.html.

[13] SEBI | The Report of Shri N R Narayana Murthy Committee on Corporate Governance [For Public Comments], https://www.sebi.gov.in/reports/reports/mar-2003/the-report-of-shri-n-r-narayana-murthy-committee-on-corporate-governance-for-public-comments-_12986.html.

[14] Irani – REPORT ON COMPANY LAW.pdf, http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf.

[15] Dr J. J. Irani Committee Report on Company Law, 2005 – Business Ethics and Corporate Governance, Second Edition [Book], https://www.oreilly.com/library/view/business-ethics-and/9789332511255/xhtml/c15s26.xhtml.

[16] Islam – CORPORATE GOVERNANCE IN INDIA AN OVERVIEW.pdf, http://ijlljs.in/wp-content/uploads/2015/06/CORPORATE-GOVERNANCE-IN-INDIA-AN-OVERVIEW.pdf.

[17] kumarmbirla1999.pdf, supra note 11.

[18] Reserve Bank of India – Reports, supra note 16.

[19] narayanamurthy2003.pdf, http://www.nfcg.in/UserFiles/narayanamurthy2003.pdf.

[20] Dr J. J. Irani Committee Report on Company Law, 2005 – Business Ethics and Corporate Governance, Second Edition [Book], supra note 20.

[21] Corporate Governance – Overview, Principles, Importance, supra note 10.

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