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CHAPTER – I

INTRODUCTION

1
SCOPE OF THE STUDY

The enhanced companies in the global economy has compelled corporations to perform better by

going in for cost-cutting, corporate restructuring, mergers & acquisitions, downsizing etc. All these

activities can be carried out successfully only if there is proper corporate governance. Thus,

market forces, active individual and institutional investor participation, and enhanced competition

have helped corporate governance to evolve beyond a set of static rules. In India, the concept of

corporate governance is still in its nascent stage.

SEBI has taken various steps to strengthen corporate governance in India. Some of these steps are

as follows:

 Strengthening of disclosure norms for Initial Public Offers following the recommendations

of the Committee set up by the SEBI .

 Providing information in directors’ reports for utilization of funds and variation between

projected and actual use of funds according to the requirements of the Companies Act;

inclusion of Cash Flow and Funds Flow Statement in annual reports

 Declaration of quarterly results

 Mandatory appointment of compliance officer for monitoring the share transfer process and

ensuring compliance with various rules and regulations;

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NEED FOR THE STUDY

Corporate governance a practices are a set of structural arrangements that are emerging in free-

market economies to align the management of companies with the interests of their shareholders

(in particular) and other stakeholders, and society at large.

 Ethical Issues

 Efficiency Issues and

 Accountability Issues

Ethical Issues

Ethical issues are concerned with the problem of fraud, which is becoming wide spread in

capitalist economies. Corporations often employ fraudulent means to achieve their goals. They

form cartels to exert tremendous pressure on the government to formulate public policy, which

may sometimes go against the interests of individuals and society at large.

At times corporations may resort to unethical means like bribes, giving gifts to potential customers

and lobbying under the cover of public relations in order to achieve their goal of maximizing long-

term owner value.

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Efficiency Issues

Efficiency issues are concerned with the performance of management. Management is responsible

for ensuring reasonable returns on investment made by shareholders. In developed countries,

individuals usually invest money through mutual, retirement and tax funds. In India, however,

small shareholders are still an important source of capital for corporations as the mutual funds

industry is still emerging. The issues relating to efficiency of management is of concern to

shareholders as there is no control mechanism through which they can control the activities of the

management, whose efficiency is detrimental for returns on their (shareholders) investments.

Accountability Issues

The management of a corporation is accountable to its various stakeholders. “Accountability

Issues” emerge out of the stakeholders' need for transparency of management in the conduct of

business. Since the activities of a corporation influence the workers, customers and society at

large, some of the accountability issues are concerned with the social responsibility that a

corporation must shoulder.

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SIGNIFICANCE

 It lays down the framework for creating long-term trust between companies and the

external providers of capital

 It improves strategic thinking at the top by inducting independent directors who bring a

wealth of experience, and a host of new ideas

 It rationalizes the management and monitoring of risk that a firm faces globally

 It limits the liability of top management and directors, by carefully articulating the decision

making process

 It has long term reputational effects among key stakeholders, both internally (employees)

and externally (clients, communities, political/regulatory agents)

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OBJECTIVES OF THE STUDY

 To study the role of Directors in Indian Corporate Organisations.

 To analyze the present situation of Corporate Governance in Indian Scenario.

 To study in detail the role of Corporate Governance.

 To find out the best practices in the Organization.

 To find out the Organization Performance in the market.

 To study the cause for changes in the Organization as Corporate Culture.

 To know how an Organization can achieve their consequences by using Corporate

Governance.

 The objective explains the basic Features, Principles and Mechanisms and Controls of

Corporate Governance

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METHODOLOGY OF THE STUDY

The methodology adopted for the study is discussions with the personnel in BHARTI AXA LIFE

INSURANCE COMPANY LTD.

The data has been first analysis purpose has been divided into Primary Data and Secondary Data.

The primary data that has been collected through personnel interview with various departmental

heads in BHARTI AXA LIFE INSURANCE COMPANY LTD.

The secondary data has been collected from the BHARTI AXA LIFE INSURANCE COMPANY

LTD and the internet. Various books relating to Corporate Governance, Mechanisms and Controls

and other related topics.

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LIMITATIONS TO THE STUDY

 This is a study conducted with in a period of two months.

 During this limited period of study, the study may not be a detailed, full fledged and

utilitarian one in all aspects.

 The study contains some assumption based on the organizational performance.

 The study does not provide any predictions or forecast of the selected scrip’s.

 The study is done as per syllabus prescribed by the University Norms for the Award of the

Master of Business Administration.

 The scope of the study is limited to “Corporate Governance” with special reference to

Indian context and the BHARTI AXA LIFE INSURANCE COMPANY LTD has been

taken as a representative sample for the study.

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CHAPTER – II

REVIEW OF LITERATURE

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INTRODUCTION

Corporate Governance is looked upon as a distinctive brand and benchmark in the profile of

Corporate Excellence and the issue of Corporate Governance has assumed lot of importance in

India. Governance is a necessary discipline and a proper governance would lead to effectiveness

and transparency in the functioning of any corporate entity. Regulatory bodies for the capital

market also feel that corporate governance is a necessary requirement for the existence of entity in

the market as a whole and as a pre-condition to the listing requirement. The compliance of the

conditions of corporate governance has been given top priority by the Securities & Exchange

Board of India with the objective of providing better and effective protection to the investors and

also to make the market confident and vibrant.

As market forces increasingly replace government controls, corporate governance is fast gaining

prominence in business circles. The issue of corporate governance has become a matter of concern

for corporations as they see it as a prerequisite for attracting funds from foreign financial

institutions. Moreover, investors want to ensure that the companies they invest in are not only

managed properly, but also have proper corporate governance. Investors regard corporate

governance as a control mechanism that ensures the optimum use of human, physical and financial

resources for an enterprise. Further, GATT and WTO regulations call for adherence to good

governance practices.

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We have come across companies which apparently were very efficiently managed but which

landed in troubles due to proper governance. There are cases in India where the companies that are

considered as blue chip companies, going in for allegedly illegal transactions like Hawala

transactions, which raise questions about the level of their function namely how to ensure that the

interests of the investors are taken care of. This is not only in terms of return on investment by

effective management, but also ensuring that the enterprises do not indulge in corrupt practices or

acts, which unethical. Such practices may have adverse consequences on the long-term interests of

the stakeholders.

Corporate governance is concerned with the way in which corporate entities are governed, as

distinct from the way in which business within those companies are managed. It addresses various

issues facing the boards of directors, which relate to the interaction with top management,

relationship with the owners, other stakeholders and society at large. Ensuring better corporate

performance through involvement in strategy formulation and policymaking, corporate

conformance through top management supervision and accountability to the stakeholders come

under the ambit of corporate governance.

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The growing scale of corporations and their style of functioning have raised many new issues that

must be addressed by corporate governance. Some of these issues are:

 The growth of private companies

 The magnitude and complexity of corporate groups

 The importance of institutional investors

 Rise in hostile activities of predators (take over.)

 Insider trading

 Litigations against directors

 Need for restructuring of boards

 Changes in auditing practices

The emergence of private companies and the growing complexity of corporate groups is one of the

main concerns of corporate governance. Initially, limited liability companies were incorporated to

raise outside capital. Later, these corporations used their powers as a legal person under law to

acquire shares in other companies. This resulted in the formation of new companies that took over

assets and liabilities of the original companies before winding them up. This led to a spate of

mergers and acquisitions in the late nineteenth and twentieth centuries.

The magnitude of complexities associated with corporate groups increased in the twentieth

century. Large enterprises now trade through groups of subsidiary and associated companies. The

ownership structures of a few groups are simple to understand: a small hierarchy of wholly owned

companies functioning under a parent company. But many groups have more complex structures

that are characterized by shareholding by varied investors. The group wholly or partly owns the

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companies in the group. Cross-share holding between the group companies, cross-directorship are

common.

Usually, corporate groups operating globally go in for such complex structures so as to facilitate

management control and international tax planning. In some cases, corporates resort to such

complex structures to limit financial disclosure or for some regulatory reasons. Such complex

group structure creates difficulties in understanding the ownership, power and influence over the

group companies.

Corporate governance is also concerned with the growing influence of institutional investors on the

corporations, which create suspicion in the minds of minority investors. Minority investors believe

that larger and influential investors pressurize the corporations’ management to act in their own

interest.

Issues concerning hostile takeovers, particularly management buy-outs, are also addressed by

corporate governance. Insider trading, imbalanced boards and compliance with international

accounting standards are other issues that are addressed by corporate governance.

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EVOLUTION OF CORPORATE GOVERNANCE

Earlier the government was expected to ensure good corporate conduct. Most shareholders

believed that stringent government controls would prevent malpractices of the corporations for fear

of punishment.

However, there was soon a growing realization that government was not always the best guardian

of public interest. Shareholders began to feel the need for market driven corporate governance that

would be more democratic and flexible. This led to the birth of self imposed corporate governance

within the corporate system. The active participation of various stakeholders like shareholders,

financial institutions, etc. have strengthened the corporate governance mechanism and helped it to

evolve beyond a set of static rules.

Many factors have contributed to the evolution of corporate governance. Some of these are:

 The responsibility for ensuring good corporate conduct shifted from government to a free-

market economy.

 Active participation of individual and institutional investors.

 Increasing competition in global economy.

With the relaxation of direct and indirect administrative controls by the government, alternative

mechanisms became necessary to monitor the performance of corporations in free-markets.

Shareholders believed that market forces could ensure good corporate conduct (self imposed) by

way of rewarding success and punishing failures of corporations. Many free-market economies

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laid down effective regulations to monitor the corporations. However, regulations alone do not

ensure good governance. To become effective, they must be enforceable by law.

The second factor that boosted corporate governance is the growth of global fund management

business. Institutional investors such as insurance companies, pension and tax funds account for

more than half the capital in the corporations of USA. This trend is also growing in India. Earlier

institutional investors did not monitor the activities of the corporations in which they invested. But

the competition in the fund management business has forced them to take an active role in

governance in order to safeguard their investments in the corporations. Now, many institutional

investors express their views strongly with regard to various matters such as financial and

operational performance, business strategy, remuneration of top-level managers etc. Along with the

non-executive directors, these institutional investors monitor the performance of corporations.

The active investor demands good performance in the form of return on investment and they also

expect timely and accurate information regarding the performance of the company. Institutional

investors can exert pressure on the management as they own a considerable share in the capital and

any criticism from these investors can have a major impact on the share prices. Investors believe

that only strong corporate governance mechanisms and practices can save them from the ever-

growing power of corporations, which can influence public policy to the detriment of investors.

The enhanced companies in the global economy has compelled corporations to perform better by

going in for cost-cutting, corporate restructuring, mergers & acquisitions, downsizing etc. All these

activities can be carried out successfully only if there is proper corporate governance. Thus,

15
market forces, active individual and institutional investor participation, and enhanced competition

have helped corporate governance to evolve beyond a set of static rules. In India, the concept of

corporate governance is still in its nascent stage.

The recommendations of Kumaramangalam Birla and CII committees’ reports are the first

steps in India towards ensuring better corporate governance. Prior to these recommendations SEBI

has take various steps to strengthen corporate governance in India. Some of these steps are as

follows:

 Strengthening of disclosure norms for Initial Public Offers following the recommendations

of the Committee set up by the SEBI.

 Providing information in directors’ reports for utilization of funds and variation between

projected and actual use of funds according to the requirements of the Companies Act;

inclusion of Cash Flow and Funds Flow Statement in annual reports

 Declaration of quarterly results

 Mandatory appointment of compliance officer for monitoring the share transfer process and

ensuring compliance with various rules and regulations;

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DEFINITIONS:

Corporate Governance has succeeded in attracting a good deal of public interest since it is

important for the economic health of corporations and society. Corporate Governance is the system

by which business corporations are directed and controlled. The corporate governance structure

specifies the distribution of rights and responsibilities among different participants in the

corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the

rules and procedures for making decisions on corporate affairs.

Governance is concerned with the intrinsic nature, purpose, integrity and identity of the institution,

with a primary focus on the entity’s relevance, continuity, and fiduciary aspects. Governance

involves the monitoring and overseeing of strategic direction, socio-economic and cultural context,

externalities and constituencies of the institution.

“Corporate governance deals with the ways in which suppliers of finance to corporations

assure themselves of getting a return on their investment.”

Corporate Governance is all about “promoting corporate fairness, transparency and

accountability.”

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ISSUES INVOLVED IN CORPORATE GOVERNANCE

 Oversight of the preparation of the entity’s financial statements

 Internal controls and the independence of the entity’s auditors

 Reiview of the compensation arrangements for the chief executive officer and other senior

executives

 The way in which individuals are nominated for positions on the board

 The resources made available to directors in carrying out their duties

 Oversight and management of risk

 Dividend policy

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MECHANISMS AND CONTROLS

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise

from moral hazard and adverse selection. For example, to monitor managers’ behaviour, an

independent third party (the auditor) attests the accuracy of information provided by management

to investors. An ideal control system should regulate both motivation and ability.

Internal corporate governance controls

Internal corporate governance controls monitor activities and then take corrective action to

accomplish organisational goals. Example include:

 Monitoring by the Board of Directors: The board of directors, with its legal authority to

hire, fire and compensate top management, safeguards invested capital. Regular board

meetings allow potential problems to be identified, discussed and avoided. Whilst non-

executive directors are thought to be more independent, thy may not always result in more

effective corporate governance and may not increase performance.Different board

structures are optional for different firms. Moreover, the ability of the board to monitor the

firm’s executives is a function of its access to information.

Executive directors possess superior knowledge of the decision-making process and

therefore evaluate top management on the basis of the quality of its decisions that lead to

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financial performance outcomes, ex ante. It could be argued, therefore, that executive

directors look beyond the financial criteria.

 Remuneration: Performance-based remuneration is designed to relate some proportion of

salary to individual performance. It may be in the form of cash or non-cash payments such

as shares and share options, superannuation or other benefits. Such incentive schemes,

however, are reactive in the sense that they provide no mechanism for preventing mistakes

or opportunistic behaviour, and can elicit myopic behaviour.

External corporate governance controls

External corporate governance controls encompass the controls external stakeholders exercise over

the organisation. Examples include:

 Debt covenants

 Government regulations

 Media pressure

 Takeovers

 Competition

 Managerial labour market

 Telephone tapping

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SYSTEMATIC PROBLEMS OF CORPORATE GOVERNANCE

 Supply of accounting information: Financial accounts form a crucial link in enabling

providers of finance to monitor directors. Imperfections in the financial reporting process

will cause imperfections in the effectiveness of corporate governance. This should, ideally,

be corrected by the working of the external auditing process.

 Demand for information: A barrier to shareholders using good information is the cost of

processing it, especially to a small shareholder. The traditional answer to this problem is

the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts

that financial markets are efficient), which suggests that the shareholder will free ride on

the judgments of larger professional investors.

 Monitoring costs: In order to influence the directors, the shareholders must combine with

others to form a significant voting group which can pose a real threat of carrying

resolutions or appointing directors at a general meeting.

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CORPORATE GOVERNANCE IN INDIA

The discussion on corporate governance in India may be divided into two parts. The first deal with

corporate governance in the private sector, and the second, in the public sector.

Corporate Governance in the Private Sector

1. There are three broad categories of shareholders: Promoters (or foreign parent companies

in case of multinationals), financial institutions (including mutual funds), and individual

investors. On average, the three categories of share holders are more or less equally

important, though there are wide variations across companies.

2. For electing the directors, the majority rule voting system is typically followed. The

proportionate rule voting system (also referred to as the cumulative voting system) is

rarely, if ever, followed.

3. Company boards generally comprise of three types of directors: promoter directors (or

functional directors in the case of professionally managed companies), professional

directors, and institutionally nominated directors. Promoter directors belong to the

promoter group. Professional directors are persons of eminence who are invited by the

promoters mainly on the basis of favourable personal equations. Institutionally nominated

directors are either senior executives of the institutions or persons of repute.

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4. Individual shareholders have, by and large, been benign, tolerant, and ignorant. Though

there are some knowledgeable shareholders who raise sensible queries in the annual

general meetings, they are not able to accomplish much because the management enjoys an

informational advantage and knows how to retain the support of most of the shareholders

by offering sops here and there and portraying a glowing picture that enthuses them.

5. Professionally managed companies, in general, react somewhat slowly to new opportunities

and challenges, put greater emphasis on systems, favour the interest of incumbent

management over that of shareholders, and set relatively easy performance targets.

The corporate governance system in the private sector may therefore be characterised as the

“entrenched system”, given the firm hold of the promoters over the companies managed by

them and the disinclination and / or inability of other to challenge them. Hence, the principal

conflict in India is not between the interests of the shareholders on the one hand and the

interests of managers on the other. This seems to be true of companies controlled by families or

multinational parents or even the government.

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Corporate Governance in the Public Sector

1. The equity shares are owned wholly or substantially (meaning 51 per cent or more) by the

government.

2. The boards of public sector undertakings, appointed for all practical purposes by the

controlling administrative ministry, comprise of three categories of directors: (i) functional

directors, who are full time employees of the concerned public sector undertaking, (ii)

government directors who are bureaucrats from the controlling administrative ministry, and

(iii) outside directors.

3. There is, in general, a good deal of political and bureaucratic influence over the

management of public sector undertakings. As a result, the autonomy of the management is

often eroded. Of late, however, things have improved.

4. Public sector undertakings are constrained by various regulations and administrative

guidelines. Further, they are subject to the CAG audit and are accountable to the

parliament. This leads to an excessive emphasis on observing rules, regulations, and

guidelines. Efficiency and performance are often sacrificed at the altar of property.

5. In general, performance standards are soft, compensation levels low, incentives for

performance poor, and ‘real’ accountability weak.

The corporate governance system in the public sector may be characterised as the “transient

system” with the key players, viz., politicians, bureaucrats, and the managers taking a myopic

view of things.

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REFORMING CORPORATE GOVERNANCE

Given the deficiencies characterising corporate governance, there is a pressing need for reform.

Some ways and means of reforming corporate governance in practice are now discussed.

Strengthen the Hands of Institutional Investors: Individual investors are not likely to be active

because of the “free rider” problem. Institutional investors with a reasonable stake will have a

greater incentive to play a more active role and they can contribute immensely to improvement in

corporate governance. As Jensen says, active investors are important to a well functioning

governance system because they have the financial interest and independence to view firm

management and policies in an unbiased way. In this context, it must be mentioned that financial

institutions which currently have substantial equity and debt exposure in companies should play a

more active role in monitoring companies. There is a strong case for releasing financial institutions

from the yoke of government control, thereby improving their own corporate governance, so that

they can in turn become more effective as institutional investors.

Ensure that the Board is Informationally Well-equipped: The board of directors should receive

information about the performance of the company in all important areas. The board should

results, competitive developments in various product market segments, performance of the

company and its competitors in the capital market, and so on.

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Link Managerial Compensation to Performance: Agency problems arise because of lack of

alignment of the interest of shareholders and management. To make these interests more

congruent, a significant portion of managerial compensation should be linked to the value created

by management. Further, the rewards to the managers may be based on relative performance,

rather than absolute performance.

Enhance Contestability: If the incumbent management under – performs consistently, there

should be real possibility of dislodging it through the market for corporate control. Theory and

evidence support the view that takeovers address governance problems. Indeed, in the United

States, takeovers are widely regarded as an important corporate governance mechanism, which

serves as a check on managerial discretion. This is also supported by scientific evidence that

suggests that takeovers generate positive gains.

Improve Corporate Accounting and Practices: Periodic accounting reports are the most

important means of communication between a company and its financiers (shareholders and

lenders).while a lot of improvement has occurred in this informational tool in recent years there is

definitely room for improving corporate accounting and reporting practice with respect to

classification of items in the balance sheet, investment in group companies, intangible assets, and

so on.

Reform of corporate governance practices, thus, calls for a multi-pronged approach on the lines

suggested. It is indeed a tall order. Access to external capital on economical terms is now a major

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competitive weapon and there seems to be no better way to ensure this than to improve the quality

of corporate governance. Enlightened self-interest will prod companies to pay attention to ways

and means of reforming corporate governance.

CORPORATE GOVERNANCE ROLES AND RESPONSIBILITIES

It is the responsibility of the board of directors to ensure good corporate governance. This involves

a set of relationships between the management of a corporation, its board, its shareholders and

other relevant stakeholders. The board must agree on the corporation’s purpose (what is for), its

values (what it stands for), and the strategy to be adopted to achieve its purpose.

Good corporate governance requires that the board must govern the corporation with honesty and

enterprise in a manner, which confirms and enhances the authority which it has to function. This

authority is not only regulatory but embraces the corporation’s interaction with its shareholders and

other stakeholders such as the communities in media, public opinion makers and pressure groups.

The way in which the board handles issues related to business ethics to environment protection

may affect the interest of certain groups (stakeholders) and this inturn may have an influence on

the reputation and long-term interests of the business enterprise.

ROLE OF DIRECTORS

A director assumes two roles while governing the activities of an Organisaton. They are:

 The Performance role

 The Conformance role

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Performance role

In this role, the director performs various activities that are aimed at improving the overall

performance of the corporation. Firstly, a director act as a source of know-how, expertise and

external information, secondly, he caters to needs of the corporation for networking, representing

and adding status.

The director brings into the corporation the knowledge and experience required to solve the

problems that the board faces. Outside directors sometimes play the role of “specialists,” drawing

upon their expertise, knowledge and skills in different areas such as finance, marketing, law and

engineering. The outside directors appointed by the corporations on their boards usually play the

role of specialists. The outside directors act as the eye of the board to the external world. They

bring in information related to international markets, the financial or technological environment

etc, which is not readily accessible to the corporation. Generally outside directors are hand picked

from influential groups in the society. Corporations use them to gain access to these groups.

The directors represent the company on public forums or committees. They act with the media on

behalf of the corporation.

The presence of outside directors who are renowned in various fields enhances the status,

reputation and credibility of the board. This boosts customer/shareholder confidence in the

company.

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Conformance role

In this role the director is concerned with ensuring that the company follows the policies and

procedures laid down by the board. Directors usually accomplish this by questioning and

supervising the executive management. Conformance role is very tricky role as it involves,

monitoring and evaluating their own performance, (in case of majority/All-executive boards.)

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CODE OF CORPORATE GOVERNANCE

A code is a set of rules, which are accepted as general principles, or a set of written rules, which

state how people in a particular Organisation or country should behave. Thus, it is a set of

standards agreed on by a group of people who do a particular job. A regulation is an official rule

that lays down how things should be done. Both codes and regulations are “set of rules” or

“principles” or “standards” that are intended to control, guide, or manage behaviour or the conduct

of individuals working in Organisations, the basic difference being that codes are “self-imposed or

self-regulated” sets of rules, while regulations are “official”, i.e. imposed by the State

Government.

Many corporate governance codes were developed by non-governmental Organisations. Stock

exchanges, investor groups and professional associations were responsible for promoting and

commissioning codes or principles for corporate governance. In addition to the codes developed by

non-governmental Organisations, governments also issue rules or guide lines on matters

concerning governance through capital market regulatory Organisations like SEBI.

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CII REPORT ON CORPORATE GOVERNANCE

The liberalization of the Indian economy and the growth of international competition made Indian

industry recognize the importance of corporate governance for enhancing its ability to compete in

the global market place.

In this context the Confederation of Indian Industry (CII) took the initiative to draft some codes of

corporate governance. A national task force on corporate governance was set up in mid 1996 under

the leadership of MR. Rahul Bajaj, ex president, CII, and CMD, Bajaj Auto Ltd. Some of the

recommendations made by the CII committee on corporate governance are given below:

1. The full board should meet a minimum of six times a year, preferably at an interval of two

months and each meeting should have agenda items that require a least half a day’s

discussion.

2. Any listed company with a turnover of Rs. 100 crore and higher should have professionally

competent, independent, non-executive directors, who should constitute at least 30% of the

board if the chairman of the company is a non-executive director, or at least 50% of the

board if the chairman and managing director is the same person.

3. No single person should hold directorships in more than ten companies. This ceiling

excludes directorships in subsidiaries (where the group has over 50% stake) or associate

companies (where the group has over 25% but no more than 50% equity stake.)

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4. for non-executive directors to play a material role in corporate decision making an

maximizing long term shareholder value, they need to become active participants on the

board, not passive advisors; have clearly defined responsibilities within the board such as

the audit committee; and know-how to read a balance sheet, profit and loss account, cash

flow statements and financial ratios and have some knowledge of various company laws.

5. To secure better effort from non-executive directors, companies should pay a commission

over and above the sitting fees for the use of professional inputs. The present commission

of 1% of net profits (if the company has a managing director), or 3% (if there is no

managing director) is sufficient; Consider offering stock options, so as to relate rewards to

performance.

6. While re-appointing members of the board, Companies should give the attendance record

of the concerned directors. If a director has not been present (absent with or without leave)

for 50% or more meetings, then this should be explicitly stated in the resolution that is put

to vote. A s a general practice, one should not re-appoint any director who has not had the

time to attend even one half of the meetings.

7. Listed Companies with either a turnover of over Rs. 100 crore or a paid-up-capital of Rs.

20 crore should set up audit committees within two years.

Audit committees should consists of at least three members, all drawn from a company’s

non-executive directors, who should have adequate knowledge of finance, accounts and

basic elements of company law.

8. Under “Additional Shareholder Information”, listed companies should give data on high

and low monthly averages of share prices in a major stock exchange where the company is

listed for the reporting year; greater detail on business segments, up to 10% of turnover,

giving share in sales revenue, review of operations, analysis of markets and future

prospects.

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9. Major Indian Stock Exchanges should gradually insist upon a compliance certificate,

signed by the CEO and CFO which clearly states that, the management is responsible for

the preparation, integrity and fair presentation of the financial statements and other

information in the annual report, and which also suggest that the company will continue in

business in the course of the following year.

10. For all Companies with a paid-up-capital of Rs. 20 crore or more the quality and quantity

of disclosure. A Companies GDR issue should be the norm for any domestic issue.

11. Government must allow far greater funding to the corporate sector against the security of

shares and other papers.

12. It would be desirable for financial institutions as pure creditors to re write their covenants

to eliminate having nominee directors except in the event of serious and systematic debt

default and in cases of the debtor company not providing six monthly or quarterly

operational data to the concerned financial institutions.

13. Reduction in the number of companies where there are nominee directors. It has been

argued by Financial Institutions that there are too many companies where they are on the

board, and too few competent officers to do the task properly. So in the first instance,

financial institutions should take a policy decision to withdraw from boards of companies

where their individual shareholding is 5% or less, or total financial institutions holding is

under 10%.

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CHAPTER – III

COMPANY PROFILE

34
INTRODUCTION

BHARTI AXA LIFE INSURANCE COMPANY LTD is a profit making dividend paying Private

Limited Company (Listed) incorporated in the year 2007.

BHARTI AXA LIFE INSURANCE COMPANY LTD , is a distillery Manufacturing Company, engaged

primarily in the manufacture of Extra Natural Alcohol (ENA), Rectified Spirit (RS), Denatured

Spirit (DS), Absolute Alcohol (Ethanol) and Carbon-di-oxide (CO2), at its factory located at

Balapur (V), Dharmabad(Taluk), Nanded (Dist.) Maharashtra.

LOCATION

BHARTI AXA LIFE INSURANCE COMPANY LTD, H.NO.2-77,2-76,2-75&3-4/1 A K REDDY

Complex Chaitanyapuri x Road , Hyderabad – 500 060.

The Head office is at 6th floor Raheja Titanium II , off Western Express Highway, Goregaon (East),

Mumbai 400 063

35
Bharti Enterprises
Bharti Enterprises is a pioneer in telecom sector and the group is widening its horizons by entering

new business areas such as insurance and retail. Bharti Enterprises has created a vantage position

for itself in the global telecommunications sector. Bharti Airtel Limited occupies numero uno

status in mobile telephony in India while its brand 'Beetel' is the largest manufacturer and exporter

of world class telecom terminals. Founder of Bharti Group is Sunil Mittal. In 1983, Sunil Mittal

entered into an agreement with Germany's Siemens to manufacture the company's push-button

telephone models for the Indian market. In 1986, Sunil Bharti Mittal incorporated Bharti Telecom

Limited (BTL) and his company became the first in India to offer push-button telephones,

establishing the basis of Bharti Enterprises. This first-mover advantage allowed Sunil Mittal to

expand his manufacturing capacity elsewhere in the telecommunications market. By the early

1990s, Sunil Mittal had also launched the country's first fax machines and its first cordless

telephones. In 1992, Sunil Mittal won a bid to build a cellular phone network in Delhi. In 1995,

Sunil Mittal incorporated the cellular operations as Bharti Tele-Ventures and launched service in

Delhi. In 1996, cellular service was extended to Himachal Pradesh. In 1999, Bharti Enterprises

acquired control of JT Holdings, and extended cellular operations to Karnataka and Andhra

Pradesh. In 2000, Bharti acquired control of Skycell Communications, in Chennai. In 2001, the

company acquired control of Spice Cell in Calcutta. Bharti Enterprises went public in 2002, and

36
the company was listed on Mumbai Stock Exchange and National Stock Exchange of India. In

2003, the cellular phone operations were rebranded under the single AirTel brand. In 2004, Bharti

acquired control of Hexacom and entered Rajasthan. In 2005, Bharti extended its network to

Andaman and Nicobar. Today, Airtel is the laegest cellular service provider in India.

BHARTI’S COMPANIES

A brief introduction to each of companies is given below:

Bharti Airtel Ltd

Bharti Airtel Ltd is India's leading provider of telecommunications services. The company has 3

distinct Business divisions - Mobile, broadband & telephone services and enterprise services.

Bharti TeleTech Ltd

Bharti Teletech is India’s leading telecom & allied products company and is one of the largest

manufacturers of landline telephones in the globe. Bharti TeleTech Ltd manufactures and exports

world-class telecom equipment under the brand 'Beetel'. The company’s manufacturing operations

are spread across two ISO-9000 certified plants in Goa and Ludhiana with an installed capacity of

6 million telephone units annually upgradeable to 10 mn units.

Telecom Seychelles Ltd

Telecom Seychelles Ltd provides telecom services in Seychelles, under the brand 'Airtel'

Bharti Telesoft Ltd

Bharti Telesoft Ltd delivers best-in-class, revenue-critical VAS products and services to telecom

carriers.

Bharti Del Monte India Pvt Ltd


37
Bharti Del Monte India (P) Ltd is a venture between Bharti Enterprises and Del Monte Foods India

Pvt. Ltd, to offer fresh and processed fruits and vegetables in the domestic as well as international

markets including Europe, USA and Middle East.

Bharti Retail Pvt Ltd

Bharti Retail is a wholly owned subsidiary of Bharti Enterprises. Bharti Retail is setting up a chain

of multiple consumer friendly format stores in India which will be 100 percent owned and operated

by Bharti. Bharti Retail will provide consumers with products of affordable prices, great quality

and wider choice. The company has launched neighbourhood format stores called "Easy Day". The

stores are a one stop shop to cater to every family’s day-to-day needs.

Bharti AXA General Insurance Company

Bharti AXA General Insurance is a joint venture between Bharti Enterprises and AXA, world

leader in financial protection and wealth management. The company was incorporated in July

2007 and will bring to the Indian market a full suite of general insurance solutions to meet the

needs of businesses and individuals alike.

Bharti AXA Life Insurance Company

Bharti AXA Life Insurance Company Ltd is a joint venture between Bharti Enterprises and AXA,

world leader in financial protection and wealth management. The joint venture company has a 74%

stake from Bharti and 26% stake of AXA Asia Pacific Holdings Ltd (APH).

Bharti AXA Investment Managers Pvt. Ltd.

Bharti AXA Investment Managers Pvt. Ltd., an asset management company in India, is a joint

venture between Bharti Enterprises, AXA Investment Managers (AXA IM) and AXA Asia Pacific

Holdings (AXA APH).

Bharti Learning Systems Limited

38
Bharti Learning Systems Limited, a wholly owned subsidiary of Bharti Enterprises, is a premier

end-to-end learning and development solutions organisation that specialises in the customer

experience arena. It provides learning solutions that impact business performance through

enhanced employee productivity, customer profitability and effective talent transformation.

Jersey Airtel Ltd

Jersey Airtel, a subsidiary of Bharti, offers world-class mobile services in Jersey (Channel Islands)

over its full 2G, 3G and HSDPA enhanced network. The Company brings market-leading products

and services to its customers under Airtel-Vodafone brand.

Bharti Foundation

Bharti Foundation was set up in 2000, with the vision, “To help underprivileged children and

young people of our country realize their potential”. It aims to create and support programs that

bring about sustainable changes through education and the use of technology and information.

Bharti Realty

Bharti Realty Private Limited is the in-house Real Estate Arm for Bharti Group and facilitates by

extending support to the Group Companies for Identifying, Developing and Maintaining Quality

Real Estate in line with their Business Models. Being a seasoned player in the Real Estate

Fraternity, Bharti Realty is playing a significant role in Bharti Retail’s Roll out plan.

39
The AXA Group
In 1980, AXA did not exist. Today, the AXA Group is an important global player

whose ambition is to attain leadership in its core Financial Protection business. Its

winning strategy is built on a set of defined values and commitments.

Henri de Castries, Chairman of the AXA Group's Management Board

AXA Vision

Help our clients be life confident: this is how we see our business and how it should be done.

AXA Strategy

Attain leadership in every one of our markets through operational excellence.

AXA Brand

Do business worldwide under a global brand name.

AXA Group Profile

67 million clients, 174 935 employees.


400,000 shareholders, Revenues of €93.6 billion in 2007*.

40
Your local AXA

Key markets located in Europe, North America and Asia Pacific.

Legal structure

Overview of the AXA Group's organizational structure.

Corporate Governance

Implementing sound corporate governance principles has been a priority at AXA for many years.

Both the Group's stepped-up international expansion since the 1990s and its listing on the New

York Stock Exchange have contributed significantly to the implementation of corporate

governance standards.

AXA reviewed its corporate governance practices to take into account the recommendations

resulting from the consolidation of the reports from the AFEP and the MEDEF dated 1995

("Vienot"), 1999 ("Vienot II") and 2002 ("Bouton"), which describe certain standards and practices

of corporate governance for French listed companies, and the Sarbanes-Oxley Act (2002).

AXA and its principal subsidiaries have boards of directors or supervisory boards, audit

committees, compensation committees and independent board members.

The sections entitled "Supervisory Board" and "Supervisory Board Committees" from the AXA

Group's 2007 Annual Report, which correspond to the first part of the Chairman of the Supervisory

Board's Report on the conditions of preparation and organisation of the Supervisory Board's work,

were prepared in accordance with the French Financial Security Act of August 1st, 2003.

41
Governance structure

Since 1997, AXA has had a dual corporate governance structure consisting of a Management

Board and a Supervisory Board. This governance structure is designed to clearly separate the

powers and responsibilities of management from those of supervision.

Internal control procedures

The aim of internal control is to prevent and manage the risks relating to AXA's financial

protection and wealth management activities, and to ensure that accounting and financial

information accurately reflect AXA's activities and situation.

Corporate Responsibility

"For AXA, being responsible is first and foremost about taking on risks transferred from our

clients on a lasting basis. It also means innovating by analyzing the expectations of individuals or

businesses, factoring in the impacts of their behavior on Society over the long term. Lastly, it

represents the meaning that we give to our business: enabling our clients, through a lasting

relationship with them, to be life confident. For us, the stakes involved with being a responsible

corporate entity converge with what is at stake for our business".

AXA's divestment of companies that produce or sell cluster bombs has been
completed

AXA's divestment of its holdings in companies that produce or sell cluster bombs, decided and

announced in July 2007, has been completed in full. This initiative follows the 2006 divestmen

t from companies that produce or sell anti-personnel landmines. Both of these divestment

initiatives cover holdings among the AXA Group's general account insurance assets. In doing so,

AXA substantiates its commitment to undertake tangible actions in line with new international

guidelines.

Strategy and commitments

The Group Sustainable Development strategy, its context and its history. The Group's
42
commitments in relation to its stakeholders and international organizations. Internal governance:

the code of professional ethics, compliance with market regulations and the fight against fraud and

corruption.

Financial Protection

How does Financial Protection contribute to sustainable development: Risk Management,

property, casualty & health insurance and risk prevention, life insurance and retirement savings,

asset management and responsible investment.

Social responsibility

AXA operates as a responsible corporate entity, building a trust-based relationship with its

stakeholders: clients, shareholders, employees, suppliers, the community and the environment.

Performance

Sustainable development performance dashboards and indicators. Extra-financial ratings.

Organization

The structure and organization of the Sustainable Development department, which defines and

coordinates the implementation of the Group's sustainable development strategy.

AXA is committed to delivering clear, complete and reliable information.

The next coming events


2009
02/19 Full Year 2008 earnings release
04/30 Shareholders' meeting
05/07 First Quarter 2009 Activity Indicators release
07/30 Half Year 2009 earnings release
10/29 First Nine Months 2009 Activity Indicators release

43
Bharti Axa Profiler:
Bharti AXA Investment Managers Pvt. Ltd. is a joint venture between Bharti Ventures Limited –

one of the foremost business groups in India, AXA Investment Managers (AXA IM) and AXA

Asia Pacific Holdings (AXA APH) (through NMIPL). We focus on excellence and performance,

with our professional fund management taking care of your imperative financial needs, keeping

tomorrow in check while tracking a dynamic today

Corporate Profile
Bharti AXA Life Insurance is a joint venture between Bharti, one of India’s leading business

groups with interests in telecom, agri business and retail, and AXA, world leader in financial

protection and wealth management. The joint venture company has a 74% stake from Bharti and

26% stake of AXA. The company launched national operations in December 2006. Today, we

have over 5200 employees across over 12 states in the country. Our business philosophy is built

around the promise of making people "Life Confident".

As we expand our presence across the country to cater to your insurance and wealth management

needs with our product and service offerings, we continue to bring 'life confidence' to customers

44
spread across India. Whatever your plans in life, you can be confident that Bharti AXA Life will

offer the right financial solutions to help you achieve them.

You would like to live your life and prepare for the future with complete confidence. We at Bharti

AXA Life Insurance, design solutions which will protect you and your family and help you realise

your dreams. Our endeavour is to bring to you products and services that help you lead a confident

life.

Individual Plans :

Bharti AXA Life Bright Stars


A Unit Linked Child product.

Bharti AXA Life Bright Stars provides a launch pad for your child’s bright future. What else, You

also have Jumpstart benefit which is paid out at maturity along with Policy Fund Value, which

enables your child to explore more career options.

Bharti AXA Life Spot Suraksha


Spot Suraksha helps you create a pool of wealth to meet your long-term needs, with an added

advantage of simplified buying process

Bharti AXA Dream Life Pension


A Unit Linked Pension Product

Dream Life Pension, Bharti AXA Life Insurance’s unique pension product ensures that your

retirement life is your Dream Life.

Live your Dreams! Be Life Confident.!

Bharti AXA Life AspireLife


Unit Linked Endowment Product.
45
Aspire Life helps you create a pool of wealth to meet your long-term needs, while also providing

you adequate protection in case the need arises.

Bharti AXA Life InvestConfident


Unit Linked Single Premium Product.

You have always strived hard to achieve the best for you and your loved ones, so when it comes to

making an investment decision, we know that you would expect the best from it too.

Bharti AXA Life WealthConfident


A unit-linked investment cum protection policy.

Your wealth, your status ensures that you get preferential status wherever you go. So why

shouldn't your money get the same?

Bharti AXA Life FutureConfident


A unit-linked policy which offers comprehensive protection along with wealth creation in the long

term.

Bharti AXA Life FutureConfident II


A unit-linked product which offers enhanced protection along with wealth creation in the long

term.

Bharti AXA Life SaveConfident


Traditional money back insurance product for long term savings.

Your changing lifestages decide your financial milestone planning. When you foresee intermittent

financial requirements in the years to come, like regular expenses related to your child’s education,

liquidity becomes a key aspect of your planning along with long term savings, and protection for

your family.

46
Bharti AXA Life SecureConfident
A Long Term Life Insurance.

All of us desire to maximise the happiness for our family at all times, irrespective of the

circumstances. The thought of unfortunate events befalling us may cause us anxiety about

providing a secured happiness to our loved ones.

Group Plans :

Bharti AXA Life Mortgage Credit Shield


Mortgage Credit Shield is a Group Product that provides coverage to people who have availed of a

Mortgage\ Home loan\ Home equity loan from an Institution/Bank.

Bharti AXA Life Credit Shield


Credit Shield is a Group Product that provides coverage to people who have availed of a loan for 1

to 5 years from Group Policyholder.

Bharti AXA Life Life Shield


Life Shield is a single premium group term life insurance product.

47
GOVERNING BODY

BOARD OF DIRECTORS:

Shri Sunil Bharti Mittal Chairman

Shri Nitin Chopra Chief Executive Officer

Shri Tim Thomas Chief Operating Officer

Shri. Priya Ranjan Director – Human Resources

Shri. Shyamal Saxena Chief Distribution and Marketing Officer

Shri. K. Hari Narayana Rao Asst. General Manager – Finance & Accounts

Smt. V. Roja Rajani Company Secretary

Shri. Sanjay kumar Regional Head

CORPORATE OFFICE: BHARTI AXA LIFE INSURANCE COMPANY LTD,

H.NO.2-77,2-76,2-75&3-4/1,

A K REDDY Complex

Chaitanyapuri x Road ,

Hyderabad – 500 060.

Ph. No: +91-40-40140921,


Fax: 91-40-40140920

48
E-mail: service@bharti-axalife.com

HEAD OFFICE ADDRESS: 6th floor Raheja Titanium II ,

off Western Express Highway,

Goregaon (East),

Mumbai 400 063

FINANCIAL INSTITUTIONS: Insurance Regulatory Development Authority

REGISTRARS AND
SHARE TRANSFER AGENTS: BHARTI AXA LIFE INSURANCE COMPANY LTD,

H.NO.2-77,2-76,2-75&3-4/1,

A K REDDY Complex

Chaitanyapuri x Road ,

Hyderabad – 500 060.

LISTED AT: The Bombay Stock Exchange Limited.

49
CHAPTER – IV

DATA AND ANALYSIS

50
I. CORPORATE GOVERNANCE

BHARTI AXA LIFE INSURANCE COMPANY LTD aims at implementing, adhering and

achieving qualitative excellence and transparent Corporate Governance by taking into its fold the

responsibility towards all the stakeholders and Statutory Authorities. The Company has formulated

its policy on Corporate Governance as a Code for the Directors and Senior Management Personnel,

adherence to which will be confirmed annually. Formulation of such code is only an initial step

towards the ever increasing commitment for corporate transparency. The management will strive

towards improving and enhancing its vision towards its goal. The pursuit towards achieving good

Corporate Governance is an ongoing process ensuring integrity, transparency and accountability in

all our dealings with our employees, shareholders, customers and the community at large.

The Board of Directors present the Corporate Governance Report in accordance with Clause 49 of

the Listing Agreement

51
II. AUDIT COMMITTEE

The Audit Committee of the company consists of 4 Directors of whom 3 are Independent

Directors. All the members of he Committee are Non-Executive Directors with the Chairman of

the Committee Shri. V. Subramanian being and Independent Director. Following Directors are

members of the committee.

(i) Shri. V. Subramanian, Non-Executive Independent Director;

(ii) Shri L. Venkateshwar Rao, Non-Executive Promoter Director;

(iii) Shri. H. Ananatha Krishnan, Nominee Director – LIC; and

(iv) Shri C.V. Kamalaker, Non-Executive Independent Director.

The Audit Committee of the Company has the powers to investigate any activity, seek information

from any employee and can secure attendance of outsiders with relevant expertise, if it considers

necessary. The Role of the Audit Committee includes the following:

(a.) Oversight of the Company’s financial reporting process and disclosure of its financial

information

(b.) Recommendation to the Board, the appointment, reappointment and, if required, the

replacement or removal of the Statutory Auditor and fixation of Audit Fees.

52
(c.) Reviewing the management, the annual financial statements and quarterly financial

statements before submission to the board for approval

(d.) Reviewing with the management performance of statutory and internal auditors, adequacy

of the internal control systems, reviewing the adequacy of internal audit function an

discussion with the internal auditors of any significant findings.

During the year, the Audit Committee Meetings were held on the following dates:

Sl. No. 1 2 3
Date of the
Meeting 22.05.2007 24.07.2007 27.10.2008

Attendance Record – 2006-2007

Sl. No. Name of the Director No. of Meetings Held

1. V.Subramanian 4

2. C.V. Kamalaker 3

3. H. Anantha Krishnana 2

4. L. Venkateswara Rao 4

53
III. REMUNERATION COMMITTEE

a) Brief description of terms of reference.

To formulate a remuneration policy and approve the remuneration or revision in

the remuneration payable to the whole-time director.

b) Composition, Name of Members:

All the members of the Remuneration Committee are Non-Executive and

Independent Directors, the details whereof are as follows:

(i) Shri. V. Subramanian, Non-Executive, Independent Director;

(ii) Shri H. Anantha Krishnan, Nominee Director – LIC; and

(iii) Shri C.V. Kamalaker, Non-Executive Independent Director.

Shri. V. Subramanian is the Chairman of the Committee. None of the Non-Executive

Directors are paid any remuneration apart from sitting fees paid for attendance at the Board

Meetings and Committee Meetings.

c) Remuneration Policy

To recommend/review the remuneration package, periodically to he Managing and Whole-

time Directors. The remuneration policy is in consonance with the existing Industry

Practice an also with the provisions of the Companies Act, 1956.

d) Share Transfer and Investor’s Grievance Committee


54
This Committee constituted by the Board of Directors comprises of the Shri. L.

Venkateshwar Rao, Non-Executive Director, Shri. K. Sudhir Rao, Vice Chairman, and Shri.

K. Suhan Rao, Managing Director inter-alia, oversees the transfer of shares and redressal of

shareholders / investors grievances and investor complaints regarding non-receipt of

Annual Reports

IV) Listing on Stock Exchange

. The Bombay Stock Exchange Limited and

CORPORATE GOVERNANCE IN LISTED COMPANIES – CLAUSE 49 OF THE

LISTING AGREEMENT

The company agrees to comply with the following

I. Board of Directors

(A) Composition of Board

(i) The Board of directors of the company shall have an optimum combination of executive and

non-executive directors with not less than fifty percent of the board of directors comprising

of non-executive directors.

(ii) Where the Chairman of the Board is a non-executive director, at least one-third of the Board

should comprise of independent directors and in case he is an executive director, at least half

of the Board should comprise of independent directors.

(iii) For the purpose of the sub-clause (ii), the expression ‘independent director’ shall mean a non-

executive director of the company who:

a. apart from receiving director’s remuneration, does not have any material pecuniary

relationships or transactions with the company, its promoters, its directors, its senior

management or its holding company, its subsidiaries and associates which may affect

independence of the director;


55
b. is not related to promoters or persons occupying management positions at the board level or

at one level below the board;

c. has not been an executive of the company in the immediately preceding three

financial years;

d. is not a partner or an executive or was not partner or an executive during the

preceding three years, of any of the following:

i) the statutory audit firm or the internal audit firm that is associated with the

company, and ii) the legal firm(s) and consulting firm(s) that have a material

association with

the company.

e. is not a material supplier, service provider or customer or a lessor or lessee of the

company, which may affect independence of the director; and

f. is not a substantial shareholder of the company i.e. owning two percent or more of

the block of voting shares.

(B) Non executive directors’ compensation and disclosures

All fees/compensation, if any paid to non-executive directors, including independent directors,

shall be fixed by the Board of Directors and shall require previous approval of shareholders in

general meeting. The shareholders’ resolution shall specify the limits for the maximum number of

stock options that can be granted to non-executive directors, including independent directors, in

any financial year and in aggregate.

(C) Other provisions as to Board and Committees


56
(i) The board shall meet at least four times a year, with a maximum time gap of three months

between any two meetings. The minimum information to be made available to the board is

given in Annexure– I A.

II Audit Committee

(A) Qualified and Independent Audit Committee

A qualified and independent audit committee shall be set up, giving the terms of reference

subject to the following:

(i) The audit committee shall have minimum three directors as members. Two-thirds of the

members of audit committee shall be independent directors.

(ii) All members of audit committee shall be financially literate and at least one member shall

have accounting or related financial management expertise.

(B) Meeting of Audit Committee

The audit committee should meet at least four times in a year and not more than four months

shall elapse between two meetings. The quorum shall be either two members or one third of the

members of the audit committee whichever is greater, but there should be a minimum of two

independent members present.

(C) Powers of Audit Committee

The audit committee shall have powers, which should include the following:
57
1. To investigate any activity within its terms of reference.

2. To seek information from any employee.

3. To obtain outside legal or other professional advice.

(D) Role of Audit Committee

The role of the audit committee shall include the following:

1. Oversight of the company’s financial reporting process and the disclosure of its financial

information to ensure that the financial statement is correct, sufficient and credible.

2. Recommending to the Board, the appointment, re-appointment and, if required, the

replacement or removal of the statutory auditor and the fixation of audit fees.

3. Approval of payment to statutory auditors for any other services rendered by the statutory

auditors.

4. Reviewing, with the management, the quarterly financial statements before submission to

the board for approval

5. Reviewing, with the management, performance of statutory and internal auditors, adequacy

of the internal control systems.

6. Reviewing the adequacy of internal audit function, if any, including the structure of the

internal audit department, staffing and seniority of the official heading the department,

reporting structure coverage and frequency of internal audit.

7. Reviewing the findings of any internal investigations by the internal auditors into matters

where there is suspected fraud or irregularity or a failure of internal control systems of a

material nature and reporting the matter to the board.


58
8. Discussion with statutory auditors before the audit commences, about the nature and scope

of audit as well as post-audit discussion to ascertain any area of concern.

9. To look into the reasons for substantial defaults in the payment to the depositors, debenture

holders, shareholders (in case of non payment of declared dividends) and creditors.

III. Disclosures

(A) Basis of related party transactions

(i) A statement in summary form of transactions with related parties in the ordinary course of

business shall be placed periodically before the audit committee.

(ii) Details of material individual transactions with related parties which are not in the normal

course of business shall be placed before the audit committee.

(iii) Details of material individual transactions with related parties or others, which are not on an

arm’s length basis should be placed before the audit committee, together with Management’s

justification for the same..

(B) Disclosure of Accounting Treatment

Where in the preparation of financial statements, a treatment different from that prescribed in

an Accounting Standard has been followed, the fact shall be disclosed in the financial

statements, together with the management’s explanation as to why it believes such alternative

treatment is more representative of the true and fair view of the underlying business

transaction in the Corporate Governance Report.

(C) Board Disclosures – Risk management

59
The company shall lay down procedures to inform Board members about the risk assessment

and minimization procedures. These procedures shall be periodically reviewed to ensure that

executive management controls risk through means of a properly defined framework.

(D) Proceeds from public issues, rights issues, preferential issues etc.

When money is raised through an issue (public issues, rights issues, preferential issues etc.), it

shall disclose to the Audit Committee, the uses / applications of funds by major category

(capital expenditure, sales and marketing, working capital, etc), on a quarterly basis as a part of

their quarterly declaration of financial results. Further, on an annual basis, the company shall

prepare a statement of funds utilized for purposes other than those stated in the offer

document/prospectus/notice and place it before the audit committee. Such disclosure shall be

made only till such time that the full money raised through the issue has been fully spent. This

statement shall be certified by the statutory auditors of the company. The audit committee shall

make appropriate recommendations to the Board to take up steps in this matter.

60
INFORMATION TO BE PLACED BEFORE BOARD OF DIRECTORS

1. Annual operating plans and budgets and any updates.

2. Capital budgets and any updates.

3. Quarterly results for the company and its operating divisions or business segments.

4. Minutes of meetings of audit committee and other committees of the board.

5. The information on recruitment and remuneration of senior officers just below the board level,

including appointment or removal of Chief Financial Officer and the Company Secretary.

6. Show cause, demand, prosecution notices and penalty notices which are materially important

7. Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.

8. Any material default in financial obligations to and by the company, or substantial non-

payment for goods sold by the company.

9. Any issue, which involves possible public or product liability claims of substantial nature,

including any judgement or order which, may have passed strictures on the conduct of the

company or taken an adverse view regarding another enterprise that can have negative

implications on the company.

10. Details of any joint venture or collaboration agreement.

61
11. Transactions that involve substantial payment towards goodwill, brand equity, or intellectual

property.

12. Significant labour problems and their proposed solutions. Any significant development in

Human Resources/ Industrial Relations front like signing of wage agreement, implementation

of Voluntary Retirement Scheme etc.

13. Sale of material nature, of investments, subsidiaries, assets, which is not in normal course of

business.

14. Quarterly details of foreign exchange exposures and the steps taken by management to limit

the risks of adverse exchange rate movement, if material.

15. Non-compliance of any regulatory, statutory or listing requirements and shareholders

service such as non-payment of dividend, delay in share transfer etc.

IV. Report on Corporate Governance

(i) There shall be a separate section on Corporate Governance in the Annual Reports of company,

with a detailed compliance report on Corporate Governance. Non-compliance of any mandatory

requirement of this clause with reasons thereof and the extent to which the non-mandatory

requirements have been adopted should be specifically highlighted. The suggested list of items to

be included in this report is given in Annexure- I B

62
Suggested List of Items to Be Included In the Report on Corporate Governance in the
Annual Report of Companies

1. A brief statement on company’s philosophy on code of governance.

2. Board of Directors:

i. Composition and category of directors, for example, promoter, executive, nonexecutive,

independent non-executive, nominee director, which institution represented as lender or as

equity investor.

ii. Attendance of each director at the Board meetings and the last AGM.

iii. Number of other Boards or Board Committees in which he/she is a member or Chairperson

iv. Number of Board meetings held, dates on which held.

3. Audit Committee:

i. Brief description of terms of reference

ii. Composition, name of members and Chairperson

iii. Meetings and attendance during the year

4. Remuneration Committee:

i. Brief description of terms of reference

63
ii. Composition, name of members and Chairperson

iii. Attendance during the year

iv. Remuneration policy

v. Details of remuneration to all the directors, as per format in main report.

5. Shareholders Committee:

i. Name of non-executive director heading the committee

ii. Name and designation of compliance officer

iii. Number of shareholders’ complaints received so far

iv. Number not solved to the satisfaction of shareholders

v. Number of pending complaints

6. General Body meetings:

i. Location and time, where last three AGMs held.

ii. Whether any special resolutions passed in the previous 3 AGMs

iii. Whether any special resolution passed last year through postal ballot – details of

voting pattern

iv. Person who conducted the postal ballot exercise

v. Whether any special resolution is proposed to be conducted through postal ballot

vi. Procedure for postal ballot

64
7. Disclosures:

i. Disclosures on materially significant related party transactions that may have

potential conflict with the interests of company at large.

ii. Details of non-compliance by the company, penalties, strictures imposed on the

company by Stock Exchange or SEBI or any statutory authority, on any matter

related to capital markets, during the last three years.

iii. Whistle Blower policy and affirmation that no personnel has been denied access to

the audit committee.

iv. Details of compliance with mandatory requirements and adoption of the non-

mandatory requirements of this clause

8. Means of communication.

i. Quarterly results

ii. Newspapers wherein results normally published

iii. Any website, where displayed

iv. Whether it also displays official news releases; and

v. The presentations made to institutional investors or to the analysts.

65
9. General Shareholder information:

i. AGM : Date, time and venue

ii. Financial year

iii. Date of Book closure

iv. Dividend Payment Date

v. Listing on Stock Exchanges

vi. Stock Code

vii. Market Price Data : High., Low during each month in last financial year

viii. Performance in comparison to broad-based indices such as BSE Sensex, CRISIL

index etc.

ix. Registrar and Transfer Agents

x. Share Transfer System

xi. Distribution of shareholding

xii. Dematerialization of shares and liquidity

xiii. Outstanding GDRs/ADRs/Warrants or any Convertible instruments, conversion

date and likely impact on equity

xiv. Plant Locations

xv. Address for correspondence

66
PARTICULARS 31.03.2008 31.03.2007

SOURCES OF FUNDS:

Shareholder Funds:
Share Capital 123688000 124764000
Reserves and Surplus 9925200 8850000

Loan Funds:
Secured Loans 202826932 199378971
Unsecured Loans 187060386 140172300

Deferred Tax Liability 41435382 39748601

TOTAL SOF 564935900 512913872

APPLICATION OF FUNDS:

Fixed Assets:
Gross Block 468402246 451406837
Less: Depreciation 120653854 100015933
Net Block 347748392 351390904
Capital Work in Progress 83397893 3276749

Current Assets & Loans & Advances:

Inventories 71010976 62046246


Sundry Debtors 1610447 4524526
Cash and Bank Balances 5105519 3443093
Loans and Advances 69629725 82183997

Less: Current Liabilities & Provisions 27754615 17463205

Net Current Assets 119602052 134734658

Miscellaneous Expenditure 6347422 2202298

Profit & Loss A/c Balance 7840141 21309263

TOTAL AOF 564935900 512913872

67
INTERPRETATIONS

As per the financial statements have been prepared these are the following details which

are as follows:

1.) The accompanying financial statements have been prepared in accordance with

Indian Generally Accepted Accounting Principles (GAAP) under the historical

cost convention on the accrual basis.

2.) The company has disclosed the end use of money raised by way of issue of equity

shares, which has been verified by auditor.

3.) The Company has not issued any debentures.

4.) The Company has not given any guarantee for loans taken by others, from banks

or financial institutions.

5.) The Company has not granted loans and advances on the basis of security by way

of Pledge of shares, Debentures and other Securities.

6.) According to the records of the Company, there are no dues of sales tax, income-

tax, and excise duty which have not been deposited with appropriate authorities

on account of any dispute.

7.) Depreciation on Fixed Assets is provided using the Straight-Line-Method based

on the useful life of the assets. Depreciation for assets purchased/sold during the

period is proportionately charged.

8.) The Company has physical verification of its fixed assets which, is reasonable

having regard to the size of the Company and the nature of its assets.

68
9.) In accordance with this, certain fixed assets were physically verified by

management during the year.

10.)During physical verification of inventories as compared to book records were not

material and have been properly dealt with in the books of account.

11.) The Company does not have any accumulated losses at the end of the financial

year and has not incurred cash losses in the financial year and in the immediately

preceding financial year.

69
COMPARATIVE BALANCESHEET FOR THE YEAR 2007-2008

70
PARTICULARS 31.03.2008 31.03.2007 % CHANGE

SOURCES OF FUNDS
Shareholder Funds:
Share Capital 129944000 123688000 95.19
Reserves and Surplus 43288876 9925200 22.93

Loan Funds:
Secured Loans 277347360 202826932 73.13
Unsecured Loans 223728880 187060386 83.61

Deferred Tax Liability 53113981 41435382 78.01

TOTAL 727423097 564935900 77.66

APPLICATION OF FUNDS:

Fixed Assets:
Gross Block 695471862 468402246 67.35
Less: Depreciation 144859597 120653854 83.29
Net Block 550612265 347748392 63.16
Capital Work in Progress 22673972 83397893 367.81

Current Assets & Loans & Advances:

Inventories 118441453 71010976 59.95


Sundry Debtors 7262009 1610447 22.18
Cash and Bank Balances 6888158 5105519 74.12
Loans and Advances 111834367 69629725 62.26

Less: Current Liabilities & Provisions 94781173 27754615 29.28

Net Current Assets 149644813 119602052 79.92

Profit & Loss A/c Balance 0 7840141 0.00

TOTAL 727423097 564935900 77.66


INTERPRETATION:

71
1.) There is a raise in Share Capital of 95% for the year ending 31st March, 2008

2.) The Company is maintaining a 23% of Reserves and Surplus for the year ending

31st March,2008.

3.) There is change of 73% in Secured and Unsecured loans during the financial year.

4.) The Fixed Assets of the Company are stood at 63 % for the year ending 31 st

March, 2008

5.) The Company is maintaining a stock reserve of 60% in the organization.

6.) The Company is having a Cash & Bank Balances of 74 % for the year ending 31 st

March, 2008.

7.) The Work-in-progress of the company has raised to 362% compared to the last

financial year. As there was a huge increase in the sales in the organization.

8.) The Loans and Advances of the Company increased to 63% compared to last

financial year. As the company is going for a expansion of their business

9.) The Current Assets of the Company raised to 80% when compared to 31 st March,

2007.

10.)Over all the company performance is well and attaining a competitive position in

the market.

72
CHAPTER – V

FINDINGS AND CONCLUSIONS

Findings & Conclusions

73
The fundamental objective of Corporate Governance is the “enhancement of long-term

share holder value while, at the same time, protecting the interest of other stakeholders.

 The board of a company should have an optimum combination of executive and

non-executive directors, with half of the board comprising the non-executive

directors.

 To avoid the potential conflicts of interest, it is desirable that the financial

institutions maintain an arm’s length relationship with the company by not

seeking a seat on the board.

 The board having a qualified and independent audit committee.

 Dispatch of one copy of complete balance sheet to every household and abridged

balance sheet to all shareholders.

 Issue of guidelines for preferential allotment at market related prices

 Issue of regulations providing for a fair and transparent framework.

 The compliance of conditions of Corporate Governance is the responsibility of the

management which was limited to procedures and implementation adopted by the

Company.

 A certificate from the auditors on compliance should form part of the Annual

Report and Annual Return and a copy has to be sent to the Stock Exchanges.

74
SUGGESTIONS

SUGGESTIONS

75
 The board should clearly define the role of the management

 Disclosure must be made by the management to the board relating to all material,

financial, and commercial transactions.

 Active participation of individual and institutional investors.

 Increasing competition in the global economy.

 The Company should have active participation in global market to face the

competitors.

 The global activities of the corporations are growing for better efficiency in the

market.

 Strengthening of disclosure norms of IPO’s.

 A certificate from the auditors on compliance should form part of the Annual

Report and Annual Return and a copy has to be sent to the Stock Exchanges.

 Today, investors want to ensure that the Company’s they invest in are not only

managed properly but also have proper Corporate Governance. They regard

Corporate Governance as a control mechanism that ensures the optimum use of

the human, physical and financial resources of an enterprise. Company’s have

now began to integrate ethics into their Corporate Cultures and concentrate on

putting appropriate Corporate Governance mechanisms in place.

76
BIBILIOGRAPHY

77
BOOKS:

I. BUSINESS ETHICS AND CORPORATE GOVERNANCE – ICFAI

II. PRINCIPLES AND PRACTICE OF MANAGEMENT – L.M. PRASAD

III. STRATEGIC FINANCIAL DECISISONS – SHARMA

IV. THE REVOLUTIONARY IN CORPORATE FINANCE – JOEL ENSTERN &

DONALD

V. CORPORATE FINANCE – B.L. MATHUR

VI. PRINCIPLES OF CORPORATE FINANCE – BREALEY MYERS & ALLEN

MOHANTY.

WEB SITES:

www.corpgov.net

www.icfai.org.com

www.google.com

www.thecorporatelibrary.com

www.bharti-axalife.com

www.sebi.gov.in

NEWS PAPERS:

DECCAN CHRONICLE

THE HINDU

TIMES OF INDIA.

78

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