Module-I Introduction to Corporate Governance

 Corporate Governance: Meaning& Importance

 Evolution of Corporate Governance
 Principles of Corporate Governance
 Theories of Corporate Governance
 The role and purpose of the corporation
 Globalization and Corporate Governance

CORPORATE GOVERNANCE

Corporate Governance is a concept and administrative framework to introduce basic directions and
viewpoints for managing a business unit with best interest. It shows and determine a new and creative
vision of business, where a set of core values, better managerial control, compassing human rights,
making better coordination between business and society may be possible.

It is concerned with holding the balance between social and economic goals and between individual
and communal goals. It is also a conscious, deliberate and sustained system to make a judicious
balance between its own interest and the interest of various constituents in the environment in which
it is operating.

It deals with the manner in which companies are directed and controlled by the Board of Directors in
order to create and enhance stakeholders’ value by appropriately crafting the corporate strategy that
creates tomorrow’s organization. Corporate governance ensures how effectively the Board of
Directors and management are discharging their functions in building and satisfying stakeholders’
confidence.

Corporate Governance – Meaning

The term ‘Governance’ is derived from the Latin word ‘Gubernare’ which means ‘to steer’. In the
context of companies, governance means direction and control of a company. There is no single
definition of corporate governance acceptable to all. Different experts have defined the term in their
own ways.

Some of the popular definitions of corporate governance are given below:

“Corporate governance is the system by which companies are directed and controlled.”

“Corporate governance is the system of laws, rules and factors that control operations of a company.”

“Corporate Governance is the relationship between corporate managers, directors and the providers
of equity, people and institutions who save and invest their capital to earn a return. It ensures that
the board of directors is accountable for the pursuit of corporate objectives and that the corporation
itself conforms to the law and regulations.”

“Corporate governance is an umbrella term that covers many aspects related to concepts, theories
and practices of board of directors and their executive and nonexecutive directors. It is a field that
concentrates on the relationship between boards, stockholders, top management, regulators,
auditors, and other stakeholders.”
The Cadbury Committee Report suggests, “Corporate Governance is the social, legal and economic
process through which companies function and are held accountable.”

Actually it is a system of structuring, operating and controlling a company with the following specific
aims:

(i) Fulfilling long-term strategic goals of owners;

(ii) Taking care of the interests of employees;

(iii) A consideration for the environment and local community;

(iv) Maintaining excellent relations with customers and suppliers;

(v) Proper compliance with all the applicable legal and regulatory requirements.

Thus, Corporate Governance denotes the process, structure and relationship through which the Board
of Directors oversees what the management does. It is also about being answerable to different
stakeholders. In other words, Corporate Governance is a system by which the companies are run. It
relates to the set of incentives, safeguards and disputes resolution processes that are used to control
and coordinate the actions of the agents on behalf of the shareholders by the Board of Directors.

Corporate Governance – Importance

Corporate governance is important for the following reasons:

1. It shapes growth and future of capital markets of the economy.

2. It helps in raising adequate funds from capital markets.

3. It links company’s management system with its financial reporting system.

4. It enables management to take innovative decisions for effective functioning of an enterprise within
the legal framework of accountability.

5. It supports investors by making corporate accounting practices transparent. Corporate enterprises

have to disclose financial reporting structures.

6. It provides adequate and timely disclosure, reporting requirements, code of conduct etc. Companies
present material price sensitive information to outsiders and ensure that till the time this information
is made public, insiders abstain from dealing in corporate securities. It, thus, avoids insider trading.

7. It improves efficiency and effectiveness of an enterprise and adds to material wealth of the
economy.

8. It improves international image of the corporate sector and enables home companies to raise global
capital.

CORPORATE GOVERNANCE IN INDIA PAST, PRESENT & FUTURE

Good corporate governance in the changing business environment has emerged as powerful tool of
competitiveness and sustainability. It is very important at this point and it needs corporation for one
and all i.e. from CEO of company to the ordinary staff for the maximization of the stakeholders’ value
and also for maximization of pleasure and minimization of pain for the long term business.

Global competitions in the market need best planning, management, innovative ideas, compliance
with laws, good relation between directors, shareholders, employees and customers of companies,
value based corporate governance in order to grow, prosper and compete in international markets by
strengthen their strength overcoming their weaknesses and running them effectively and efficiently
in an efficient and transparent manner by adopting the best practices.

Corporate India must commit itself as reliable, innovative and prompt service provider to their
customers and should also become reliable business partners in order to prosper and to have all round
growth.

Corporate Governance is nothing more than a set of ideas, innovation, creativity, thinking having
certain ethics, values, principles etc which gives direction and shape to its people, employees and
owners of companies and help them to flourish in global market.

Indian Corporate Bodies having adopted good corporate governance will reach themselves to a
benchmark for rest of the world; it brings laurels as a way of appreciation. Corporate governance lays
down ethics, values, and principles, management policies of a corporation which are inculcated and
brought into practice. The importance of corporate governance lies in promoting and maintains
integrity, transparency and accountability throughout the organization.

Corporate governance has existed since past but it was in different form. During Vedic times kings
used to have their ministers and used to have ethics, values, principles and laws to run their state but
today it is in the form corporate governance having same rules, laws, ethics, values, and morals etc
which helps in running corporate bodies in the more effective ways so that they in the age of
globalization become global giants.

Several Indian Companies like PepsiCo, Infuses, Tata, Wipro, TCS, and Reliance are some of the global
giants which have their flag of success flying high in the sky due to good corporate governance.

Toady, even law has a great role to play in successful and growing economy. Government and judiciary
have enacted several laws and regulations like SEBI, FEMA, Cyber laws, Competition laws etc and have
brought several amendments and repeal the laws in order that they don’t act as barrier for these
corporate bodies and developing India. Judiciary has also helped in great way by solving the corporate
disputes in speedy way.

Corporate bodies have their aim, values, motto, ethics and principles etc which guide them to the
ladder of success. Big and small organizations have their magazines annual reports which reflect their
achievements, failure, their profit and loss, their current position in the market. A few companies have
also shown awareness of environment protection, social responsibilities and the cause of upliftment
and social development and they have deeply committed themselves to it. The big example of such a
company can be of Deepak Fertilizers and Petrochemicals Corporation Limited which also bagged 2nd
runner up award for the corporate social responsibility by business world in 2005.

Under the present scenario, stakeholders are given more importance as to shareholders, they even
get chance to attend, vote at general meetings, make observations and comments on the performance
of the company.

Corporate governance from the futuristic point of view has great role to play. The corporate bodies in
their corporate have much futuristic approach. They have vision for their company, on which they
work for the future success. They take risk and adopt innovative ideas, have futuristic goals, motto,
and future objectives to achieve.

With increase in interdepence and free trade among countries and citizens across the globe,
internationally accepted corporate governance standards are of paramount importance for Indian
Companies seeking to distinguish themselves in global footprint. The companies should always keep
improving, enhancing and upgrading themselves by bringing more reliable integrated product and
service quality. They should be more transparent in their conduct.

Corporate governance should also have approach of holistic view, value based governance, should be
committed towards corporate social upliftment and social responsibility and environment protection.
It also involves creative, generative and positive things that add value to the various stakeholders that
are served as customers. Be it finance, taxation, banking or legal framework each and every place
requires good corporate governance.

Hence corporate governance is a means and not an end, corporate excellence should be end.

PRINCIPLES OF CORPORATE GOVERNANCE

The five principles of corporate governance

The five principles of corporate governance are responsibility, accountability, awareness, impartiality
and transparency.

1. Responsibility

It’s a two-way street between shareholders and directors: if directors are in the job on the say-so of
shareholders, they are answerable to those shareholders. Remember this.

A board is responsible for fulfilling shareholders’ wishes. That involves shepherding a company away
from risk, around challenges, and towards success while staying true to its mission, respecting the law
of the land, and the sensitivities of the politics around them. It’s a difficult job, but this is what
responsibility truly means.

One of the board’s most important functions is to select a CEO who will enable the company and its
workers to achieve their full potential.

2. Accountability

No matter what decision a board takes, they should be able to back it up.

Important corporate decisions will inevitably lead to questions, and this isn’t a bad thing – merely a
sign of engagement and diligence.

“Why did you appoint this CEO over other candidates? Why did you select this as a top priority? Why
are we focusing corporate resources on ESG?”

As a board member, expect a constant flow of questions like this. When you get them, your job is to
be clear in your answers.

3. Awareness

The key to a company’s survival and prosperity is to know the landscape of risk around it.

Boards are always at the forefront of this effort, not just because they are in a position of
responsibility, but because they are usually in their roles thanks to years, if not decades, of significant,
relevant experience.

With this experience comes the ability to pinpoint as many risks as possible, whether large or small,
short or long term.
Of course, no company can eliminate risk and should never approach risk management this way. The
real trick is deciding which risks to take and which to avoid. You can read more about it in our guide
to risk.

4. Impartiality

Boards must strike a careful balance between their various responsibilities, the people who answer to
them, and the people they answer to.

They should approach every decision with an independent mindset, ensuring no personal interests or
those of close colleagues come between them and the correct business decision.

While impartiality is easy to agree to in principle, it’s easy to slip out of practice. Personal beliefs and
friendships can cloud a board member’s objectivity. A board must know how this can happen – and
how subtle it can be. They should take care to ensure it doesn’t influence their responsibility.

5. Transparency

This is the most practical principle, and it’s simply about the paperwork. Boards are responsible for
documenting and reporting on everything that’s expected of them as clearly and thoroughly as is
necessary.

Don’t be fooled into thinking this is just about the financial statements. They are essential, but they’re
not the whole picture. Boards must also report any conflicts of interest, severe conflicts over strategy
and risks to the company.

THEORIES OF CORPORATE GOVERNANCE

Agency Theory

Agency theory defines the relationship between the principals (such as shareholders of company) and
agents (such as directors of company). According to this theory, the principals of the company hire the
agents to perform work. The principals delegate the work of running the business to the directors or
managers, who are agents of shareholders. The shareholders expect the agents to act and make
decisions in the best interest of principal. On the contrary, it is not necessary that agent make decisions
in the best interests of the principals. The agent may be succumbed to self-interest, opportunistic
behavior and fall short of expectations of the principal. The key feature of agency theory is separation
of ownership and control. The theory prescribes that people or employees are held accountable in
their tasks and responsibilities. Rewards and Punishments can be used to correct the priorities of
agents.

Stewardship Theory
The steward theory states that a steward protects and maximises shareholders wealth through firm
Performance. Stewards are company executives and managers working for the shareholders, protects
and make profits for the shareholders. The stewards are satisfied and motivated when organizational
success is attained. It stresses on the position of employees or executives to act more autonomously
so that the shareholders’ returns are maximized. The employees take ownership of their jobs and work
at them diligently.

Stakeholder Theory

Stakeholder theory incorporated the accountability of management to a broad range of stakeholders.

It states that managers in organizations have a network of relationships to serve – this includes the
suppliers, employees and business partners. The theory focuses on managerial decision making and
interests of all stakeholders have intrinsic value, and no sets of interests is assumed to dominate the
others

Resource Dependency Theory

The Resource Dependency Theory focuses on the role of board directors in providing access to
resources needed by the firm. It states that directors play an important role in providing or securing
essential resources to an organization through their linkages to the external environment. The
provision of resources enhances organizational functioning, firm’s performance and its survival. The
directors bring resources to the firm, such as information, skills, access to key constituents such as
suppliers, buyers, public policy makers, social groups as well as legitimacy. Directors can be classified
into four categories of insiders, business experts, support specialists and community influentials.

Transaction Cost Theory

Transaction cost theory states that a company has number of contracts within the company itself or
with market through which it creates value for the company. There is cost associated with each
contract with external party; such cost is called transaction cost. If transaction cost of using the market
is higher, the company would undertake that transaction itself.
Political Theory

Political theory brings the approach of developing voting support from shareholders, rather by
purchasing voting power. It highlights the allocation of corporate power, profits and privileges are
determined via the governments’ favor

ROLE AND PURPOSE OF THE CORPORATION

The concept of the corporation originated through governmental charter allowing individuals to carry
on business collectively. Basically, the charter gave the corporate entity form legal status that was
similar to personhood. The concept of the corporation as a legal person has expanded over time to
the point that corporations enjoy many of the same constitutional protections as US citizens.

The corporate entity also allows individuals to have a beneficial interest without being actively
involved in business operations. That is, it allows for increased division and transfer of ownership
interest in a business activity. It allows for the utilization of outside capital from investors (rather than
just debt or capital contributions from founders) to grow business operations. The active trading of
ownership in corporate entities gave rise to the formation of US stock exchanges and the private
equities market.

How Globalization Affects Governance

The inquiry might be how globalization affects governance. But the response to this question is not
only blood relation to the final quarter of the 20th century but additionally cognate to antecedent
centuries. John Maynard Keynes calculated that the standard of living had incremented 100 percent
over four thousand years. Adam Smith held a seminal conception about the wealth of communities
and in 1776 he reported the conditions which would lead to incrementing income and prosperity.
Likewise, in that respect is much evidence from economic history to show the benefit of moral
comportment; for example, Robert Owen in Incipient Lanark, and Jedediah Strutt in Derbyshire – both
in the UK – showed the economic benefits of caring for stakeholders. More recently, Friedman has
fixated on the moral shock of the economic magnification and the evolution of company.
It is pellucid that there is nothing incipient about economic magnification, development and
globalization. Economic magnification generally brings out some outcomes for the community. This is
a world phenomenon in its true essence. Single of the most consequential reasons is that we are not
bringing into account the moral, ethical and convivial aspects of this operation. Some theorists
betokened the effect of this rapid transmuting more than a hundred years ago. Economic
magnification and economic development might not be without convivial and moral consequences
and implicative insinuations.

Another question is who’s answerable for this ongoing process and for ensuring the well-being of
people and safeguarding their prosperity. Is this the responsibility of governments, the enterprise
international, purchasers, shareholders, or of all people? Government is a part of the machine and the
regulator of markets and lawmakers. Managers, businessmen and the business global take moves
regarding the marketplace shape, patron behaviour or commercial sites. Moreover, they’re
responsible to the shareholders for making more earnings to maintain their hobby long term inside
the establishment. Therefore, they’re taking risks for his or her gain/earnings. This chance isn’t
opposed to the social or moral/moral ideas which they ought to practice within the agency. There are
many motives for ethical and socially responsible behaviour of the enterprise. However, there are
numerous cases of misbehaviour and any illegal operations of a few organizations. Increasing
opposition makes business harder than earlier than in the globalized world.

The proper news and expectancies are that the competition will not have to any extent further horrific
influence on business enterprise behaviour. According to worldwide norms, (exercise) and
expectancies, companies should bear in mind social, moral and environmental issues greater than
over the past few decades. One of the reasons is greater competition and now not always more
income; another motive is the consumer expectation isn’t simplest related to the price of products,
but also associated with fine, proper production procedure and environmental sensitivity.

Moreover shareholders are more inquisitive about the long term benefit and take advantage of the
corporation. The key phrase of this concept is lengthy termism which represents additionally a
sustainable business enterprise. Stockholders need to bring long time gain with a sustainable system
in preference to handiest short term gain. This is not best associated with the corporate income, but
additionally related to the social and environmental overall performance of the authority. Therefore,
managers should make strategic plans for the business enterprise regarding all stakeholder
expectations which can be sustainable and provide a long term advantage for the offices with their
investments. However, Sustainability can be visible as including the requirement that something
justice is almost – honest distribution of goods, fair methods, appreciate for rights and social justice –
and is capable of being confirmed into the lot indefinitely.

This sustainability requires that the values of justice are capable of being continued into the future: if
current practices for example, were just from the present point of view, but would prevent the same
patterns from happening in the future, that would be spurned from the point of view of sustainability
(Dower, 2004). So investor or shareholder expectations and all other stakeholders’ approaches are
fortifying a convivially responsible and ethical company more than other societies. Globalisation has
caused a very sharp impression on company behaviour and yet we can catch many problems
particularly in growing nations. This is a well-known of the realities of the globalisation process.
Nonetheless, we are hoping to visit some different approaches and improvements to this procedure
with some of them naturally related to some international principles, rules and norms. But most of
them are connected to the conclusion of this flawed system and the problems of capitalist economy.

The challenge of governance in a globalizing world is to engross in a process of political deliberation

which aims at laying out and resetting the standards of global business conduct. While stakeholder
management deals with the idea of internalizing the demands, values and interests of those
constituents that touch on or are regarded by corporate decision-making, we indicate that political
CSR can be realized as a crusade of the corporation into environmental and social challenges such as
human rights, global warming, or deforestation (Scherer & Palazzo, 2008).

Globalisation, Corporate Failures and Corporate Governance

Enron, WorldCom, Parmalat, and various different screw ups of global corporate deliver out some
organization issues and have improved attention to the purpose of business ethics. Directors and CEOs
of these corporations must be brought into consideration responsible for all of those failures and these
are examples of “corporate irresponsibility”. Many masses hold the impression that if organizations
had been to play responsibly, maximum likely company scandals would stop.

Corporate governance protects firms in opposition to some long term deprivation. When groups have
social responsibilities, they calculate their risk and the price of failure. Firstly, a company has to have
a duty to shareholders and additionally all stakeholders which means that it has an obligation to all
society. Corporate bankruptcies have a critical impact on all society to boot. Unique, big scandals along
with Enron have sharply affected the market and the financial system. Various stakeholders (e.g.
Worker, purchaser, client, providers and so on.) In addition to shareholders and regulators of the firm
have a duty to make sure proper performance? Thus, corporate governance isn’t always only related
to companies, but also connected with all society. Hence the shifting view of company obligation shifts
the focal point from the actual hassle that society likes to speak.

Ace of the motifs for this close result is increasing competition among the agency and the mart.
Managers tend to turn a lot more formidable than before in their behaviour and suffering in the
globalized global. Therefore we ought to recognize on corporate and managerial behaviour. The query
is a way to act as a socially responsible supervisor and a room to make up this crucial problem in
enterprise life and in companionship. In the business international there are constantly some
regulations, standards and norms in addition to policies and some felony requirements.

Nevertheless, to be socially accountable one should be greater than truly being a law abiding
individual who has to be capable of coming out and being held answerable for decisions and natural
processes. The problem is the implication for all of those instructions for business enterprise and
managerial behaviour. Along the polar hand, one angle is that an employer is a “legal character” and
has the rights and obligations that belong with that status—which include social duty. In the case of
Enron, managers had been privy to all ordinances, yet though they have got regarded all irresponsible
and unethical troubles in the employer control; they did now not change their method and conduct.

The conclusion is that it isn’t always usually viable to govern behaviour and company activity with
regulations, principles and norms. And then another question arises in this case, that if the great
unwashed do not see their responsibility and socially accountable activities and if they do now not
behave socially responsibly then, who will control this problem in commercial enterprise lifestyles and
within the marketplace. The theme is that the social responsibility implication of the business
enterprise cannot be managed through criminal manner. This is the simplest social contract among
managers and society and stakeholders of the authority and for responsible and accountable
behaviour.

Firms will consciously need to cognizance on creating cost now not simplest in monetary phrases, but
additionally in ecological and social terms. The task confronting the commercial enterprise area is the
way to set about assembly those expectations. Firms will want to change now not simplest in them;
yet, likewise within the manner they interact with their environment (Cramer, 2002).
 Module II: Corporate and Board Management

 Board of Directors –Composition, Role, Systems and Procedures, Board

Meetings
 Directors including Nominee Director, Shareholders Director & Independent
Directors
 Fiduciary relationship
 Criminal liability of Directors, Mis-feasance, Mal Feasance & Non-Feasance
 Rights, Duties and Responsibilities of Directors; Role of Directors and other
Managerial Persons including Executives.

Board of Directors Composition

The board of directors are can be called the brain of the company. They are responsible for taking all
the big decisions and making policy changes. These decisions are taken in special meetings members
of the board hold together, called ‘Board Meetings’.

Section 149 of the Companies Act states that every company’s board of directors must necessarily
have a minimum of three directors if it is a public company. two directors if it is a private company
and one director in a one person company.

The maximum number of members a company can assign as directors is fifteen. However, the
company can pass a special resolution in a general meeting to allow for assigning more than fifteen
members to the board of directors.

The maximum number of companies that an individual can become a director of, is 20 companies.

At least one director, who has lived in India for a minimum of 182 calendar days of the previous year,
shall be appointed by every company’s board. It is a mandatory rule.

At least, one woman director must be appointed by the company.

All listed companies must have at least one-third proportion of their board of directors as independent
directors.

Under LODR for Listed Companies(Listing Obligations and Disclosure Requirements)

The members of the board shall have an optimum combination of executive and non-executive
directors and at least one woman director. At least 50% of the board of directors must be non-
executive directors.

When the board chairman is a non-executive director, a minimum of one-third directors shall be made
up of independent directors. In case of the board chairman being an executive director, a minimum
of half of the board of directors shall comprise of independent directors.

However, in case a non-executive chairman is a promoter of the said listed company or directly related
to a promoter or a high-level manager, at least half of all directors will comprise of independent
directors.
Committees Under the Board of Directors

1. Audit Committee

 The audit committee should have a minimum of 3 members.

 A total of two-thirds of the committee comprises of independent directors.
 At least one member should have expertise in the field of account and finance and all audit
members must be well in finance.
 An independent director will be the chairman of the audit committee.
 The company secretary shall be the appointed secretary.

2. Nomination and Remuneration Committee.

 The committee shall comprise of at least three directors.

 All members must be non-executive directors.
 At least 50% of the directors shall be non-executive members.
 Director of the committee will be an independent director.

3. Stakeholders Relationship Committee

 The Stakeholders Relationship Committee takes care of all issues related to problems such as
grievances of shareholders, debenture holders and other parties of importance. This
committee looks into such matters and resolve issues while maintaining a good relationship
with shareholders and other parties.
 Thus, the chairman of this committee has to be a non-executive member director from among
the board of directors.

4. Risk management Committee

 The members of the board will form the risk management committee.
 A major portion of the Risk Management Committee shall consist of members of the board.
 The chairman of the Risk Management Committee shall be a member of the board.

Roles and Responsibilities of Board of Directors

1. The board of directors’ foremost responsibility or duty is towards the company’s stakeholders.
Here, the board ensures that the company doesn’t risk the shareholders’ and investors’ assets.
It frames policies for dividends, payouts, present their perspective to the organization, etc.

2. Another important board of directors function includes holding the annual shareholders’
meeting. In such board meetings, the panel announces annual dividends, elects and appoints
new members and high-level executives, and changes corporate rules.

3. The BOD builds a company’s foundation by framing its vision, purpose, and mission. The board
ensures that the executive board of the company is working as per organizational goals and
plans. Company executives hold answerability to the board and must act in the best interest
of the firm and its stakeholders.
 4. The board also takes crucial strategic decisions and plans for mergers and acquisitions, stock
split, etc. The BOD’s also votes and elects the company’s chief executive officer (CEO). It can
also sack a CEO who is bringing problems to the firm.

5. It ascertains compensation for the organization’s top officials. It even amends and approves
the company’s annual budget.

6. Crisis management is perhaps one of the most crucial roles played by a company’s BOD. When
a company is in crisis, the BOD gives it a shield as it represents the firm and is accountable for
its actions. Executives rely on the board’s counsel when a crisis strikes.

7. One such example where the leadership of higher authority pulled the company out from a
crisis is Johnson and Johnson’s case. In 1982, after intaking Johnson and Johnson’s Tylenol
capsules, seven people died of poison as they were laced cyanide. James Burke, the company’s
chairman back then, is still admired for his prompt action, leadership and honesty.

MANDATORY REQUIREMENTS FOR CONDUCTING BOARD MEETING

1. Notice, agenda and notes on agenda shall be given at least 7 days before the Meeting in
writing to every director at their address registered with the company through hand delivery
or by post or by facsimile or by e-mail or by any other electronic means. In case the company
sends the Agenda and Notes on Agenda by speed post or by registered post, an additional two
days shall be added for the service of Agenda and Notes on Agenda. [Section 173(3) and
Clause 1.3.1, 1.3.6 & 1.3.7 of Secretarial Standard-1 (SS-1)]

2. Board Meeting may be called at shorter notice to transact urgent business subject to the
presence of at least one independent director, if any. In the absence of independent Directors
from such a Board Meeting, the decisions taken at such a meeting shall be circulated to all the
Directors and would be finalized only on ratification thereof by at least one independent
director, if any. [Proviso to Section 173(3) and Clause 1.3.11 of Secretarial Standard-1 (SS-1)]

3. The participation of Directors in a meeting of the Board may be either in person or through
video conferencing or other audio visual means, which are capable of recording and
recognizing the participation of the directors and of recording and storing the proceedings of
such meetings along with date and time. The Central Government may, by notification, specify
such matters which shall not be dealt with in a meeting through video conferencing or other
audio visual means. [Section 173(2)]

4. Quorum shall be present not only at the time of commencement of the Meeting but also while
transacting business. [Clause 3.1 of Secretarial Standard-1 (SS-1)]

5. The quorum for a meeting of the Board of Directors of a company shall be one third of its total
strength or two directors, whichever is higher, and the participation of the directors by video
conferencing or by other audio visual means shall also be counted for the purposes of
quorum. [Section 174(1)]

6. Such Director shall neither be reckoned for Quorum nor shall be entitled to participate in
respect of an item of business in which he is interested, but in case of a private company,
ensuing the disclosure of their interest, such Director shall be entitled to participate in respect
of such item. [Clause 3.2 of Secretarial Standard-1 (SS-1)]

7. Presence of Chairperson shall be required.

 8. Maintain the Minutes Book for Signing the minutes of Previous Board Meeting by the
Chairman.

FOLLOWING PROCEDURE IS TO BE FOLLOWED FOR CONDUCTING BOARD MEETING

[Section 173 & 174 and Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014
read with SS–1 (Secretarial Standard on Meetings of the Board of Directors) issued by ICSI]

 Calling of Board Meeting

1. Company shall issue the Notice, Agenda and Notes to Agenda to every Director at his
address registered with the company not less than seven days before the Meeting,
unless the Articles prescribe a longer period. In case the Company sends the Notice,
Agenda and Notes to Agenda by speed post or by registered post, an additional two
days shall be added for the service of Notice.

2. Notice, Agenda and Notes to Agenda are issued by the Company Secretary or where
there is no Company Secretary, any Director or any other person authorized by the
Board for the purpose.

3. Notice shall inform the directors regarding the option available to them to participate
through video conferencing mode or other audio visual means, and shall provide all
the necessary information to enable the directors to participate through video
conferencing mode or other audio visual means.

4. A director intending to participate through video conferencing or audio visual means

shall communicate his intention to the Chairperson or the company secretary of the
company sufficiently in advance so that company is able to make suitable
arrangements in this behalf. [Rule 3(3) of the Companies (Meetings of Board and its
Powers) Rules, 2014]

5. Notes on items of business which are in the nature of Unpublished Price Sensitive
Information may be given at a shorter period of time than stated above, with the
consent of a majority of the Directors, which shall include at least one Independent
Director, if any. [Clause 1.3.7 of Secretarial Standard on meetings of Board of
Directors)]

6. Each item of business to be taken up at the Meeting shall be serially numbered.

Numbering shall be in a manner which would enable ease of reference or cross-
reference. [Clause 1.3.9 of Secretarial Standard on meetings of Board of Directors)]

 Convening of Board Meeting

1. Check the presence of Quorum for convening the meeting. Quorum shall be present
not only at the time of commencement of the Meeting but also while transacting
business.

2. Check the Leave of absence and the same shall be granted to a Director only when a
request for such leave has been communicated to the Company Secretary or to the
Chairman or to any other person authorized by the Board to issue Notice of the
Meeting.
 3. The Chairman of the Company shall be the Chairman of the Board. If the company
does not have a Chairman, the Directors may elect one of themselves to be the
Chairman of the Board to conduct the meeting.

4. Every company shall maintain attendance register for the Meetings of the Board and
the Chairman shall take a Roll Call at the commencement of the meeting and confirm
the attendance of Directors participating through video conferencing.

5. The Chairman shall request the Director participating through Electronic Mode to
state his full name and location from where he is participating and shall record the
same in the Minutes. The proceedings of such Meetings shall be recorded through
any electronic recording mechanism and the details of the venue, date and time shall
be mentioned.

6. Directors participating through Electronic Mode shall be deemed to have signed the
attendance register, if their attendance is recorded in the attendance register and
authenticated by the Company Secretary or where there is no Company Secretary, by
the Chairman or by any other Director present at the Meeting, if so authorized by the
Chairman and the fact of such participation is also recorded in the Minutes.

7. Registers of all contracts or arrangements shall be placed in the meeting of the Board
and signed by all the directors present at the meeting. [Section 189]

8. If the Chairman is interested in an item of business, he shall entrust the conduct of

the proceedings in respect of such item to any Non-Interested Director with the
consent of the majority of Directors present and resume the chair after that item of
business has been transacted. However, in case of a private company, the Chairman
may continue to chair and participate in the Meeting after disclosure of his interest.

9. The Chairman shall use his second or casting vote in case of equality of votes.

10. Permission of Chairman shall be taken with the consent of a majority of the Directors
present in the Meeting for taking up any item not included in the Agenda. The decision
taken in respect of any other item shall be final only on its ratification by a majority of
the Directors of the company, unless such item was approved at the Meeting itself by
a majority of Directors of the company.

11. Check that vote of thanks is given to the Chair at the conclusion of the Board Meeting.

 Preparation and Signing of Minutes

Board meeting

A board meeting is a regular formal gathering of a board of directors in order to discuss strategic
matters of a company. This includes the corporate policies and issues, company performance reports
and future endeavors. By covering all these points, the top management can evaluate and keep track
of the company’s progress.

A board meeting is usually called at regular intervals during a financial year in order to keep up with
the developments in all the company’s departments. To set up this meeting, one needs to notify
attendees on the details of the event. The key participants are the members of the board in charge
elected by the corporate stakeholders - directors. The directors usually have the power to take all
major actions and decisions for the company.

Roles of the attendees in a meeting

Every attendee has a role in the meeting - there is a chairperson, speakers, a secretary and sometimes
guests who don’t participate in the discussions. The chairperson makes sure that the meeting is
planned and conducted effectively; with their guidance, the attendees deal with matters in an orderly
and efficient manner. The speakers are key participants; they present their findings to the group and
participate in all discussions on the agenda. The secretary keeps the record of all the meetings
decisions.

What matters are usually on the agenda?

Record of a previous meeting. Before proceeding with the new orders of business, the board typically
reviews the minutes of the previous meeting to track the progress of implementation of the decisions
and to highlight the areas of improvement. The participants recall all the topics that were discussed
the last time, as well as all unresolved issues. If new developments come to light, they are presented
to the board in order to fully inform participants on the current situation.
Performance reports and KPIs. The members of the board review key performance indicators such as
customer satisfaction, sales, costs and revenues for a given financial period, as well as ongoing
research and development. In this way, the board members can find out what has changed over time
and whether the company has benefited from these changes. The KPIs part of the meeting can be
followed by Q&A section in case some points need to be clarified. Performance reports are of great
importance, as they define whether the company is moving in the right direction or some drastic
measures must be taken.
Problems and opportunities. After discussing the performance for a given quarter of a fiscal year, the
board addresses the problems the company has faced during this period. The members share
experience with issues in their respective fields of responsibilities and they give their expert opinions
on the extent to which their work is going to be affected under the circumstances. The new business
opportunities are presented to the board as well. After the pitch, the attendees can weigh all pros and
cons, risks, expenses and potential profits from the new deals before they come to any conclusions.
Future strategies. The attendees share their ideas of the future projects and policies and discuss
possible steps towards their implementation. They provide arguments for or against the new
initiatives as well as search for common ground on the matters at hand. The subjects of discussion,
among others, include new markets, customer support policies, investor relations, new appointments
in the upper management, etc. This part of a board meeting allows everyone to stay on the same page
as well as have a clear plan as to what to do and what not to do next.
Vote. When all the parties have presented their views and the discussion is over, the chairman puts
all the motions on the agenda to a vote. The outcome of the vote determines the decisions made by
the board meeting. This can include changing the company’s articles, authorizing certain transactions
or ratifying a former decision made by a director. In some companies, the vote needs to be unanimous
for a motion to pass, while in others the amounts of “for” and “against” are compared, and the
majority wins. Some policies allow attendees to abstain from voting due to conflict of interest or
unwillingness to participate in passing a controversial motion. In this case, board members are allowed
this option so as not to oppose their colleagues and partners openly.
Types of Directors in a Company

There are different types of directors chosen in a firm. The Companies Act 2013 defines a director
under Section 2(34) as a director appointed to the Board of a company; this primer will be divided into
four sections, i.e., Minimum Requirements, Functions, Appointment, and Residuary Types. The latter
three sections deal with the types of directors, while the first section deals with minimum
requirements for all Company Law Directors.

1. Minimum Requirements

The minimum requirements can be based on two broad grounds, composition and eligibility

1.1 Composition

 All public companies should have a minimum of 3 directors maximum of 15 directors, and
1/3 of them must be independent directors

 All private companies must have a minimum of 2 directors and a maximum of 15 directors

 To have more than 15 directors, a special resolution must be passed by Section 114.

1.2 Eligibility of Directors

Any person other than the following would be eligible to be a director

 Auditory of the company.

 A previously banned director.

 A minor under 16 years of age.

 Any person declared to be bankrupt or insolvent.

2. Type of Directors Based on Functions Performed

Types of directors are two types – executive directors and non-executive directors.

2.1 Executive Directors

Executive directors are present internally and are involved in the company – s.149(12). They are two
types – Managing Directors and Whole-Time Directors

Managing Director – A director who is the CEO and entrusted with substantial management powers
under s. 2(54) . Whole-Time Director – A director employed on a whole-time basis, not the CEO of the
company, and is under a special contract, appointed under s.2(94)

2.2 Non-Executive Directors

Non-executive directors are external professionals and are uninvolved in the everyday activities of the
company – s.149(12). They are of two types – independent directors and nominee directors.

Independent Directors – They are appointed to ensure transparency and provide expertise. Must have
the following qualifications

 Industrial expertise and knowledge

 Must not have any stock options or stake in the company

  It can only be appointed for a maximum of 5 years and for two terms, with a minimum
cooldown of 3 years between the terms.

Nominee Directors – Representative of the stakeholders appointed to the board of directors. Must
have the following requirements – s.149(7) and s.161(3)

 Must be appointed if provided in the Articles of Association (AoA)

 Tata v. Cyrus – Must have unfettered discretion to protect the interests of both the company
and the shareholders

3. Types of Directors Based on Appointment

The Companies Act 2013 allows for three types of directors based on appointment to deal with
contingencies – Additional Director, Alternate Director, and Casual Vacancy Director

3.1 Additional Director

A company may appoint an additional director under s.161(1) to deal with unexpected or additional
work. Hence, it must fulfill the following requirements.

 Must be provided for in the AoA

 Cannot serve beyond the next Annual General Meeting

 Paul v. City Hospital – Additional Directors cannot be appointed in special circumstances to

strengthen the majority. You can make the Directors in company law by consulting experts in
your field.

3.2 Alternate Director

 Can be appointed under s.161(2) in the absence of the director for more than three months
to act on his behalf if provided under AoA

 Can only serve till the managing director returns, cannot serve beyond that point

 Must be a like-for-like replacement – only an independent, alternate director may fill in for
an alternate director.

3.3 Casual Vacancy Director

 Can be appointed under s.161(4) on the death, resignation, disqualification, or incapacity of a

director

 Need not be provided for under AoA

 Can only serve till the term of the director who has vacated.

 This only applies to public companies.

4. Miscellaneous Types of Directors

This section deals with classification of directors based on categories that may overlap with earlier
categories. This section covers residential directors, women directors, and small shareholders
directors.
4.1 Residential Directors

 Provided in s.149(3) that every company must have at least one director who resides in India
for at least 182 days in a year

 For newly incorporated companies, the requirement shall apply proportionally (50%) to the
end of the FY

4.2 Women Directors

 Provided for in s.149(1), requires three types of companies to have a minimum of one women
director

 Every listed company

 Every public company without a paid-up share capital of 100 cr or a turnover of 300 cr.

 Companies registered before the Companies Act, 2013 shall appoint women directors within
a year of this act coming to force, while new companies post-2013 act shall appoint women
directors within six months of registering.

4.3 Small Shareholders Director

 There is no mandate to appoint a small shareholders director under s.151, left up to the
company’s discretion

 Companies must fulfill two criteria to be eligible to appoint a small shareholders’ director

 It must be a public company

 It must have at least 1000 or more small shareholders.

Independent Director – Directors who have knowledge or network in a particular area or a particular
field can be termed as independent directors. Usually, companies hire ex-officials for such roles
because they have the industrial expertise and the experience which is required to run a
company smoothly. Women directors can also be appointed as independent directors. Independent
directors help maintain transparency, which is an especially relevant factor, especially in the corporate
regime.

As per Section 149(2) – an independent director is a director other than managing director, whole-
time director or nominee director and in the opinion of the Board possesses relevant expertise and
experience.

As per Section 149(4) of the Companies Act, 2013 – every listed public company must have at least
1/3rd of the total number of directors as independent directors. This will include companies listed on
the SME segment of the stock exchange.

The Central Government also prescribes the minimum number of independent directors in the case
of unlisted public companies.

The Central Government vide Rule 4 of Companies (Appointment and Qualification of Directors) Rules,
2014 – states that unlisted public companies must appoint at least 2 (two) directors as independent
directors in the following circumstances –
  If the paid-up share capital exceeds Rs. 10 crores.

 If the turnover exceeds Rs. 100 crores.

 If the aggregate of all the outstanding loans, debentures and deposits, exceeds Rs. 50 crores.

A declaration by an independent director that he meets the criteria of independence is a must-

 At the first meeting of the Board in which he participates as a director and

 At the first meeting of the Board in every financial year or

 Whenever there is any change in the circumstances which may affect his status as an
independent director

 Qualification – An independent director must have skills, experience and knowledge in one or
more fields of law, management, sales, marketing, corporate governance, administration,
research, technical operations or other disciplines related to the company’s business.

 Tenure – The term of independent director must not exceed 5 (five) years. They can be elected
again for a second term. A cooling period of 3 years is compulsory after the expiry of the
second term. Companies are allowed to appoint independent directors for less than 5 years,
however a person cannot be appointed for more than 2 (two) terms.

All independent directors should meet at least once a year in the absence of non-independent
directors and other members of the company so that they can evaluate the performances of the
company’s chairperson, other directors, and the Board. An independent director must comply with
the functions and duties mentioned in the Code of Conduct provided under Schedule IV of the
Companies Act, 2013. Independent directors are not paid remuneration but are eligible for sitting fees
for the meetings they attend. Their nature is independent, they cannot receive any stock option. As
per Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 – an
independent director cannot be a director of more than 7 (seven) listed companies.

Nominee Director – Section 149(7) and Section 161(3) of the Companies Act, 2013 deals with a
Nominee director. If it is authorized by the Articles of Association (AOA) of a company then the Board
may appoint any person as a director nominated by any institution in pursuance of the provisions of
any law for the time being in force or any agreement or by the Central Government or the State
Government under its shareholding in a Government company. If the Articles of Association of a
Company authorizes it, only then can a nominee director be appointed by the Board.

They represent the stakeholders on the board of directors. To put it in simple terms, a nominee
director is a representative of the stakeholder who protects the stakeholder’s interest. Their job is to
see that the company does not function in a manner detrimental to the interest of the stakeholders
they represent.

Appointment – Nominee directors are appointed by an agreement (either Shareholder’s agreement

or financing agreement) between the company and the stakeholder. The stakeholders are responsible
for the payment of such nominee directors they may appoint. A nominee director must act in good
faith and the interest of the company even if they are nominated by the stakeholders.

In the landmark judgment of Tata Consultancy Services Limited v. Cyrus Investments Private Limited &
Ors. – It was made clear by the Court that while a nominee director is entitled to take care of the
interests of the nominator, he is duty-bound to act in the best interests of the company and not fetter
his discretion.

Bhardwaj Thiruvenkata Venkatavaraghavan v. Ashok Arora – the Delhi High Court held that Nominee
Directors must act in the best interest of the Company and its shareholders and not only in the interest
of their Nominators.

Small Shareholders Director

Any person who holds shares of the nominal value of not more than Rs. 20,000 in a Public Company
is called a small shareholder. These small shareholders are allowed to elect a director in a listed
company. Thus, directors elected by these small shareholders are called Small shareholders Directors.
According to Section 151 of the Companies Act, 2013 every listed company may have 1 (one) director
elected by such small shareholders.

Thus, a small shareholder director can be appointed by a Company if –

1. The Company is a Public Company;

2. The Company has at least 1000 or more small shareholders;

Only if these two criteria exist, the listed company can have one director elected by a small
shareholder.

Appointment – The appointment of such a director is optional and that is why there are hardly any
companies that have a small shareholder director. The Company can appoint a small shareholder
director either on its own or on the application made by a small shareholder.

Rule 7 of Companies (Appointment and Qualification of Directors) Rules, 2014 lays down certain
provisions relating to Small Share-Holder Director which are as follows –

1. At least 1000 small shareholders, or 1/10th of the small shareholders, whichever is less, should
provide a written notice to the Company. But the notice should be provided 14 days before
the General Meeting.

2. The said notice must contain details of the proposed director. Details such as name, address,
folio number, shares held etc.

3. The said notice must be signed by the person proposing to be the director.

4. The said notice should be accompanied by a statement signed by the proposed director stating
that he has a Director Identification Number (DIN), he is not disqualified to be a director and
he has given his consent to act as a director.

Other provisions related to a small shareholder director are as follows –

1. A small shareholder director is eligible for an independent director as per the provisions
of Section 149 (6) & (7) of the Companies Act, 2013.

2. A small shareholder director shall not be considered as a retiring director.

3. A small shareholder cannot be appointed as a Managing Director or a Whole Time Director.

 4. A person shall not hold office as a small shareholder director in more than 2 (two) companies
at the same time i.e. he is allowed to hold office in 2 companies at the same time but not more
than 2.

Tenure – A small shareholder director can be appointed for a maximum period of 3 (three) years. He
is not liable to retire by rotation and he is also not eligible for reappointment after the expiry of his
tenure. Further, he cannot be associated with the company for 3 (three) years after he has finished
his service.

FIDUCIARY RELATIONSHIP

When we talk about the Fiduciary Relationship, it generally means the relationship in which a person
is supposed to act legally on behalf of another person, in his best interests. Basically, it is a relationship
of mutual friendship and trust or confidence between the parties.

People who work in Fiduciary Relationship

There are various conducts in the day-to-day life of a company that are executed through its members
and all these members of the company are related to one another under this relation. But the major
people who are considered and influenced by this relationship are:

 Promoter

 Directors

 Shareholders

Promoter

A promoter is a person who does all the preliminary work before the formation of the company. Some
of the functions of the promoter are- incorporation, all preliminary contracts, floatation, etc. Section
2(69) of the Company’s act mentions the term ‘Promoter’ which states that a person may be
a promoter of the company even without being a director or a shareholder if he/she has been named
so in the Prospectus or Annual Return of the Company.

In the case Twycross v. Grant, the term Promoter has been defined as one who undertakes to form a
company with reference to a given project and to set it going, and who takes the necessary steps to
accomplish that purpose.

Many of us get confused when it comes to identifying the relationship of a promoter. Some say that
they are agents of a company, some are of the opinion that they are trustees with the organization,
but if there is no such existence of the company, then they are not able to act as its trustee or agent.
The fact is that the promoter is acting as a fiduciary relationship with the company.

Lord Cairns in one of his judgments in the case Erlanger V. New Semberero Phosphate Co. cleared the
relationship of a Promoter– “The promoters of a company stand undoubtedly in a fiduciary position.
They have in their hands the creation and molding of the company. They have the power of defining
how and when and in what shape and under what supervision, it shall start into existence and begin
to act as a trading corporation.”

In a fiduciary relationship, it is the duty of the promoter to not generate any secret profits, during the
preliminary contracts or during any of the transactions, and if supposedly, there occurs a situation
that he ever makes that profit, he then will be bound to refund it back to the corporation. A company
creates mutual trust with the promoter, and the promoter acts for the betterment and in the best
interests of the company.

Board of Directors

The concept of the Board of Directors is very wide as they are the topmost authority in any
organization. They are the ones who are responsible to create policies and schemes for the
management of the organization. They are considered as an elected body that represents the
shareholders of the company.

Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum
number of 3 directors in the case of a public company, two directors in the case of a private company,
and one director in the case of a One Person Company. A company can appoint a maximum of fifteen
directors.

Therefore, Directors are considered as a sine qua non, which means that they are the absolutely
necessary condition for the day-to-day functioning of the company.

Whenever directors enter into any agreement or contract it is assumed that they are in the fiduciary
relationship with the company, and whatever activities they will be performing are performing with
the (bona fide) intention and in the best interests of the company and if they ever tried to generate
(mala fide) intention, or even tried to go parallel with the policies of the company, they are prohibiting
the legal rules of their company.

In the case Globe Motors Ltd. vs Mehta Teja Singh, the court held that directors of the company are
in a fiduciary capacity and since the directors acted in their personal interest as opposed to the interest
of the company, such agreement was liable to be vitiated.

As a fiduciary relationship with the company, directors are bound to frame legal, sound, and
reasonable policies which are in the favor and interests of the company. They are also responsible to
establish an environment where (no majority shareholder tries to misuse his power against any
minority shareholder) or any other activities which create unfairness in the organization.

Shareholders

Shareholders are the people who buy shares of the company, and considered generally, as owners by
determining the value of shares they have purchased. Shareholders are of 2 types:

 Majority Shareholders
An individual who owns 50% or more than that in any public or private organization.

 Minority Shareholders
An individual who owns the value of shares that are less than that of majority shareholders.

When any shareholder acquires the title of a (Majority shareholder), in the organization, he is bound
not to misuse his powers against the company or any of the minority shareholders. Due to the title of
the majority shareholder, the person is entitled to take part in the company’s decision-making. He is
eligible to give his ideas to the directors in the process of decision-making.

However, while giving his ideas and opinions to the directors he should act in the best interest of the
company. He should keep in mind that the company for which is giving his opinions, he is also a
member of the same. He should support and stand on the behalf of those minority shareholders who
are not a part of decision-making and express their ideas in the Board Meetings, for the betterment
of the company.

CRIMINAL LIABILITY OF DIRECTORS

The director of a company is responsible for smooth carrying out the business and managing the day
to day affairs of the company. They are appointed by the shareholders for the efficient and effective
running of the company as professionals.

The relationship existing between a director and the shareholder is that of a ‘fiduciary’ one (i.e. based
on trust). Therefore, directors are exposed to liabilities whether it may be ‘civil’ or ‘criminal’ in nature
in case of breach of duties by them. In cases of civil liabilities, the liability is set off by making payment
or compensating the affected party whereas criminal liabilities, mentioned under various statutes,
attract punishments for the person responsible for such breach. In this article, the discussion is based
on the criminal liability of directors under the Companies Act, 2013.

Who is held responsible under the Companies Act?

It is to be noted that no person can be held liable on the basis of their designation. In order to fix
liability, that person needs to fulfil certain legal requirements to be held responsible in law. Therefore,
the persons who are held criminally liable for any non-compliance are those who were in charge or
responsible for conducting the business at the time of the commission of the offence, i.e. the directors
or ‘officer-in-default’ under whose directions any one or more directors is/are accustomed to act. The
concept of ‘vicarious liability’ has also evolved in recent years which has brought senior management
officials such as directors under the court’s purview for imposing liability.

Sections determining Criminal Liabilities under Companies Act (2013)

Section 34 – Issue of Prospectus with untrue or misleading statements

According to this section, every person who authorizes the issue of such prospectus which contains
untrue or misleading statements in the form of inclusion or omission thereby inducing another person
to buy shares on that faith will be subject to imprisonment which may extend from minimum 6 (six)
months to 10 (ten) years.

Section 53 – Issue of shares by a company at a discount

This section prohibits any company to issue shares at a discount. Non-compliance of this section
results in a fine for the company which can range from one to five lakh rupees. The officer-in-default
is held criminally liable and is punishable with imprisonment a period up to 6 (six) months or fine of
one to five lakh rupees or both.

Section 68 – Buying back of shares by a company

This section contains provisions and guidelines to be followed by the company while buying back its
own shares or other securities. According to Section 68 (11), in case of default by the company in
complying with the provisions of aforesaid section or guidelines laid down by SEBI, criminal liability of
the officer in default of such company shall be imprisonment up to 3 (three) years or fine of not less
than one lakh rupees or both.
Section 71 – Issue of debentures by the company

This section deals with issuing of debentures by the company for financing with an option to convert
such debentures into shares, wholly or partly, at the time of redemption. Accordingly, the company
must appoint a debenture trustee for protection of rights of debenture holders. In case, when the
debenture holder feels that the company would not be able to discharge the principal amount as and
when required, the debenture holder may file a petition before Tribunal which may, after hearing the
interested parties, pass the order restricting the company from incurring any further liability in the
interest of debenture holders.

Moreover, when the company fails in redeeming the debentures at the time of maturity, the
debenture holders or debenture trustees can file the petition before the Tribunal which may by order
ask the company to make payment of principal amount and the interest due without any delay.

Non-compliance of such an order of Tribunal shall make the officer in default liable for imprisonment
for a period which may extend up to 3 (three) years or fine of 2 (two) lakhs to 5 (five) lakhs or both.

Section 92 – Filing of annual return by the company before RoC

This section mandates the preparation of annual return by the company in the prescribed format end
of every financial year. The annual return must contain such information as has been prescribed under
Section 92(1). This return needs to be filed before the Registrar of Companies(RoC) within 60 (sixty)
days from the date of AGM or time prescribed under Section 403. Failure to file the annual return may
lead to a fine for the company in tune of fifty thousand rupees and criminal liability for the officer-in-
default in form of imprisonment for a period extending up to six months or fine between fifty thousand
to five lakh rupees or both.

Section 118 – Preservation of minutes of meetings by the company

According to this section, every company has to ensure that the minutes of proceedings of every
general meeting, Board meeting and resolutions passed by postal ballot is prepared and signed in the
manner as has been prescribed under the section and must be preserved for at least 30 days of the
conclusion of such meetings. These minutes must contain all relevant information related to the
meeting and decisions made in the course of such meetings. Further, sub-clause 12 of the section
contains the provision for punishment in case a person-in-charge is found guilty of tampering with the
minutes. He shall be liable for imprisonment for a period extending up to two years or a fine which
may be in between twenty-five thousand rupees to one lakh rupees or both.

Section 128 – Maintenance of proper books of account by the company

This section makes it mandatory for a company to maintain proper books of account including the
financial statement for every year and may keep these in an electronic mode in the prescribed form.
Further, this information may be provided to investigating agencies as and when required and may be
kept for a reasonable period of time.

This section further states that if the managing director or Chief Financial officer or the officer in
default fails to comply with such provisions, he shall be criminally liable for imprisonment for a term
of one year or a fine, not less than fifty thousand rupees and extending up to five lakh rupees or both.

Section 129 – Financial statement should be in the prescribed form

It deals with the provision that mandates a company to provide the financial statements in the
prescribed form for respective class and which give a true and fair picture of the actual financial
position of the company and complies with the approved accounting standards. Moreover, a company
also needs to attach financial statements of its subsidiaries or associate companies, if any. According
to Section 129(7), in case of the company’s failure to comply with the requirements of this section,
the managing director or Chief financial officer or officer-in-default shall be punishable with
imprisonment for one year or fine of at least fifty thousand rupees which may go up to five lakh rupees,
or both.

Section 134 – Approval of financial statement by officials of the company

According to this, it is mandatory for every company that the financial statement, which may include
the consolidated ones, must be approved by the Board of Directors through getting it signed by
Chairman of such company authorized by Board or by two directors out of which one may be managing
director and CEO, CFO and company secretary of such company. In case of non-compliance with the
provisions laid down under this section, the officer-in-default shall be punished with imprisonment
extending up to three years or fine in the range of twenty-five thousand rupees to five lakh rupees or
both.

Section 167 – Vacation of office of the director of the company

This section is related to conditions or events which leads to the vacation of office of director. There
are various events specified in this section which leads to the vacation of office such as disqualification
under specific sections of the Act or by a court of law or Tribunal, acting in contravention of Section
184 while entering a contract or disclosing his interest in such contract, etc.

However, Section 167(2)(a) provides that if a person continues to hold the office of a director in the
company even after having knowledge of vacation of office under him, such person is criminally
punishable with imprisonment for term extending up to one year or a fine which may be in between
one lakh rupees to five lakh rupees, or with both.

Section 185 – No advancement of loan to a director by the company

This section provides that no company shall advance an amount as loan represented by a book debt
to a director or any such person for whom director gives a guarantee or any security against such loan,
except as provided otherwise in the Act. According to Section 185(2), if any such act is committed in
contravention to the above provision, such director or another person shall be criminally liable for
imprisonment which may be extended up to six months or fine which may amount to minimum five
lakh rupees and may extend up to twenty-five lakh rupees, or both.

Section 188 – Cases of related party transaction

This section states that no company shall enter into a contract or transaction with a related party
commonly known as ‘related party transaction’ without the approval of Board of Directors through a
resolution passed in the Board meeting. These transactions may include sale or purchase, or supply of
goods, an appointment of an agent or a related person to the office of profit in a company, etc. As per
subclause 5 of this section, non-compliance of above provisions in case of listed companies may result
into criminal liability of the director for imprisonment for a term extending up to one year or fine
between twenty-five thousand rupees to five lakh rupees or with both.

Section 229 – Penalty for False statement and destruction of documents

This section provides for a penalty for furnishing false statement, mutilation or destruction of
documents by any person bound to cooperate during an investigation. If the statement made by him
turn out to be false he shall be liable for punishment under the provisions of Section 447.
Section 447 – Penalty for fraud

This section is related to commission of fraud by any person of the company or wrongful loss to
shareholders or wrongful gain to himself, such person shall be liable for imprisonment for period of at
least six months which may extend to ten years or fine which shall be equal to amount of fraud and
not any less but which may also extend to three times of the amount involved.

Section 448 – Penalty for providing false statement or omission of fact

This section provides for punishment for false statements. It states that if any report, financial
statement, return, prospectus, filing or another document under any provision of this Act made by
any person is false or omitted any material fact despite having knowledge of the same, then such
person will be liable under provisions of Section 447.

Section 449 – Penalty for providing false evidence to authorities

This section deals with punishment for providing false evidence. According to this, if any person
intentionally provides false evidence in the course of the examination upon oath or in the form of
deposition, affidavit or winding up process of the company. Then, in that case, such person would be
liable for imprisonment of at least three years which may extend to ten years or fine which may go up
to ten lakh rupees.

These are the various sections under which a director of a company can be held criminally liable for
any contravention of the provisions specified under the Companies Act, 2013.

Misfeasance

Under negligence, the concept of misfeasance is an unlawful act committed by one resulting in the
injury of another. It means the act of not doing something when it should have been done. The duty
which is legally imposed is not done appropriately or not done at all. This term is interchangeably used
in both civil and criminal laws. It is applicable to unlawful acts, such as trespass, which is actionable
per se without needing to prove mens rea or motive.

Misfeasance is generally actionable in public offices where the holder of the office has acted beyond
his scope by misusing his powers. A person, while carrying out his duty, is expected to have a duty of
care towards the other person and shall not harm by acting illegally or in an unlawful manner. While
he does such an act, if it leads to gross injury in the other person, the person is said to have committed
an act of malfeasance.

Misfeasance is an illegal act that can be enforced in a court of law and liable for damages. It is an act
done by ill will and with knowledge of acting beyond the latitude of authority. In Calveley v. Chief
Constable of the Merseyside Police, the Court held that an act of malice shall be present to be liable
for misfeasance under tort. Misfeasance is one kind of negligence as the person or the defendant has
failed to carry out his duty which he is supposed to do in whatever capacity he may be in.

Illustration – A person in charge of kids after school until their parents come to take them, he will be
held for misfeasance if the kids go missing or fell victim for any injuries as he was negligent in
dispensing his duty appropriately in monitoring him.

Malfeasance

Any wrongful act which a person has got no legal right to do or any conduct that hinders the
performance of any official duty either partly or and to which that person has no authority to do, he
is said to have done malfeasance.
In simple words, it is understood that doing an act which a person is legally or morally is not expected
to do. A person owes a duty of care in dispensing his obligations, failing which he may be sued. But
when a person intentionally and bad faith acts beyond his legal capacity to infringe the rights of
another party, such unjust performance is said to be malfeasance. The factor of mens rea is important
to be considered in such acts.

Illustration – A, appointed as a car driver for his manager for his official duties. After dropping A at the
office, A takes the car to the club to meet his friends and does not return. Here A has acted unlawfully
and in bad faith.

Nonfeasance

While misfeasance spoke about not acting properly where it was necessary amounting to negligence,
nonfeasance is complete inaction or failure to act as a man of prudence would have acted wherever
necessary. An act of nonfeasance results in liability if:

(1) the defendant owed a duty of care towards plaintiff;

(2) the defendant failed to show the duty of care and; and

(3) Such failure by the defendant has caused injury to the plaintiff.

For such liability to arise, there shall be a pre-existing relationship between the plaintiff and the
defendant shall have been imposed with legal or moral duty. Courts have determined pre-existing
relationships in respect of domestic relationships like parent-child and student-teacher official
relationships like employer-employee. For instance, if a person who has taken the service of swimming
pool arena and further drowns while swimming, a passer-by shall not be held liable as there is no
existing relationship. However, if the passer-by is part of the rescue and emergency team, failure to
act on his part amounts to civil liability of nonfeasance. A person may avoid acting to prevent the harm
that may be caused to him due to the threat he posed to the other party.

Rights and Duties of Directors in a Company

In order to create policies that would yield high results, directors must have a vision. To achieve high
levels of success, they must set the company’s goals. They must be able to conduct the company’s
objectives. Then there is the director’s function and responsibilities. Directors have various safeguards
in place to protect themselves and the company’s interests. Below is the description of the Rights of
Directors.

 Director’s Individual Rights

1. Inspection of books of accounts.

2. Right to receive board meeting notices.

3. The right to obtain circular resolution draft.

4. The right to a sitting fee.

5. The right to speak in General Meetings.

6. Inspection of board meeting minutes is a legal right.

7. He has the right to record his dissent.

 8. Right to vote and participate in Board meetings.

9. The ability to claim travel, lodging, and other expenditures.

10. The right to call board meetings.

11. Right to request an alternate director from the board of directors.

 Collective Rights in a Company

1. Right to prohibit share transfers

2. The right to choose a Chairman

3. Right to nominate a Managing Director and make dividend recommendations

4. Investment approval authority.

Duties of Director in a Company

The Board of Directors functions as the Company’s agent. However, when acting for the Company, the
Director must fulfill the following responsibilities:

 Act in good faith and in accordance with the Company’s Articles of Association

 To act in the best interests of the Company and its stakeholders in order to promote the
Company Act’s objectives.

 Exercise due and reasonable care when performing obligations.

 To make independent decisions.

 Not to get engaged in a situation where his interests are at odds with the Companies.

 He is unable to delegate his duties to anyone else.

 To avoid gaining an unfair advantage or profit.

Director’s Liability in a Company

The directors may be held jointly or collectively accountable for any and all conduct detrimental to
the company’s interests. Although the Director and the Company are separate entities, the Director
can be held liable on the Company’s behalf in the following circumstances:

 SEBI can take legal action against directors who fail to make the required disclosures under
the SEBI (Acquisition of Shares & Takeovers) Regulations, 1997, and SEBI (Prohibition of
Insider Trading) Regulations, 1992.

 Share application cost refunds or excess share application fees.

 To cover the cost of qualification shares.

 Civil Liability for Misrepresentation in a Prospectus.

 Any present or previous Director (during the defaulter’s time period) shall be liable to pay the
tax shortfall as well as any penalties unless a Director or Former Director can establish that
the non-recovery or non-payment of taxes is due to gross negligence or violation of duty.
  If the majority of shareholders participate in “fraud on the minority,” or discriminatory
behaviour, the directors and the corporation maybe held accountable. As a result, this is a
precious clause that Directors should be aware of and try to exploit as much as possible.

 A company is required by the Companies Act to acquire insurance to protect itself from losses
caused by its directors. A director may also obtain insurance to cover damages suffered owing
to the company’s liability, with the corporation charging the price.

Roles and Responsibilities of Key Management Personnel

The KMPs are basically are basically responsible for taking the most important decisions and managing
all the employees. They are also liable if they do not follow compliances laid down by the Companies
Act 2013.

The growth and development of the company depend on the effectiveness of the KMPs at their jobs.
The main responsibilities and functions of the KMP are:

 As per Section 170 of the Companies Act, the details about the securities held by the KMPs in
the company or its holdings and subsidiaries must be disclosed and thus recorded in the
Registrar.

 KMPs have a right to voice their opinion especially in meetings of the Audit Committee.
However, they don’t have a voting right.

 According to Section 189, Companies Act, KMPs should disclose their interests in other
companies and associations, at least within 30 days of the start of the employment period.
 Module III: Insolvency & Impact on Corporate Governance
 Insolvency & Bankruptcy Board

 Compliances and Penalties under Insolvency & bankruptcy Code,2016

 Controlling the Behavior of Stake Holders: like Corporate Debtor, Operative /

Financial Creditor, Resolution Professional, Resolution Plan

 Adjudicating Authorities for Corporate Persons.

 Offences & penalties under Chapter VII of Code

INSOLVENCY AND BANKRUPTCY BOARD

The Insolvency and Bankruptcy Board of India (‘Board’), also known as IBBI, was established under the
Insolvency and Bankruptcy Code, 2016 (‘IBC’) on 1st October 2016. It is responsible for the
implementation of the IBC. The IBC amends and consolidates the laws relating to insolvency resolution
of individuals, partnership firms and corporate persons in a time-bound manner.

The IBBI regulates professionals as well as processes. It has regulatory oversight over the insolvency
professional agencies, insolvency professional entities, insolvency professionals and information
utilities. It enforces rules for processes of corporate insolvency resolution, individual insolvency
resolution, corporate liquidation and individual bankruptcy under the IBC.

Constitution of the Board

The Board consists of the following members who are appointed by the Central Government:

 A Chairperson.

 Three members from among the officers of the Central Government equivalent or not below
the rank of a Joint Secretary. Out of the three members, each will represent the Ministry of
Finance, Ministry of Corporate Affairs and Ministry of Law, ex -officio.

 One member nominated by the RBI (Reserve Bank of India), ex-officio.

 Five other members nominated by the Central Government, out of which at least three should
be whole-time members.

The Chairperson and the other members should be persons of integrity, ability and standing, having
the capacity to deal with problems relating to bankruptcy or insolvency and having special knowledge
and experience in finance, law, accountancy, economics or administration.

The term of office of the Chairperson and members (other than ex-officio members) is five years or
until they attain sixty-five years, whichever is earlier, and they are eligible for re-appointment.

Powers and Functions of the Board

The Board exercises the powers and functions conferred to it under Section 196 of the IBC which are
as follows.
General Functions of the Board

The Board will perform all or any of the following functions subject to the general direction of the
Central Government:

 Register, renew, suspend, withdraw, cancel and specify the minimum eligibility requirements
for registering insolvency professionals, insolvency professional agencies and information
utilities

 Promote the development and regulate the practices and working of the insolvency
professionals, insolvency professional agencies, information utilities and other institutions

 Levy charges or fees for carrying out the purposes of the IBC, including fees for registration
and renewal of the insolvency professional agencies, insolvency professionals and information
utilities

 Specify regulations and standards for the functioning of the insolvency professional agencies,
insolvency professionals and information utilities

 Lay down regulations on the minimum curriculum of the examination of the insolvency
professionals for their enrolment as members to the insolvency professional agencies

 Carry out inspections, investigations, monitor the performance and audit the functioning of
the insolvency professional agencies, insolvency professionals and information utilities and
pass the required orders for compliance with the provisions of IBC and the regulations

 Call for any records and information from the insolvency professional agencies, insolvency
professionals and information utilities

 Publish research studies, information, data and other information as specified by the
regulations

 Specify regulations on the manner of storing and collecting data by the information utilities
and providing access to such data

 Maintain and collect records and disseminate information relating to bankruptcy and
insolvency cases

 Constitute such committees as required, including the committees laid down under Section
197 of IBC

 Promote best practices and transparency in Board governance.

 Maintain websites and other universally accessible necessary repositories of electronic

information

 Enter into a memorandum of understanding with other statutory authorities

 Issue necessary guidelines to the insolvency professionals, insolvency professional agencies

and information utilities

 Specify mechanism for redressal of grievances against the insolvency professionals, insolvency
professional agencies and information utilities and pass orders relating to the complaints filed
against them for compliance with the provisions of the IBC and the regulations
  Specify mechanisms to issue regulations, including the conduct of public consultation
processes, before notifying any regulations

 Make guidelines and regulations on matters relating to bankruptcy and insolvency required
under the IBC, including the mechanism for time-bound disposal of the assets of the corporate
debtor/debtor

Powers of the Board to Make Bye-Laws

The Board can make model bye-laws to be adopted by the insolvency professional agencies, which
may provide the following:

 The minimum standards of professional competence for the members of the insolvency
professional agencies

 The standards for the ethical and professional conduct of the members of the insolvency
professional agencies

 Requirements for enrolment of persons as members and granting membership of the

insolvency professional agencies in a non-discriminatory manner

 Setting up a governing board for management and internal governance of the insolvency
professional agency as per the regulations specified by the Board

 The required information that needs to be submitted by the members, including the time and
form for submitting such information

 The particular classes of persons to whom services will be provided at concessional rates or
for no remuneration by members

 The grounds and manner on which penalties can be levied upon the members of the
insolvency professional agencies

 A transparent and fair mechanism for redressal of grievances against the members of the
insolvency professional agencies

 The grounds under which the insolvency professionals can be expelled from the membership
of the insolvency professional agencies

 The procedure for enrolling persons as members, the quantum of fee and manner of collecting
fees for inducting persons as members of the insolvency professional agency

 The manner of conducting examination for the enrolment of insolvency professionals

 The manner of reviewing and monitoring the working of the insolvency professionals who are
members

 The duties and other activities that need to be performed by the members

 The manner of conducting disciplinary proceedings, imposing penalties and utilising the
amount received as penalties against its members and insolvency professionals
Powers of the Board as Vested under CPC

The Board may exercise the powers vested in a civil court under the Civil Procedure Code, 1908 (CPC)
while exercising the powers under the IBC, at the time of trying a suit, in respect of the following
matters:

 The production and discovery of books of account and other documents, at such time and
place as specified by the Board

 Enforcing and summoning the attendance of persons and their examination on oath

 Inspection of any registers, books and other documents of any person at any place

 Issuing of commissions for examining documents or witnesses

Meetings of the Board

The Board conducts meetings as per the provisions of the Insolvency and Bankruptcy Board of India
(Procedure for Governing Board Meetings) Regulations, 2017. The Board shall meet at least four times
a year and conduct at least one meeting in one quarter.

The Chairperson will preside at the Board meeting. If the Chairperson cannot attend the Board
meeting, the members present at the meeting can choose any other member to preside at the
meeting.

The Board meetings will be ordinarily held at the head office (New Delhi) of the IBBI. However, the
Chairperson and the members of the Board can also hold meetings at other offices of the IBBI or any
other place in India if they are of the opinion that it is expedient to do so.

The quorum of the Board meeting is five members when the Board consists of eight or more members.
The quorum is three members when the Board consists of less than eight members. All questions that
come up in any Board meeting will be decided by the majority votes of the present and voting
members. In the event of an equality of votes, the Chairperson, or in his absence, the person presiding,
will have a casting or second vote.

Offenses committed by the officer of the corporate debtor or the corporate debtor and the
subsequent penalties

OFFENSES PENALTIES

Section 68, where a Corporate Debtor,

Within the twelve months immediately preceding the insolvency

commencement date, •Imprisonment-Min. 3
 willfully concealed any property or any debt, fraudulently years Max.5 years
removed any part of the property, of the value of ten •Fine –Min. one lakh
thousand or more, or Max. one crore
•Both
 wilfully concealed, destroyed or made a false entry in, or
altered any document relating to the property of the
corporate debtor or its affairs, or
 At any time after the insolvency commencement date, taken in
pawn or pledge, or otherwise received the property knowing it to
be so secured, transferred or disposed of.

Section 69, On or after the insolvency commencement date, •Imprisonment– Min. 3

Entering into transactions defrauding creditors or removing any years Max.5 years
part of the property of the corporate debtor within two months •Fine –Min. 1 lakh Max.
before the date of any unsatisfied judgment, decree or order for 1 crore
payment of money obtained against the corporate debtor. •Both

Sec. 70(1) On or after the insolvency commencement date, does

not disclose or deliver all or part of the property or, any books or •Imprisonment- Min. 3
papers to the resolution professional which he is required to be Years Max.5 Years
delivered, or •fine –Min. 1 Lakh Max.
1 Crore
fails to provide any information regarding the accounts of the •Both
corporate debtor

Sec. 71 On and after the insolvency commencement date, •Imprisonment– Min. 3

destroys, mutilates, alters or falsifies any books, papers or Years Max.5 Years
securities, or makes or is in the knowledge of making of any false •Fine –Min. 1 Lakh Max.
or fraudulent entry in the accounts with the intention to defraud 1 Crore
any person. •Both

•Imprisonment– Min. 3
Years Max.5 Years
Sec. 72 Makes any material and willful omission in any statement
•Fine –Min. 1 Lakh Max.
relating to the affairs of the corporate debtor.
1 Crore
•Both

•Imprisonment- Min. 3
Sec. 73 Before or after the insolvency commencement date, makes
Years Max.5 Years
a false representation or commits any fraud for the purpose of
•Fine –Min. 1 Lakh Max.
obtaining the consent of the creditors to an agreement with
1 Crore
reference to the affairs of the corporate debtor
•Both

•Imprisonment– Min. 3
Sec. 74(1) violates or willfully permits contravention of the
Years Max.5 Years
provisions of section 14 of the code or under if Sec. 74(3) if he
•Fine –Min. 1 Lakh Max.
contravenes any of the terms of such resolution plan or abets such
3 Lakh
contravention.
•Both

•Imprisonment- Min. 3
Sec. 77 a corporate debtor provides information which is false in
Years Max.5 Years
material particulars, in the application under section 10 knowing it
•Fine –Min. 1 Lakh Max.
to be false and omits any material fact,
1 Crore
knowing it to be material
•Both

Offenses by insolvency professional agency or insolvency professional

 OFFENSES PENALTIES

•Imprisonment– Max. 6
Sec 70(2) If an insolvency professional deliberately contravenes months
the provisions of this code. •Fine –Max. 5 lakh
•Both

•Imprisonment- Max. 6
Sec. 185 If an insolvency professional deliberately contravenes the
months
provisions of the insolvency and bankruptcy for individuals and
•Fine –Max. 5 lakh
partnership firms
•Both

Sec 220(3) Where any insolvency professional agency or insolvency

professional or an information utility has contravened any Mentioned below
provision of this Code or rules or regulations made thereunder.

the penalty for the offense under sec 220(3):

 Penalty:-
Three times the amount of the loss caused, or likely to have been caused, to persons
concerned on account of such contravention, or
Three times the amount of the unlawful gain on account of such contravention, whichever is
higher.

 Where the loss is not quantifiable, the penalty may extend to one crore rupees. The
Disciplinary Committee may suspend, or cancel the registration of insolvency professional
agency or information utility as the case may be.

Offences by any person on whom the resolution plan is binding

OFFENSES PENALTIES

•Imprisonmen–

Min. 3 years
Section 71, On and after the insolvency commencement date, destroys,
Max.5 years
mutilates, alters or falsifies any books, papers or securities, or makes or is
•Fine –
in the knowledge of making of any false or fraudulent entry in the accounts
with the intention to defraud any person. Min. 1 lakh

Max. 1 crore
•Both

•Imprisonment–

Section 74(3), any person on whom the approved resolution plan is Min. 1 years
binding, contravenes any of the terms of such resolution plan or abets such Max.5 years
contravention. •Fine –

Min. 1 lakh
 Max. 1 crore
•Both

•Fine –
Section 75, Where any person furnishes information in the application
made under section 7, which is false in material particulars, knowing it to Min. 1 lakh
be false or omits any material fact, knowing it to be material.
Max. 1 crore

Offenses by creditors or operational creditor

OFFENSES PENALTIES

•Imprisonment –
Min. 1 year

74(2) Where any creditor violates the provisions of the moratorium, any Max.5 years
person who knowingly or willfully authorized or permitted such •Fine –
contravention by a creditor. min. 1 lakh

Max. 1 crore
•Both

•Imprisonment
Sec. 76 Where an operational creditor has wilfully or knowingly – Min. 1 year
concealed in an application made by him under section 9 the fact that Max. 5 years
the corporate debtor had notified him of a dispute in respect of the •Fine –
unpaid operational debt or the full and final repayment of the unpaid
operational debt; or any person who knowingly and willfully authorised Min. 1 lakh
or permitted such concealment, the operational creditor or person Max. 1 crore
•Both

Offenses By bankrupt

OFFENSES PENALTIES

186(a) If the bankrupt knowingly makes a false

•Imprisonment- Max. 6 months
representation or wilfully omits or conceals any
•Fine –Max. 5 lakh
material information while making an application
•Both
for bankruptcy by a debtor

Sec. 186(b) If the bankrupt fraudulently has failed to

provide or deliberately withheld the production of, •Imprisonment- Max. 1 year
destroyed, falsified or altered, his books of •Fine –Max. 5 lakh
accounts, financial information and other records •Both
under his custody or control.

Sec. 186(c) If the bankrupt has contravened the •Imprisonment- Max. 6 months
restrictions under section 140 or the provisions of •Fine –Max. 5 lakh
section 141 •Both
 Sec. 186(d) If the bankrupt has failed to deliver the
•Imprisonment- Max. 6 months
possession of any property comprised in the estate
•Fine –Max. 5 lakh
of the bankrupt under his possession or control,
•Both
which he is required to deliver under section 156

Sec. 186(e) If the bankrupt has failed to account, •Imprisonment- Max. 2 years
without any reasonable cause or satisfactory •Fine –If loss is quantifiable– up to
explanation, for any loss incurred of any substantial three times of the value of the loss,
part of his property comprised in the estate of the If loss is not quantifiable– which may
bankrupt from the date which is twelve months extend to five lakh rupees,
before the filing of the bankruptcy application. •Both

Sec. 186(f) If the bankrupt has absconded or •Imprisonment- Max. 1 year

attempts to abscond after the bankruptcy •Fine –Max. 5 lakh
commencement date •Both

Sec. 187 If a bankruptcy trustee, — •Imprisonment- Max. 3 years

(a) has fraudulently misapplied, retained or •Fine –If loss is quantifiable– minimum
accounted for any money or property comprised in three times of the loss caused or likely
the estate of the bankrupt; or to have been caused, to persons
(b) has wilfully acted in a manner that the estate of concerned on account of such
the bankrupt has suffered any loss in consequence contravention,
of the breach of any duty of the bankruptcy trustee If the loss is not quantifiable- which
in carrying out his functions under section 149 may extend to five lakhs rupees

•Both

Corporate Debtors, Financial & Operational Creditors

Insolvency and Bankruptcy Code, 2016 [1] (hereinafter referred to as “The Code”) was introduced to
streamline the insolvency regime. Before the Parliament passed the Bill for The Code, insolvency cases
depended largely on other legislations. The Code provides for specific definitions and procedures that
have to be followed by the parties concerned. Broadly speaking, there are two parties involved in an
insolvency and bankruptcy petition; the petitioner and the corporate debtor. The insolvency process
is initiated by the petitioner when a payment of over INR 1 lakh (now INR 1 Cr.) [2] is defaulted by the
corporate debtor. This article will discuss who can be the petitioners, in detail.

Essentially, the Code provides for three categories of petitioners who can initiate an insolvency
process:

Financial Creditor

A financial creditor is defined u/s 5(7) of The Code. The provision defines financial creditor as any
person to whom the corporate debtor owes a financial debt [3]. The scope of financial debt is
discussed in detail in The Code. Section 8 defines the specifics of transactions that are considered as
financial debts. The following is included in the definition of financial debt:

1. Borrowed funds against interest payment;

2. Funds in the form of an acceptance credit;

 3. Amount raised in the form of bond, debentures, notes, note purchase facility etc.;

4. Monies owed in terms of liability generating from a hire purchase or a lease;

5. Funds yielded from discounted or sold receivables;

6. Financial transaction arising from the commercial effect of a borrowing, purchase or sale
agreement etc.;

7. Transaction surfacing to yield benefit from or protection against dynamic pricing and rates
(considering the market value of the transaction);

8. Instrument issued by any financial institution or bank concerning indemnity, guarantee etc; or

9. Liability arising out of guarantee or indemnity of the abovementioned clauses

If the financial debt falls in one of the categories mentioned above, the financial creditor can apply for
insolvency application before the adjudicating authority.

Amendments to definition of financial creditor

The Code was recently amended in 2018 [4], wherein among other amendments, the scope of
financial creditor was widened. An explanation was added to section 5 (8) (f). This explanation clarified
that monies invested by allottees in a real estate project measure to have a commercial effect of a
borrowing. This means that, by extension, allottees of a real estate project or home-buyers, can be
classified as financial creditors. The home-buyers, in turn, would have a right to file an insolvency
petition u/s 7 of The Code.

This explanation, along with the 2018 amendment ordinance, was challenged in the case of Pioneer
Urban Land and Infrastructure v Union of India [5]. The court, in this case, upheld the constitutionality
of the amendment ordinance and the position of home-buyers was maintained as financial creditors.

Then in 2019, the code underwent another amendment [6]. Among other changes, an amendment
was made to Section 7 of The Code. The provision lays down the process for initiation of a Corporate
Insolvency Resolution Process (CIRP). The provision states that a financial creditor can file an
application for insolvency before the adjudicating authority at an individual level or jointly with other
financial creditors.

However, the amendment added a condition to the said provision. The condition required the financial
creditors and allottees alike, to apply jointly. Either one hundred creditors could file the application
jointly or one-tenth of the total number of creditors could file. This fundamentally means that a
financial creditor cannot apply for insolvency application independently anymore. Once filed, the
financial creditor has to follow the procedure [7] as devised under The Code.

Operational Creditor

An operational creditor is defined u/s 5 (20) of The Code. The provision defines operational creditor
as any person to whom the corporate debtor owes an operational debt. The Code also defines the
scope of operational debt u/s 5 (21). The provision states that an operational debt is;

1. A debt which arises when the operational debtor provides any goods or services which also
extends to employment to the corporate debtor; or

2. Dues arising from repayment of a debt already owed by the corporate debtor which is payable
to any appropriate authority according to the prevailing laws.
The minimum threshold of debt owed to an operational creditor to file an application for insolvency
remains INR 1 Cr.

Demand notice

There exists a fundamental difference in the application procedure for a financial creditor and
operational creditor. A financial creditor can directly file an application for insolvency before the
adjudicating authority u/s 7 of The Code. However, an operational creditor cannot directly apply for
insolvency application. An operational creditor has to first send a demand notice to the corporate
debtor as per section 8 of the Code.

Section 8 of The Code states that the operational debtor has to send an invoice of the payment owed
to it in the form of a demand notice. The corporate debtor then, in this case, has two options, one of
which has to be communicated to the operational debtor;

1. Notice, if the payment is disputed, a suit or an arbitration proceeding is pending; or

2. The payment;

o Successfully cleared, then receipt of the same has to be provided; or

o Receipt of cheque encashed by the operational debtor.

The corporate debtor is required to respond within ten days of the receipt of the demand notice.

It is probable, that the corporate debtor would not respond to the demand notice issued by the
operational creditor within ten days. In this case, the operational creditor can move an application
before the adjudicating authority, as prescribed u/s 9, and follow the due process.

Corporate Debtor

The Code provides for a corporate debtor to move an application for insolvency before the
adjudicating authority against itself. The Code incorporated this provision to safeguard the interest of
the corporate debtor when it foresees a breakdown in its mechanism. Breakdown essentially means
that the corporate debtor concludes that its business is being affected.

The impact of business would be such, that it would bring the company in loss and lead to defaulted
payments. This conclusion is drawn only after making a complete analysis of the market forces and
the shortage of liquid working capital.

A corporate debtor is defined u/s 3(8) of The Code. The provision states that a corporate debtor is any
person that owes a debt to another. A corporate debtor can file an application for insolvency before
the adjudicating authority u/s 10 of The Code. In order to file an application, the corporate debtor is
required to submit the following;

1. Provide books of account along with the application.

2. Propose name of a resolution professional who could be a potential interim resolution

professional [8].

3. Resolution passed in favour of insolvency proceeding. In the case of a company, a resolution

passed by the shareholders with a special resolution. In case of a partnership firm, a resolution
passed with three-fourth majority.
Amendment

A provision of the Code, Section 11, defines conditions for the persons unauthorized to file an
insolvency application. However, the Parliament amended the said provision in 2019 by an
amendment ordinance which observed some changes. The amendment added an explanation to the
provision which permitted a corporate debtor to apply for insolvency against another corporate
debtor [9].

For the petitioners mentioned above i.e. financial creditor, operational creditor and corporate debtor,
once the application is filed, the procedure remains the same. Although the Code defines the
procedure in immense detail i, several questions and concerns arise time and again. It is either the
Judiciary or the Parliament, by means of an amendment, that deals with the concerns.

Resolution Professional

A Resolution Professional is a licensed professional who:

 Has qualified the Limited Insolvency Examination,

 Is enrolled with the Insolvency Resolution Agency,

 Is registered with the Board.

The Adjudicating Authority appoints the Resolution Professional who manages the entire process of
insolvency and bankruptcy. According to the Code, “Resolution Professional” means an Insolvency
Professional who conducts the insolvency resolution process and includes an interim resolution
professional and takes necessary steps to revive the company. The Insolvency Professional is governed
by specific legislation that they have to follow i.e., IBBI (Insolvency Professional) Regulation, 2016.

Appointment of the Resolution Professional

Before the appointment of a Resolution Professional (RP), an Interim Resolution Professional (IRP) is
appointed until the constitution of the committee of creditors (CoC) and appointment of an RP. During
the process of liquidation, the RP assumes the role of a Liquidator and in case of individual insolvency,
he acts as a Bankruptcy Trustee. The IRP manages the affairs of the company until an RP is appointed.
As per Section 22, within 7 days of the constitution of the CoC, its first meeting is held in which they
decide whether to appoint the IRP as the Resolution Professional or to appoint another resolution
professional. In case the Committee decides to appoint the IRP as the RP, they are required to
communicate the same to the IRP, Corporate Debtor and the Adjudicating Authority. The CoC appoints
the RP within 30 days from the date of commencement of the Corporate Insolvency Resolution
Process.

Role of a Resolution Professional

The Resolution Professional plays a vital role in the Insolvency and Bankruptcy process. The
Bankruptcy Law Reforms Committee (BLRC) in its final report also emphasized on the role of an RP
which stated that “Insolvency professionals form a crucial pillar upon which rests the effective, timely
functioning as well as credibility of the entire edifice of the insolvency and bankruptcy resolution
process.”

Resolution Professional functions

 Conducting of the Corporate Insolvency Resolution Process

As per Section 23, the Resolution professional conducts the entire Corporate Insolvency Resolution
Process and manages the operations of the corporate debtor during the period of the CIR Process.
Further, even after the expiry of the period of CIR, the RP continues to manage the operation until the
order of the approved resolution plan or appointment of the liquidator is passed. He is also vested
with the exercise of power and to perform the duties that are vested with the Interim Resolution
Professional.

 Management of the affairs of the corporate debtor

After the order for the commencement of CIR is passed, an insolvency professional is appointed who
acts as an IRP by the Adjudicating Authority. As provided by Section 17, on and from the date from
which the IRP is appointed he is vested with the management of the affairs of the corporate debtor.
The control from the corporate debtor is now transferred to the IRP. The power of the Board of
Directors of the corporate debtor also vests and is exercised by the IRP. For the purpose of managing
the affairs of the corporate debtor by the IRP, the officers and managers of the corporate debtor are
required to give access to the IRP of all the relevant documents, books of accounts, records, etc as
may be required. This Section also makes it obligatory for the officers and managers of the corporate
debtor to report to the IRP. The IRP acts and executes all the deeds, receipts, documents in the name
and on behalf of the Corporate Debtor and takes all such action specified by the Board. However, the
managing of the affairs of the corporate debtor does mean that he has to perform the day to day
activities of the entity.

 Taking over the control of the assets of the corporate debtor

For the purpose of the resolution, the control and custody of the assets from the corporate debtor is
taken over by the resolution professional as per Section 18 (f). The NCLT, Mumbai Bench in the case
of Goa Auto Accessories v. Suresh Saluja has held that to facilitate the Corporate Insolvency Resolution
Process, the RP can take custody of the assets of the corporate debtor that forms the subject-matter
of the litigation.

 Constitutes the Committee of Creditors

To bring the Creditor together is one of the important tasks of the insolvency professional. After the
collation of claims and determination of the position of the corporate debtor, the interim resolution
professional constitutes the committee of creditors. The committee of creditors then decides whether
to resolve the insolvency of the entity or to liquidate it. In its first meeting of the CoC appoints the
resolution professional who then convenes and conducts the meetings of the committee. Further, as
per Section 24(2), the resolution professional conducts all the meetings of the Committee of Creditors.

 Management of the operations of the corporate debtor as a going concern

When the CoC approves the resolution plan, the entity continues as a going concern. The Insolvency
Professional in case of a default manages the entity and its assets and runs the entity as a going
concern. Section 20 mandates the IRP to preserve and protect the value of the property and to
manage the operations of the corporate debtor as a going concern. The IRP or RP must do all such acts
that is necessary for keeping the corporate debtor in a going concern phase.

 Preparing the information memorandum

The Resolution Professional is required to make and submit the information memorandum in order to
formulate a resolution plan. He is also required to provide all relevant information to the resolution
applicant. Regulation 36(2) provides for the details to be contained in the information memorandum.
Explanation to Section 29 mentions the meaning of the term ‘information memorandum’ to mean
information which is required by the resolution applicant to make a resolution plan for a corporate
debtor. It includes information relating to the financial position, disputes and any other matter in
relation to a corporate debtor.

 Examining the resolution plan

The resolution professional facilitates the resolution plan. As per Section 30, on the basis of the
information memorandum prepared by the resolution professional the resolution applicant submits
the resolution plan to the resolution professional.

The RP is required to examine each resolution plan submitted to him to ensure that each resolution
plan has in the manner specified by the Board:

 Has provided for the priority of the payment of insolvency resolution process costs to the
payment of other debts of the corporate debtor.

 Has provided for the payment of debts of the operational creditor not less than.

1. Amount paid to be paid to such creditor in the event of liquidation under Section 53(1).

2. Amount to be paid to such creditor if the amount is to be distributed as per the order of
priority under section 53(1).

 Has provided for the payment of debts of the financial creditor (not voting in favour of the
resolution plan) not less than the amount paid to such creditors in the event of liquidation of
the corporate debtor as per section 53(1).

If the resolution confirms the above condition then, the resolution professional presents the
resolution plan for the approval of the committee of creditors. If the committee approves the plan it
has to do so by a vote of not less than 60% of the voting share of financial creditors. The approved
resolution plan is then submitted to the Adjudicating Authority by the resolution professional.

The Adjudicating Authority if it is satisfied, approves the resolution plan by an order and such order
will be binding to the corporate debtor, employees of the corporate debtor, members, creditors,
guarantors and other stakeholders that are involved in the resolution plan. If the Adjudicating
Authority is not satisfied, it may by order reject the resolution plan as per Section 31.

Duties and responsibilities of an Insolvency Professional

The duties of the IRP and RP are provided by the code under Section 18 and Section 25.

 To preserve, protect and monitor the assets of the corporate debtor.

 Collecting all the information of the assets, finances, and operations.

 To invite the prospective resolution applicant fulfilling the criteria prescribed by the CoC.

 Following the public announcement under section 13 and 15 to receive and collating of claims
that are submitted by the creditors.

 Filling of information collected with the information utility.

 To represent himself and act on the behalf of the corporate debtor.

 To raise interim finances as per the limits prescribed by the CoC.

  Disclose the insolvency resolution process cost.

 Appointment of accountants, legal professionals, and other professionals.

 Receiving, verifying and maintaining an updated list of the claims.

 Presenting resolution plans before the CoC meeting.

 To submit the resolution plan to the Adjudicating Authority approved by the CoC.

 Any other such duty as specified by the Board.

Apart from the above mentioned, the RP is also required to follow a certain code of conduct provided
by the IBBI regulation. The Adjudicating Authority in the case of ARC (India) Pvt. Ltd v Shivam Water
Treaters Pvt Ltd held that a Resolution Professional discharges his/her duties as an officer of the Court
and any non cooperation or non-compliance with the Court’s officer amounts to Contempt of Court.

Limitation on the resolution professional

Section 28 of the code places restrictions on the actions of the resolution professionals. It sets out
certain actions that he cannot do during the corporate insolvency resolution process without the
approval of the committee of creditors. In the ESIL v. Satish Kumar Gupta, the Court held that a
resolution professional is only required to give his prima facie opinion to the Committee of Creditors
that the requirement laid down by the law has been fulfilled. In Dinal Shah v. Bharti Defence
Infrastructure Ltd, the NCLAT observed that in case of any misconduct by the RP, it shall be reported
to the appropriate authority.

SECTION 60 - Adjudicating Authority for corporate persons.

(1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate
persons including corporate debtors and personal guarantors thereof shall be the National Company
Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate
person is located.

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in
this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate
debtor is pending before a National Company Law Tribunal, an application relating to the insolvency
resolution or 1 [liquidation or bankruptcy of a corporate guarantor or personal guarantor, as the case
may be, of such corporate debtor] shall be filed before such National Company Law Tribunal.

(3) An insolvency resolution process or 2 [liquidation or bankruptcy proceeding of a corporate

guarantor or personal guarantor, as the case may be, of the corporate debtor] pending in any court or
tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution
process or liquidation proceeding of such corporate debtor.

(4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery
Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary contained in any other law for the time being in force,
the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or
against any of its subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts, arising out of or in relation to the
insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under
this Code.

(6) Notwithstanding anything contained in the Limitation Act, 1963 (36 of 1963) or in any other law
for the time being in force, in computing the period of limitation specified for any suit or application
by or against a corporate debtor for which an order of moratorium has been made under this Part,
the period during which such moratorium is in place shall be excluded.
 Module –IV: Corporate Governance and Corporate Responsibility
 Corporate social responsibilities: Global & Indian Perspective
 Whistleblowers Protection
 Corporate environmental responsibility

Corporate Social Responsibility - Global and Indian Perspective

Backdrop and Evolutionary Overview

Corporatization of global economy gained momentum after the emergence of Industrial Revolution1
in 18th Century. The concept of joint stock form of enterprises received tremendous popularity all
over the world along with taking off of Industrial Revolution. Almost every country all over the globe
regulates and monitors the functions of corporate form of organizations by dint of an Act of Parliament
which is known as the Companies Act or Corporate Act. The East India Company was one of such
regulated companies floated by the Royal Charter in 1600 which was in essence a multinational
company. The East India Company had monopoly to trade in India and its members could carry on
trade individually and had the option to subscribe to the joint fund or stock of the company. After
each voyage, profits made together with subscribed amount were divided among the members. In
1653, however, a permanent subscribed fund was introduced which was called joint fund or joint stock
of the company and in this way, the phrase- " Joint Stock Company'' came into use. In simplicity,
members used to contribute to the joint fund and became the shareholders of the companies
concerned. By the end of the 17th Century, all the companies established permanent capitals
represented by shares which were salable and transferable and since then the method of obtaining
the certificate of incorporation of a company was effected by the Royal Charter or by Act of
Parliament. In India, Companies Act 1956/2013 regulates and controls the corporate form of business
organizations.

A business entity is an organ of the society. Business is an economic agent of the society and it remains
accountable to the society and hence the context of Corporate Social Responsibility(CSR) became
relevant. It is also receiving attention and is growing significantly for playing a pivotal role in corporates
India. Indian corporates are feeling imperatively to work for the cause of social up liftment. Wipro
being an MNC, for instance, has already launched a project for offering basic education to the rural
population who are not in a position to have the light of modern education.

Definition of CSR

The conceptual and operational dimension of CSR emerged in the 20th Century but it becomes a
discipline of serious study during last 65 years (Carroll)[1]. H. R. Bowen (1953) is known as the father
of CSR for his famous work on Social Responsibility. Bowen is the first learned personality who gave a
look of academic seriousness to CSR in his book, ' Social Responsibilities of Businessman'. According
to Bowen, Businesses are obliged to the society for the values and goals of the society for which
business exists in the commercial world. Bowen is of the view that CSR is correlated with economic
aspects of social welfare and social well being. In this connection views expressed by Davis[2] is that
social responsibility goes beyond the economic gains in terms of profit of a company.

Emergence of Multinational Corporations in India

It is imperative to start with the view of Franklin Root[3] to define multinational corporation and
multinational corporation (MNC) is nothing but a parent company that remains engaged in production
and distribution of goods and services through its affiliates spread or located in several countries
geographical jurisdictions. This company exercises direct control over the administrative policies of
the affiliates and finally play a prominent role in strategic aspects of production, finance, marketing
and human resource management affairs. the company has a centralized administration system which
administratively overview the affairs of all the business housed spread all other countries. Finally, the
company own stocks of different companies in different countries. MNC is a company which operates
commercially in more than one country by abiding by the local rules and regulations. In India, there is
presence of many MNCs and they include FAG Bearings India Ltd, Sud-Chemie India Pvt. Limited, Asea
Brown Boveri Limited (ABB), Transpek-Silox Industry Limited, Schneider Electronics, HSBC Bank,
Standard Chartered Bank, City bank etc. All these companies are engaged in CSR activities in different
manner. These companies offer CSR activities in the areas in which their main business concentrate.
For instance, ABB is playing a prominent role and emerged as one of the leaders in power and
automation technology delivery system. More than 10,000 employees are there is payroll of ABB in
India in more than 15 manufacturing units or facilities. ABB has played an important and prominent
role in upgrading school buildings in villages remaining in and around the activities of the company
circle. In the same way CSR activities are taken care of by other MNCs in India. Similarly, we may name
General Motors(GM), Vodafone, Blue Dart Express Ltd., Thomas Cook who have been playing a crucial
role in environment protection, imparting basic education, providing drinking water and sanitation
system and so on. The companies are trying to provide environment friendly products, financial grants
like General Motors which alone donated more than $350 million to various NGOs for bringing about
development in education sector. Vodafone provided rural sector women enabling information
technology. In a nutshell, MNCs operating in India are engaged in providing education, health and
sanitation, building of schools mainly in villages where modern education has not yet reached and
vocational and skill development training for the youth and children including women.

CSR Practices in The USA

Corporate social responsibility plays an important role in a firm's life in the U. S. today as referred to
Forte[4].CSR concentrates on three models and these three models include the shareholder value, the
stakeholders and ethics. USA believes in two parameters of CSR and they are employment and
environment. stakeholders in the US include investors relations, environment and society and they
believe in Visser's[5] five principles which are creativity, scalability, responsiveness, glocality[6] and
circularity and this may be the basis of new theory of CSR.

CSR Practices in the UK

Although certain part of the UK corporate governance code is specifically concerned with corporate
social responsibility, there is some recognition that a company’s duties extend beyond its shareholders
and it states that “the board should set the company’s values and standards and ensure that its
obligations to its shareholders and others are understood and met" Supporting Principles, A. 1. ” The
Companies Act 2006 has now added to those pressures by requiring directors to have regard to
community and environmental issues when considering their duty to promote the success of their
company and by the disclosures to be included in the Business Review.

CSR Practices in Canada

Canada practices CSR in positive manner and they have been seen in the case of the USA and UK.
Corporations in Canada act as the agent of social change. In 2011 Jantzi-Sustainanalytics in conjunction
with Maclean’s magazine published that in NGOs, Canada is number 1 in all G7 Countries in terms of
its CSR practice Canadian businessmen thinks that CSR is part and parcel of their day to day business
life. In Canada, customers support the business maximum. It recycles paper product maximum and it
gives a good contribution to CSR practice[7]. Canada is expected to do many more CSR activities in
terms of availability of its resources.

CSR Practices in China

The concept and philosophy of CSR is well accepted and supported by the Chinese government. The
important time came on January 1, 2006 when Chinese Corporate Law was revised to include formally
the concept and philosophy of CSR in the legislation. In the same year, the State Grid Corporation of
China issued the first ever CSR report by a Chinese State Owned Enterprises(SOEs). Chinese
government supported CSR activities of the state owned organizations with an objective to integrate
the same with the global market and secondly, it offers its own CSR definition and guidelines that
aimed at developing a CSR oriented business culture. The concept of CSR practice was included in
Chinese Labour Law in 2008. Moreover, in the same year, the state-owned Assets Supervision and
Administration Commission of the State Council(SASAC) issued an important policy directive on
Guidelines to the State-owned Enterprises directly managed under the Central Government on
Fulfilling Corporate Social Responsibilities in 2008. More than 1,600 sustainability reports were
generated and distributed in the country as an outcome of SASAC directive policy. China took CSR
practice as a part and parcel of competitive advantage[8].

CSR Under the Companies Act, 2013

Section 135 of the Companies Act, 2013 provides for CSR by the companies with certain capping.
According to this section, every company having net worth of Rs. 500 crores or more or turnover of
Rs. 1,000 crores or more or net profit of Rs. 5 crores or more during any financial year shall constitute
a CSR Committee from the Board consisting of three or more directors including at least one
independent director, in order to recommend for discharging CSR activities for which the company
would spend at least 2% of its average net profits of the previous three years on specified CSR activities
and with the enactment of this legislation, India became the first country in the world to honor CSR
spending as prescribed by law of the country.

Consequence of Non- Compliance of Mandatory CSR Provisions

Section 450 of the Companies Act, 2013 prescribed for punishing a company or its officers in case
where there is no specific punishment provided for an offence in the Act and it provides , " If a
company or any officer of a company or any other person contravenes any of the provisions of this Act
or rules made there under, for which no penalty or punishment is provided elsewhere in the Act, the
Company and every officer of the Company who is in default shall be punishable with fine which may
extendto Rs. 10,000 and where the contravention is continuing one with a further fine which may
extend to Rs. 1,000 for every day after the first during which the contravention continues." Therefore,
non-compliance with CSR spending may attract fine and punishment of the defaulters as specified in
the Companies Act, 2013. The fundamental purpose of mandatory CSR practice is to bring about
improvement in the quality of life of the local community and the society at large. So CSR is more
moral than legal responsibility of the corporations.

WHISTLE BLOWER’S PROTECTION

A whistleblower is a person, who discloses information to the public or some higher authority about
any wrongdoing which could be in the form of fraud, corruption, etc.

When someone gives the correct information to the right people, that person has made a protected
disclosure and is a Whistleblower. When a Whistleblower makes a Protected Disclosure, he is afforded
protections established by various whistleblower protection laws and policies.

It may involve criminal conduct, unethical policies or practices, a threat to the health, safety,
or welfare of the general public or employees, or it might involve treating employees unfairly within
the firm.

History has proven that informers who reveal inside information to others have always existed.
Whistleblowers were a concept that existed even in ancient India. Kautilya proposed that any
informant who provides information receive one-sixth of the reward and any government employee
receive one-twelfth of the reward.

Recent examples in India

NHAI Scam: Satyendra Dubey killed in 2003, revealed many tenders and the political criminal nexus in
the construction sector, specifically highway constructions.

MGNREGA Scam: Lalit Mehta was murdered before he could uncover the scam, undertook a social
audit in Jharkhand with the help of an economist, and found out about severe corruption incidents.

Satyam Scam: He uncovered the corruption and fraudulent audits in the Delhi metro rail.

Infosys: The complaint was filed by a group of employees stating that the company is using unethical
practices to increase profits against the top management of the company.

Vyapam Scam: It was with respect to the problems and malpractices happening in the Madhya
Pradesh exam board among the exam candidates, the middlemen, and the government officials.

Benefits of whistle-blowing

It helps in fighting corruption. Even Transparency International also acknowledged it as being the most
effective tool for fighting corruption.

With the fear of exposure because of whistleblowers, many corruption activities and fraudulent acts
will be curbed and it will lead to an efficient workplace.

With the help of such a mechanism, no employee will ever feel small and will feel capable of making
credible contributions, thus it will result in empowering employees.

If there is fear of whistle-blowers disclosing information, it will make organizations more transparent
and thus increase accountability.

This can be an effective tool for grievance redressal too and will also help the authority to know if any
malpractice is taking place, so it is a win-win situation.

Issues with Whistleblowing

It sometimes hampers the person’s fierce decision-making due to the fear of reporting and whistle-
blowing. It can also be used for defamation and to harass employees against others.

Whistleblowing quite often leads to a feeling of hostility rather than solidarity amongst the workers
and it may also lead to disloyalty to the organization.
Although misleading complaints cannot harm the organization, however, they can surely ruin the
reputation of the organization which may have long-term consequences for the organization.

The whistleblowers are prone to life threats and retaliation, for example, Shanmughan Manjunath
was murdered for sealing a petrol pump that was selling adultered oil. A movie was also made on this
incident titled ‘Manjunath’.

There is also a possibility of social isolation as society doesn’t look good upon those who betray their
organizations.

Many times the complaint gets dismissed for being too sensitive and thus it might also lead to loss
of employment and it will again aggravate the problem of unemployment.

Legislations for whistleblowers in India

Companies Act 2013: It provides that certain companies should provide a vigilance mechanism to
report genuine concerns and states that certain mechanisms will be accompanied by adequate
safeguards.

SEBI Pit Regulation: It was to reward the whistleblowers and other informants for sharing information
about insider trading cases.

Whistleblowers protection act 2014

The law created a legal mechanism to deal with complaints about allegations of corruption or
intentional misuse of power or discretion against any public servant and to investigate or cause an
investigation into such allegations.

It allows anyone, including government employees, to make a general interest disclosure before a
Competent Authority. It also defines various competent authorities in great detail.

It also provides safeguards to conceal the identity and safeguards against the victimization of the
complainant. The law doesn’t allow anonymous complaints and there will be no actions on such
complaints. The maximum period for making such a complaint is seven years.

Any person who is dissatisfied with a Competent Authority order may file an appeal with the
concerned High Court within sixty days of the date of the order.

Anyone who reveals the identity of a complainant unintentionally or purposely will face imprisonment.

The act does not apply to Special Protection Group (SPG) personnel and officers who were formed
under the Special Protection Group Act of 1988.

The Whistleblowers Act supersedes the Official Secrets Act of 1923, allowing the complainant to make
public interest disclosures before competent authorities even if they violate other activities but do not
impede the nation’s sovereignty.

Limitations to the act

This was introduced in light of numerous instances in India where whistleblowers were threatened,
harassed, and even murdered for reporting fraud.

However, it is crucial to highlight that the Act does not define or establish any standards for what
constitutes victimization. As a result, whistleblowers are still not adequately protected and, in most
cases, prefer to remain anonymous for fear of repercussions for themselves or their families.
Other countries’ whistleblower laws also prohibit the disclosure of certain types of information
including national security and intelligence information received in a fiduciary capacity, as well as any
disclosure expressly prohibited by law.

CORPORATE ENVIRONMENT RESPONSIBILITY

Corporate Environment Responsibility (CER) is a concept that suggests that it is the responsibility of
the corporations/companies/departments operating within society to contribute towards economic,
social and environmental development that creates positive impact on society at large.

Sustainable development has many important facets/components like social, economic,

environmental, etc. and these components are closely interrelated and mutually reinforcing. The
general structure of EIA document, prescribes inter-alia public consultation, social impact assessment
and R&R action plan besides environment management plan (EMP). The Corporate Environmental
Responsibility incorporates the infrastructure creation for drinking water supply, sanitation, health,
education, skill development, roads, cross drains, electrification including solar power, solid waste
management facilities, scientific support and awareness to local farmers to increase yield of crop and
fodder, rain water harvesting, soil moisture conservation works, avenue plantation, plantation in
community areas, etc.

The proposed Recreational Park “Bharat Vandana” at Sector-20 Dwarka will be developed by Delhi
Development Authority. This is Greenfield project and has total project is Rs. 530 Crores, Based on the
nature and the cost of the project as mention in OM issued by MoEF&CC , CER cost would be Rs.
5,30,00,000/- (1 % of Project cost i.e. Rs. 530 Crores ). The Department (Delhi Development Authority)
proposes a budget of about Rs. 5.30 Crore to fulfil its corporate environmental responsibility (CER).

The activities proposed under CER shall be worked out based on social and environment need
assessment. The important CER Programme includes following.

I. Tree plantation drive

II. Drinking water facilities

III. Installation of solar lights in village common areas

IV. Solid waste management facilities (Provision of waste bins)

V. Construction of Public toilets under total sanitation campaign

I. Tree Plantation Drive: Plantation drive on land that has not recently been used to grow plants and
trees will protect soil and environment and for this department will allocate Rs. 1, 32, 50,000/- (25 %
of CER fund).

II. Drinking water facilities: Water is a precious resource. Drinking water has always been on top of the
priority list of social consumption items, so department will allocate Rs. 53, 00,000/- (10 % of CER
Fund) for rooftop rainwater harvesting, treating the catchment and building a community water tank
in nearby village areas.

III. Installation of solar lights in village common areas: The sectors are having regular lights while the
villages are in dark during night. This creates a divide among the society. The illumination of village
circle will be carried out through providing standalone solar lights in the project villages. Department
will dedicate Rs. 1, 59, 00,000/- (30 % of CER Fund) for this facility.
IV. Solid waste management facilities (Provision of waste bins for villager): The solid waste
management is the one of the concerning issue of environment; the sectors are being managed by
the authority However villages sometimes get neglected. The proponent proposes to install the waste
management bins and will conduct environment awareness workshops in nearby villages in
consultation with panchayat and will award 79,50,000 (15 % of CER Fund)

V. Construction of Public toilets under Total Sanitation Campaign: The TSC programme aims at
improving the general quality of life in rural areas by achieving Open Defecation Free status. Financial
Assistance is provided for construction of Individual Household Latrines to Below Poverty Line families,
School & Anganwadi toilets, Women’s Sanitary Complexes and for carrying out Information Education
and Communication activities for generating awareness about sanitation. So Department will also be
part of this flagship programme and will dedicate Rs. 1, 06, 00,000 /- (20 % of CER Fund) in this
programme.

All the facilities shall be provided to the nearby villages as mentioned below.

mmadpu
 Module-V: Legal and Regulatory Framework of Corporate Governance
 Multifarious Regulatory Framework: ROC & Tribunal under Companies Law

 Competition Commission /Tribunal

 SEBI & its Report on Corporate Governance

 Compliances under various Laws including Competition Laws, SEBI Laws,

Taxation Laws, Money Laundering Laws

 Disclosure of information mandated by Law & consequence for non-compliance

including penalties thereto

Registrar of Companies (ROC) India

The Registrar of Companies ( ROC ) is an office under the Ministry of Corporate Affairs (MCA), which
is the body that deals with the administration of companies and Limited Liability Partnerships (LLPs)
in India. At present, Registrar of Companies (ROCs) are operating in all the major states/UT’s.

However, states like Tamil Nadu and Maharashtra, have more than one ROC. Some ROCs have
jurisdiction of two or more states/UT like Chennai ROC has jurisdiction of Tamil Nadu state and UT of
Andaman and Nicobar Islands.

As per section 609 of the Companies Act, 1956, the ROCs are tasked with the principal duty of
registering both the companies and LLPs across the states and the union territories. Currently, after
the introduction of Companies Act, 2013, the same powers conferred under section 609 is provided
under section 396 of the Companies Act, 2013 to the ROCs.

The Registrar of Companies also certifies that LLPs (Limited Liability Partnerships) comply with the
legal requirements contained in the Limited Liability Partnership Act, 2008.

Registrar of Companies maintains a registry of records concerning companies which are registered
with them and allows the general public to access this information on payment of a stipulated fee.
The Central Government preserves administrative control over the Registrar of Companies with the
help of Regional Directors. As of today, there are seven Regional Directors, supervising the operations
of ROCs within their relevant regions.

Functions of ROC

 The ROC takes care of registration of a company (also referred to as incorporation of the
company) in the country.

 It completes regulation and reporting of companies and their shareholders and directors and
also administers government reporting of several matters which includes the annual filing of
numerous documents.

 The Registrar of Companies plays an essential role in fostering and facilitating business
culture.

 Every company in the country requires the approval of the ROC to come into existence. The
ROC provides an incorporation certificate which is conclusive evidence of the existence of any
 company. A company, once incorporated, cannot cease unless the name of the company is
struck off from the register of companies.

 Among other functions, it is worthy to note that the Registrar of Companies could also ask for
supplementary information from any company. It could search its premises and seize the
books of accounts with the prior approval of the court.

 Most importantly, the Registrar of Companies could also file a petition for winding up of a
company.

Jurisdiction of ROC

The ROCs are located in different states/UTs and the companies must file registration applications
with the ROCs under whose jurisdiction their principal place of business is located. All companies must
subsequently file annual forms only with the ROC from where they have obtained company
registration. You can find the details of all the ROCs here.

Company Registration by ROC

No company can come into existence by itself. It requires a certificate of incorporation issued by the
Registrar of Companies after the finalization of several statutory requirements. As part of the statutory
process, the promoters need to submit several documents to the Registrar of Companies.

The documents to be submitted to the ROC include Memorandum of Association (MoA), Articles of
Association (AoA), the pre-incorporation agreement for appointing directors/ managing directors and
the declaration by an authorized person confirming that requirements relating to registration have
been adhered to.

After authenticating the documents, the ROC inputs the company’s name in the register of companies
and releases the certificate of incorporation. The Registrar together with the certificate of
incorporation also issues a certificate of commencement of business. A public limited company is
required to get this certificate prior to commencing business.

ROC Refusal for Company Registration

ROC can refuse to register a company on various grounds. The Memorandum of Association (MOA)
which is filled with the registrar comprises five clauses viz. name clause; objects clause; registered
office clause; capital clause and liability clause.

The registrar needs to ensure that no registration is allowed for companies having an objectionable
name. The registrar could also decline to register any company which has unlawful objectives.

Role of ROC After the Registration of a Company

There is no end to the association of the ROC and a company. For instance, a company might require
changing its name, objectives or registered office. In every such instance, a company would have to
intimate the ROC after completion of the formalities.

Filing Resolutions With ROC

As per the provisions contained in section 117 of the Companies Act, 2013, every resolution is required
to be filed with the ROC within 30 days of being passed. The Registrar of Companies needs to record
all such resolutions. The Companies Act, 2013, has also laid down the penalty in case of failure to file
the resolutions with the registrar within the stipulated time.
In other words, a company is required to intimate the Registrar of Companies concerning all of its
activities which includes appointing directors or managing directors, issuing prospectus, appointing
sole-selling agents, or the resolution regarding voluntary winding up, etc.

Filing Forms With ROC

The companies must file annual forms with the ROC as specified under the Companies Act and Rules.
The compliance of the company after its establishment includes filing forms with the ROC within the
specified due dates. They will have to pay a huge penalty when they do not file forms within the due
dates.

The annual forms to be filed with the ROC include filing the reconciliation of share capital audit report,
return of deposits, submission of director KYC for DIN holders, annual company accounts, annual
company returns, etc.

National Company Law Tribunal

The National Company Law Tribunal was setup by the Central Government in 2016 under Section 408
of the Companies Act, 2013. The National Company Law Tribunal has been setup as a quasi-judicial
body to govern the companies registered in India and is a successor to the Company Law Board. In this
article, we look at the National Company Law Tribunal, its functions and powers in detail.

Scope of National Company Law Tribunal

The National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the Company
Law Board, Board for Industrial and Financial Reconstruction (BIFR), The Appellate Authority for
Industrial and Financial Reconstruction (AAIFR) and the powers relating to winding up or restructuring
and other provisions, vested in High Courts. Hence, the National Company Law Tribunal will
consolidate all powers to govern the companies registered in India. With the establishment of the
NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 has now been dissolved.

Advantages for National Company Law Tribunal

 NCLT is a specialized court only for Corporates, i.e., companies registered in India.

 This will be no more than a Tribunal for the Corporate Members.

 NCLT will reduce the multiplicity of litigation before different forums and courts.

 NCLT has multiple branches and is able to provide justice at a close range.

 NCLT consists of both judicial and technical members while deciding on matters.

 The time taken to windup a company is reduced.

 Speedy disposal of cases will help reduce the number of cases.

 NCLT & NCLAT have exclusive jurisdiction.

Powers of National Company Law Tribunal (NCLT)

The Tribunal and the Appellate Tribunal is bound by the rules laid down in the Code of Civil Procedure
and is guided by the principles of natural justice, subject to the other provisions of this Act and of any
rules that are made by the Central Government. The Tribunal and the Appellate Tribunal has the
power to control its own procedure.

Further, no civil court has the jurisdiction to consider any suit or proceeding with reference to any
matter which the Tribunal or the Appellate Tribunal is empowered to decide.

National Company Law Tribunal enjoys a wide range of powers. Its powers include:

 Power to seek assistance of Chief Metropolitan Magistrate.

 De-registration of Companies.

 Declare the liability of members unlimited.

 De-registration of companies in certain circumstances when there is registration of companies

is obtained in an illegal or wrongful manner.

 Remedy of oppression and mismanagement.

 Power to hear grievance of refusal of companies to transfer securities and rectification of

register of members.

 Protection of the interest of various stakeholders, especially non-promoter shareholders and

depositors.

 Power to provide relief to the investors against a large set of wrongful actions committed by
the company management or other consultants and advisors who are associated with the
company.

 Aggrieved depositors have the remedy of class actions for seeking redressal for the
acts/omissions of the company which hurt their rights as depositors.

 Powers to direct the company to reopen its accounts or allow the company to revise its
financial statement but do not permit reopening of accounts. The company can itself also
approach the Tribunal through its director for revision of its financial statement.

 Power to investigate or for initiating investigation proceedings. An investigation can be

conducted even abroad. Provisions are provided to assist investigation agencies and courts of
other countries with respect to investigation proceedings.

 Power to investigate into the ownership of the company.

 Power to freeze assets of the company.

 Power to impose restriction on any securities of the company.

 Conversion of public limited company into private limited company.

 If the company cannot or has not held an Annual General Meeting as required under the
Companies Act or a required Extraordinary General Meeting, then the Tribunal has powers to
call for a General Meetings.

 Power to alter the financial year of a company registered in India.

National Company Law Appellate Tribunal (NCLAT)

Appeal from order of Tribunal can be raised to the National Company Law Appellate Tribunal (NCLAT).
Appeals can be made by any person aggrieved by an order or decision of the NCLT, within a period of
45 days from the date on which a copy of the order or decision of the Tribunal.

On the receipt of an appeal from an aggrieved person, the Appellate Tribunal would pass such orders,
after giving an opportunity of being heard, as it considers fit, confirming, changing or setting aside the
order that is appealed against.The Appellate Tribunal is required to dispose the appeal within a period
of six months from the date of the receipt of the appeal.

The National Company Law Appellate Tribunal (NCLAT) constituted under section 410 of the
Companies Act, 2013 shall be the Appellate Tribunal for this Competition Act 2002.

The appellate tribunal’s functions are-

 To hear and dispose of appeals against any direction issued or decision made or order passed
by the Commission.

 To adjudicate on a claim for compensation that may arise from the findings of the Commission
or the orders of the Appellate Tribunal in an appeal against any finding of the Commission.

Competition Commission of India (CCI)

By the provisions of the Amendment Act, the Competition Commission of India and the Competition
Appellate Tribunal have been established.

The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant
position were notified on May 20, 2009.

The objectives of the Act are sought to be achieved through the Competition Commission of India,
which the Central Government has established with effect from 14th October 2003.

The Competition Commission of India is now fully functional with a Chairperson and six members.

The Chairperson and every other Member shall be a person of ability, integrity, and standing and who:

 has been, or is qualified to be a judge of a High Court, or,

 has special knowledge of, and professional experience of not less than fifteen years in
international trade, economics, business, commerce, law, finance, accountancy,
management, industry, public affairs, administration, or in any other matter which, in the
opinion of the Central Government, may be useful to the Commission.

The Commission must eliminate practices hurting competition, promote and sustain competition,
protect the interests of consumers and ensure freedom of trade in the markets of India.

The Commission is also required to give an opinion on competition issues on a reference from a
statutory authority established under any law, undertake competition advocacy, create public
awareness and impart training on competition issues.

The commission is a quasi-judicial body that gives opinions to statutory authorities and also deals with
other cases.

Statutory Body:
  Competition Commission of India is a statutory body responsible for enforcing the objectives
of the Competition Act, 2002.

 CCI was established by the Central Government with effect from 14th October 2003, but it
became fully functional on 20th May, 2009.

Composition:

 A Chairperson and 6 Members appointed by the Central Government.

Formation of CCI:

o The CCI was established under the provisions of the Competition act 2002:

 The Competition Act, 2007, was enacted after amending Competition Act,
2002, that led to the establishment of the CCI and the Competition Appellate
Tribunal.

 The government replaced the Competition Appellate Tribunal

(COMPAT) with the National Company Law Appellate Tribunal
(NCLAT) in 2017.

Functions and Role of CCI:

o To eliminate practices having adverse effects on competition, promote and sustain

competition, protect the interests of consumers and ensure freedom of trade in the
markets of India.

o The Competition Commission of India takes the following measures to achieve its
objectives:

 Consumer welfare to make the markets work for the benefit and welfare of
consumers.

 Ensure fair and healthy competition in economic activities in the country for
faster and inclusive growth and development of the economy.

 Implement competition policies with an aim to effectuate the most efficient

utilization of economic resources.

 Develop and nurture effective relations and interactions with sectoral

regulators to ensure smooth alignment of sectoral regulatory laws in tandem
with the competition law.

 Effectively carry out competition advocacy and spread the information on

benefits of competition among all stakeholders to establish and nurture
competition culture in Indian economy.

Need of CCI:

o Promote free enterprise: Competition is important for the preservation of economic

freedom and our free enterprise system.

o Protect against market distortions: The need for competition law arises because
markets can suffer from failures and distortions, and various players can resort to anti-
 competitive activities such as cartels, abuse of dominance etc. which adversely impact
economic efficiency and consumer welfare.

o Promotes domestic industries: During the era in which the economies are moving
from closed economies to open economies, an effective competition commission is
essential to ensure the continued viability of domestic industries, carefully balanced
with attaining the benefits of foreign investment increased competition.

Vision and mission of Competition Commission of India

To promote and sustain an enabling competition culture through engagement and enforcement that
would inspire businesses to be fair, competitive, and innovative; enhance consumer welfare, and
support economic growth.

Competition Commission of India aims to establish a robust competitive environment through:

 Proactive engagement with all stakeholders, including consumers, industry, government, and
international jurisdictions.
 Being a knowledge-intensive organization with high competence level.
 Professionalism, transparency, resolve, and wisdom in enforcement.

The Competition Commission is India’s competition regulator and an antitrust watchdog for smaller
organizations that are unable to defend themselves against large corporations.

CCI has the authority to notify organizations that sell to India if it feels they may be negatively
influencing competition in India’s domestic market. The Competition Act guarantees that no
enterprise abuses its dominant position in a market through the control of supply, manipulating
purchase prices, or adopting practices that deny market access to other competing firms. A foreign
company seeking entry into India through an acquisition or merger will have to abide by the country’s
competition laws.

Assets and turnover above a certain monetary value will bring the group under the purview of the
Competition Commission of India (CCI).

CCI Memberships of international organizations:

International Competition Network (ICN): The International Competition Network (ICN) is a virtual
international organization and its member represents competition authorities across the globe. The
work of ICN takes place in project-oriented Working Groups, where members work together, largely
through teleconferences, teleseminars, webinars, workshops, etc.

BRICS Competition Authorities: BRICS is an association of five major emerging economies, namely
Brazil, Russia, India, China, and South Africa. Similar cooperation exists between the BRICS
Competition Authorities. An MoU between the competition authorities of BRICS was signed on May
19, 2016, during the International Legal Forum held in St. Petersburg, Russia

Organization for Economic Co-operation and Development (OECD): The Commission has observer
status with the Competition Committee of OECD. The Commission and its officers regularly participate
in the meetings of the OECD Competition Committee and the OECD Global Competition Forum to gain
exposure to the global best practices in the field of competition law and policy. CCI has been making
regular written contributions to the agenda that is deliberated at various roundtables during the
conferences/meetings of OECD.
SEBI AND ITS REPORT ON CORPORATE GOVERNANCE

Corporate governance encompasses the mechanisms, rules and practices by which companies are
operated and controlled. It aims to mitigate conflicts of interest between shareholders and promote
ethical decision-making, transparency and integrity at the executive level. The role of SEBI in corporate
governance is to ensure these rules are implemented and followed by all parties.

For example, the organization ensures that companies issuing securities use fair practices and disclose
relevant information to the shareholders. It also regulates takeovers, listing agreements of stock
exchanges, corporate restructurings and more. SEBI guidelines for corporate governance are designed
to provide a safe, transparent environment for investors and prohibit fraudulent or unfair practices,
like insider trading.

The role of SEBI in ensuring ethical standards among corporations became even more important in
2018 when the organization imposed additional compliance conditions. For instance, big firms will be
required to have at least one woman independent director and separate chairpersons and CEOs.
Furthermore, listed companies must disclose related-party transactions and hold a specific number of
annual general meetings. SEBI initiatives in corporate governance are largely based on the
recommendations made by the Kotak committee in March 2018 and aim to enhance transparency.

Under the chairmanship of Kumar Mangalam Birla, SEBI (Securities and Exchange Board of India)
created a committee on corporate governance in India to actualize the need of corporate governance
and promote good corporate governance in India.

SEBI has released specific guidelines for auditing and corporate governance in India based on this
committee’s recommendations, which are expected to be incorporated into the listing agreement
between the company and the stock exchange.

Below, under the relevant heads of the auditing and corporate governance in India, is a summary of
SEBI guidelines that have heightened the need of corporate governance in India:

(a) Board of Directors:

The following are some points in this regard:

 The company’s board of directors shall have an optimal balance of executive and non-
executive directors.
 The number of independent directors will depend on the executive or non-executive nature
of the Chairman.

(b) Audit Committee:

Some points in this regard are as follows:

 The organization shall appoint an independent audit committee, the constitution of which
shall be as follows:
 It shall have at least three members, all of whom shall be non-executive directors,
the majority of whom shall be autonomous, and at least one of whom shall
possess financial and accounting skills.
 An independent director will be the Chairman of the committee.
  The Chairman will be present at the Annual General Meeting to address questions
from shareholders.
 The corporation shall name an independent audit committee, and its constitution shall be as
follows:
 It shall have at least three members, all of whom shall be non-executive directors,
the majority of whom shall be independent, and at least one of whom shall have
financial and accounting expertise.
 The Chairman of the committee will be an independent director. At the Annual
General Meeting, the Chairman will be present to answer concerns from
shareholders.
 The audit committee’s task should include the following elements:
 Oversight of the company’s financial reporting process and the disclosure of its
financial reports to ensure that the financial statements are accurate, adequate,
and reliable.
 Requesting that an external auditor be appointed and withdrawn.
 Checking the adequacy of the role of internal audit
 Updating the financial and risk management practices of the company.

(c) Remuneration of Directors:

In the section on corporate governance of the Annual Report, the following disclosures on the
remuneration of directors are made:

• All managers’ remuneration plan components, i.e., wages, benefits, incentives, stock options,
pensions, etc.

• Descriptions of fixed components and benefits linked to results, along with performance
requirements.

(d) Process of the Board Some of the points set out in this Regard are:

• The board meetings shall be held at least four times a year, with a maximum period of four months
between each of the two meetings.

• A director shall not be a member of more than ten committees, nor shall he serve as Chairman of
more than five committees in all the companies of which he is a director.

(e) Administration:

A Management Discussion and Appraisal Report should form part of the shareholders’ annual report,
including discussions on the following topics (within limits defined by its competitive position).

• Risks and opportunities

• Segment-wise or product-wise performance

• Risks and Issues

• Discussion on financial results concerning the performance of operation.

• Front of material growth in human resource / industrial relations.

(f) Shareholders:

In this respect, some points are:

In the event of the appointment of a new director or the reappointment of a director, the following
details must be given to shareholders:

• A short resume of the director (summary)

• Nature of his specialist knowledge

• Number of organizations of which he retains the management and membership of the Board’s
committees.

• A Board Committee shall be formed under the chairmanship of a non-executive director to examine
the redress of shareholder and investor grievances explicitly.

(g) Corporate Governance report:

A separate section on auditing and corporate governance shall be included in the Company’s Annual
Report. It shall consist of a comprehensive report on corporate governance.

(h) Compliance:

The company shall acquire a certificate from the company auditors regarding its auditing and
corporate governance compliance conditions. This certificate shall be appropriated with the Directors’
Report sent to stockholders and also forwarded to the stock exchange.

COMPLIANCE UNDER SEBI LAWS

 Regulations 17 to 27- CORPORATE GOVERNANCE

REQUIREMENTS

(Clause 49 Requirements replicated substantially.)

 Regulation 16(1)(c). -Material Subsidiary – Refers to Subsidiary whose income or Net-

Worth exceeds 20% of the Consolidated income or Net-Worth of Company along with
subsidiaries –Definition differs from Clause 49-Reference to Turnover and not total
Income.
 To formulate policy for determining material subsidiary

 - Board to review periodically compliance reports pertaining to all laws

applicable to Company and steps taken to rectify non-compliances .

to the Board and Senior Management.
 - To lay down Code of Conduct for the Board and Senior Management. Code to
incorporate duties of Independent directors as per the Companies Act, 2013
 - Shareholder approval to specify maximum number of Stock options that may
be granted to non-executive directors in a year and in aggregate
 - Minimum information to be placed before Board as per Part A of Schedule II
.Substantially same as in Clause 49
 - CEO and CFO to provide Compliance Certificate on financial statements to
Board as per Part B of Schedule II (Format exactly same as in Clause 49 Annexure I(V) .FAQ clarifies
that this can be signed by others also holding powers of CEO/CFO regardless of their designations.
 - To recommend all fees or compensation payable to non-executive including
independent directors. No shareholder approval required for sitting fees.
 - Procedure to be laid down for informing Board about risk assessment and
minimization procedures. Board responsible for framing and implementing Risk Management plan
 - Performance evaluation of ID’s to be done by the entire Board. Director being
evaluated not to participate

Directors. Departure from requirement of majority being Independent under Section 177(1).
 – Board to define role and responsibilities
of Committee. Majority of Committee to consist of Board members . Can consist of Senior
Executives . Need for Committee restricted to top 100 companies on market cap.
 - Report on Corporate Governance (Quarterly) – To be filed in revised Format
within 15 days from close of Quarter . Board’s Comments , if any on Report to be incorporated.
Format of Report more elaborate.

 - PRIOR INTIMATION TO EXCHANGES

o Financial Results- Annual/Quarterly .
o Buyback of shares.
o Proposal for voluntary delisting.
o Fund raising through issue of Securities.
o Declaration of Dividend.
o Declaration of Bonus shares .

 - At least two days prior notice to be given for above items unless they were
not originally part of agenda - FAQ clarifies that working days refer to working days of Stock
Exchanges.
 - Eleven days prior notice to be given to stock exchange for any proposal
involving alteration of terms of any listed securities
 1- Statement of shareholding pattern within 21 days from close of Quarter.
 –Held in demat and physical form-Quarterly
compliance – To be duly certified by practicing CA. As per 2002 directive of SEBI.
 tion 32- Statement of deviations/variations of use of IPO, Rights, Preferential issue
proceeds every quarter. Report of Monitoring agency to be attached . Report to be placed with
Board.
 - Financial Results-Corresponds to Clause 41.To intimate time of conclusion of
meeting with Results sent to Exchange.
 - ANNUAL REPORT
 Annual Report containing information in Regulation 34(2)to be submitted to Exchange within 21
days of the conclusion of AGM.
 FORMATION MEMORANDUM
 To submit Annual Information Memorandum to stock exchange in the manner to be specified.
 - RTA to provide Certificate from practicing CS as regards issue of certificates ,
transfers etc within one month of close of each half year. 24



(applicable only for results for the financial year only).
 –



 of financial results. Format as
provided by SEBI.

standalone results are available for viewing.
 it
Committee and its explanation in Directors’ Report in the Annual Report.
 - Notices to shareholders by advertisement.
 the link in the Company’s
website and Stock Exchanges where further details are available.
 with submission of the same
to Stock Exchanges.
 conclusion of Meeting of the
Board.
 ith national circulation and one in the vernacular.
 - Adherence to applicable Accounting standards to be ensured by each Company.
 distribution (Notification dated July 8,
2016).Policy
 to be approved by Board . Policy to cover :
 be expected by Members.


 earnings shall be used.


COMPLIANCE UNDER MONEY LAUNDERING LAWS

The placement of the anti-money laundering function must be coherent with the adopted
organizational model. There are three possible solutions:

- a “decentralized” anti-money laundering function, not incorporated in other functions;

- an “externalized” function, more advised for the smaller corporations than for those of medium
and bigger sizes;

- a “centralized” function, incorporated in the larger compliance function.

Anyway, allocation criteria for the responsibility of corporate functions involved in the management
of money laundering risk have to be unequivocal, in order to avoid uncertainties, overlapping of
tasks and omissions.
For this purpose, the prevision of a coordinating function, adequate to assure uniformity and
coherence in procedures, is highly advised. Singular dialogue with the Authorities must always be
granted as well on anti-money laundering inspections and checks. Consequently, different tasks
of which the activity of the anti-money laundering function consists can be assigned to different
organizational structures, which are already present in the corporation, as long as the whole risk
managing is traced back to a nominated manager with duties of coordination and supervision.

Surely the compliance function, where it is already present, is the most adequate to adopt the
anti-money laundering function, while where the latter is not incorporated in the compliance
area, tasks and responsibilities of the two functions are clearly identified and made known
inside the corporation.

In this situation, infor mation flows between the two functions of compliance and anti-money
laundering are of fundamental importance, because of the continuity of their activities.

However, compliance must be effective, formally and substantially implemented ; some authors
(Parker & Nielsen, 2005) affirmed the risk of partial and merely symbolic compliance programs,
mainly induced by the desire to minimize costs deriving from fines or restrictions by the Authorities.
Instead, Shefrin (2008) theorized about the risks of an "illusion of control" that creates a false
perception of security.

The compliance function is an independent function to safeguard from the risk of administrative or
criminal sanctions, of financial or reputational losses that the corporation may suffer because of
the violation of rules of law, internal rules, self-regulation standards and codes of conduct. Being
structurally fit for money laundering risk management, it is even more because of the changed
direction of new obligations on the matter of money laundering which have established the shift
from a rule-based approach to a risk-based one.

Since the compliance function is the closest one (because of its competencies, methods, and
approach) to the anti-money laundering one, the solution of adopting a single structure which
consists of the two functions offers the prospect of creating strong synergies, giving a contribution
to the creation of value for:

- the intermediary, because the precise knowledge of risks becomes fundamental to avoid sanctions
and reputational damages;

- the clients, because an effective compliance activity represents a valorization factor for the
relationship of trust with the corporation;

- the market, because it improves the credibility of the company.

COMPLIANCE UNDER TAXATION LAWS

TAX COMPLIANCE

Basic Policy and Implementation System

Daikin is working to improve tax transparency pursuant to Proper Handling of Accounting Procedures
set forth in the Daikin's Group Conduct Guidelines. Based on these guidelines, we clarify our basic
approach toward tax compliance and ensure thorough tax compliance. Tax related risks are overseen
by the officer in charge of accounting and finance and reported to the board of directors. In case of
uncertainty over the application or interpretation of tax laws, we respond appropriately after seeking
out the advice of external professionals.

Group Conduct Guidelines

12. Proper Handling of Accounting Procedures

We shall comply with all accounting standards and tax laws of each country and region as well as
internal company rules in properly performing accounting procedures.

Specific Guidelines

1. Paying expenses properly

2. Ensuring appropriate accounting

We shall observe appropriate accounting standards based on the generally accepted
accounting principles in order to ensure the accuracy of our accounting and financial data.
Likewise, we shall build and maintain an appropriate internal control system to ensure the
accuracy of financial reporting.

3. Observance of tax laws

1. We shall pay taxes in accordance with relevant tax laws.

2. For cross border transactions, including those transactions involving companies of the
global Group, we shall carefully check the tax laws of the relevant country as well as
those tax laws in Japan.

Basic Policy on Tax Compliance

1. Approach to Risk Management and Governance Arrangements in relation to Taxation

At Daikin, we consider the payment of tax to be a critical element of our corporate social
responsibilities (CSR).
We believe that our tax payments play an important role in the development of the countries and
regions in which we operate, which in turn results in the sustainable development and corporate value
enhancement of the Daikin Group.

Recognizing that tax related risk is an important element among the many business risks facing the
Daikin Group, we address tax related risks in accordance with our Group's risk management principles.

2. Tax Compliance

We are committed to full compliance with the applicable laws and regulations in each of the
jurisdictions in which the Daikin Group operates.
We also respect not only the letter but the spirit of the law.

3. Prohibition of Tax Avoidance and Attitude toward Tax Planning

Daikin does not undertake tax planning that lacks commercial substance, or which involves artificial
or aggressive transactions or structures undertaken solely for tax reasons.
All intercompany transactions within the Group are conducted on an arm's length basis as described
in the OECD Transfer Pricing Guidelines, and consistent with local laws and regulations.

4. Level of Tax Risk Accepted

External advice may be sought if issues are significantly uncertain or complex.
To mitigate risks, including the risk of double taxation, we routinely consider effective measures to
increase certainty in our positions, such as Advance Pricing Arrangements ("APA") and Mutual
Agreement Procedures ("MAP") for transfer pricing.

5. Approach to Dealing with Tax Authorities - Trust and Transparency

We strive to act in good faith and maintain an open, constructive and cooperative relationship with
tax authorities. Through the approach described above, we aim to achieve a robust and predictable
tax position.
We demonstrate our commitment to transparency by disclosing information required under
applicable laws and regulations, when requested by taxation authorities.

COMPETITION LAW COMPLIANCE ON CORPORATE GOVERNANCE

Competition law and corporate governance are two relatively separate bodies of law. The former
concerns companies' external conduct in the market and prohibits certain anti-competitive actions. In
contrast, the latter primarily concerns internal relationship between officers, directors and
shareholders. What links them both is corporate compliance, a tool to equally address risks associated
with costly managerial mistakes and welfare-reducing behaviour. Ever-increasing fines imposed by
competition agencies across the globe have lifted competition law to the top of corporate compliance
agenda. Along with other legal areas (e.g., anti-bribery and corruption, data privacy, security and
financial fraud, health security and safety, etc.), competition law and competition compliance
programmes (CCPs) are among the main elements of business risk management.

In response to this growing demand on CCPs, mixed messages have been sent by competition agencies
around the world. Some1 promote them by offering fine reductions for violators, whose efforts failed
to prevent infringement. Others2 treat CCPs as a neutral factor considering them as neither
attenuating nor aggravating circumstance. Despite some lack of consensus, competition agencies
mutually encourage companies to put in place diligent, effective and robust CCPs. Certain agencies3
issued valuable guidelines on how companies can build a genuine CCP. These publications suggest
similar approach drawing inspiration from the COSO internal control framework4. In so doing, they
unanimously speak out against "one size fits all" CCPs. Instead, risk-based approach is preferable and
competition agencies will expect the companies to demonstrate that compliance efforts are tailored
to their sector and risks. They will also support a principles-based approach to compliance, rather than
a rules-based one. That is, where compliance focuses on substance (i.e. a set of core principles
addressing unlawful conduct) rather than form (i.e. difficult shades of grey of each and every anti-
competitive conduct). Such principles, well-known to all compliance topics, are outlined below.

Top-level commitment

Top-level management is on a front-line in development of a good CCP. This involves active and visible
articulation to all employees and business partners of a negative stance towards anti-competitive
conduct. The rationale behind this is to ensure a culture across the company where anti-competitive
behaviour is considered as inherently wrong, not just incompliant with laws and regulations.

While choosing the method of articulation, management may consider various forms of
communication, either active (e.g., face-to-face meetings, presentations) or passive (e.g., periodic
statements on company's intranet or web page), informal (e.g., emails, text messages or social media
postings) or formal (e.g., code of conducts, official memos).
It is vitally important that the voice from the top is free of any undue pressure that causes employees
to fear the consequences of not achieving objectives and circumvent processes or engage in
anticompetitive conduct. Otherwise, any ambiguity in objectives set by seniors may well prompt
competition agencies into a belief that the CCP is a sham, covering a mere intent to make anti-
competitive conduct cheaper for corporate treasury.

Ideally, demonstration of the top-level commitment additionally requires not just words but actions.
These may include the direct involvement of top-level management in the recruiting of a compliance
officer, regular calls to compliance helpline with questions, face-to-face meetings with high-risk
employees, personal recognising of outstanding compliance and ethics performance, personal
insisting on the toughest discipline measures to be taken to employees breaching the rules, etc.5

Risk assessment

A successful CCP would be based on a comprehensive analysis of the areas in which the company,
including any of its affiliates, is most likely to run a risk of infringing competition rules6. Such analysis
should consider all significant interactions internal to the company and between the company and its
potential and existing competitors, suppliers, buyers.

An internal inquiry may be more important in the context of cartels. The company may decide to
identify the risk-related employees, who are usually prone to such infringement. These tend to include
those in roles such as sales and procurement, line managers and those who attended trade association
meetings. Appointments of new employees joining the company from a competitor on the above
positions merit special attention.

External examination is more justified in cases related to unilateral conduct or vertical restraints, when
substantive assessment of the market structure (i.e. its saturation, dynamics, structure, type of
product (whether it is homogeneous), countervailing buyer power, etc.) can help to draw a line
between the infringement and benign pro-competitive behaviour.

Having identified potential risks, the next step is to assess them. Working out how serious they are,
the company may find out that some of them have a higher likelihood of occurrence and potential
impact than others. For example, if the company is active in highly fragmented markets where players
all have insignificant market shares, the risk of infringement of unilateral conduct rules will be low.
Similarly, retailers are less likely to have tying arrangements concerns as opposed to original
equipment manufacturer suppliers. Consequently, each of these companies does not require a
detailed response to risks that are unlikely to occur generally. Knowing a company's specific risk profile
will allow developing and implementing adequate prevention policies, procedures and training.

Proportionate procedures and training

Size can be an important factor affecting the company's risk profile and measures it should take to
mitigate them. For example, the efforts of top-level management of a medium-sized company to
reinforce a culture of compliance may be less formalistic than those in large multi-national companies.
While the former may rely heavily on periodic face-to-face meetings of management with employees,
the latter will certainly require extensive written communication7. The same applies to policies and
procedures implementing them. In smaller companies these can be communicated orally. In turn, in
larger ones unwritten policies and procedures can be easier to circumvent.

Further and again, small or medium companies are unlikely to face risks associated with unlawful
unilateral conduct. Thus, there is no need to train their employees on such issues as, for example,
refusal to supply or non-cost justified rebates and discounts. However, whether large companies that
do face such a risk actually need specific training on dominance is being disputed. For example,
torturing employees by trying to explain different price-cost benchmarks relevant in predatory pricing
cases may be a fool's errand.

The message may be simply ignored or misunderstood. This area of competition policy, therefore,
does not lend itself so well to CCPs, in comparison to anti-cartel policies, procedures and training8
that in fact are relevant to all companies regardless of the size.

The size of the company may also affect the format of the training. Employees in medium-sized
companies will most likely be trained by external lawyers in the traditional classroom seminar format,
while large companies will likely have an opportunity to recruit a dedicated counsel and equip
themselves with e-learning and other web-based tools customized for each major competition law
jurisdiction being served by them. Any larger company, which is active globally, should take the issue
of extraterritoriality into account. Competition laws are designed in a way to reach the activity that
occurs outside of, but has or may have an effect in the jurisdiction. Good CCP should envisage conflicts
that may arise between different competition laws, including when one law has a higher standard of
behaviour in one jurisdiction than the other. Separately, when a large multi-national company relies
on global web-based tools, all translations into local languages of relevant jurisdictions have to be
done sensitively, while training materials modified accurately. In particular, the company should think
twice before circulating "off the shelf" untailored e-learning materials instructing that dominance is
not likely if the undertaking's market share is below certain level across jurisdictions having a statutory
rebut table presumption of dominance.

Whatever the format chosen, training should be interactive, extensive and, most crucially, directed at
those who are most likely to break the law. These are high risk employees, including new staff joining
the sales and marketing department from competitors. At the same time, it may be helpful to train
not only high-risk employees, but those who can help or witness the infringement. This could be a
medium-risk employees, like those on management roles that do not involve regular contact with
competitors or trading partners or staff in other departments (such as finance, communications,
operations). Through training these employees may learn how serious the conduct really is and follow
up using the company's whistle-blower hotline.

Consideration might also be given to whether CCP should include mock dawn raid training. While it is
obviously important for employees to see what happens in an investigation, the company should be
ready to prove to the competition agency that such training was aimed at showing its employees their
duty of cooperation, rather than teaching them how to conceal evidence.

Continuous improvement

The company's risks portfolio will often change over time. Consequently, its policies and procedures
may become obsolete and less effective. To ascertain that each component of the CCP remains
functioning and needed certain monitoring activities should be selected, developed and performed.
Such activities may identify possible gaps or deficiencies that require an instant response.

Monitoring can be ongoing and/ or separate. Ongoing monitoring evaluates routine operations and is
performed on a real-time basis. This may cover various issues relating to the on-boarding of new
employees from competing businesses, reviewing agendas for all trade associations meetings,
constant review of legislative changes, etc. Not least, manual and ongoing monitoring is necessary to
evaluate the effectiveness of the CCP itself. There is a wide range of mechanisms for this, including
surveys, informal post-training follow-up meetings, regular knowledge tests, helpline statistics
reviews, etc. This should be carried out as openly as possible to indicate to employees that their
conduct is constantly subject to review against the terms of the CCP.

Sometimes, evaluation focuses beyond day-to-day activities and requires separate substantive "deep
dives". For example, this may happen in M&A situations. However, the most common catalyst is a
probe by the competition agency into the company's business. The latter may well suggest that the
CCP has failed to accomplish its objectives and a full-scale due diligence with complete document
searches is necessary to root out compliance gaps. While preparing for this internal investigation the
company must take into account other legal issues relating to data protection, employment law and
legal professional privilege. Some investigations may uncover deliberate hardcore illegal conduct
demonstrating a lack of commitment to compliance from the top down. If that is the case, appropriate
disciplinary measures taken across the company from the boardroom to the supply room9 are
essential for an effective and genuine CCP.

Ultimately, appropriate monitoring activities allow the company to keep abreast of possible new risks,
revise its policies and procedures against them and/or fresh legislative criteria, as well as ensure that
the CCP is understood and not ignored.

DISCLOSURES UNDER SEBI (LISTING AND DISCLOSURE) REGULATIONS, 2015

The Securities Exchange Board of India (SEBI), on September 2, 2015, issued SEBI (Listing and
Disclosure) Regulations, 2015 (hereinafter referred to as 'Regulations') on listing of different segments
of the capital market and disclosure norms in relation thereto. These regulations have been structured
into one single document consolidating various types of securities listed on the stock exchanges.

The latest set of norms provides broad principles for periodic disclosures by listed entities, apart from
incorporating corporate governance principles.

These regulations shall apply to the listed entity who has listed any of the following designated
securities on recognized stock exchange(s):

a. Specified securities listed on main board or SME Exchange or Institutional trading platform;

b. Non-convertible debt securities, non-convertible redeemable preference Shares, perpetual

debt instrument, perpetual non-cumulative preference Shares;

c. Indian depository receipts;

d. Securitized debt instruments;

e. Units issued by mutual funds;

f. Any other securities as may be specified by the Board.

The Disclosure aspect as in the framework of these Regulations has been discussed below in brief:

PRINCIPALS GOVERNING DISCLOSURES

The listed entities which have listed securities shall make disclosures and abide by certain obligations
under these regulations, in accordance with the following principles:

i. Information shall be prepared and disclosed in accordance with applicable standards of

accounting and financial disclosure.
 ii. The listed entity shall implement the prescribed accounting standards in letter and spirit in
the preparation of financial statements taking into consideration the interest of all
stakeholders and shall also ensure that the annual audit is conducted by an independent,
competent and qualified auditor.

iii. The listed entity shall refrain from misrepresentation and ensure that the information
provided to recognised stock exchange(s) and investors is not misleading.

iv. The listed entity shall provide adequate and timely information to recognised stock
exchange(s) and investors.

v. The listed entity shall ensure that disseminations made under provisions of these regulations
and circulars made there under, are adequate, accurate, explicit, timely and presented in a
simple language.

vi. Channels for disseminating information shall provide for equal, timely and cost efficient access
to relevant information by investors.

vii. The listed entity shall abide by all the provisions of the applicable laws including the securities
laws and also such other guidelines as may be issued from time to time by the Board and the
recognized stock exchange(s) in this regard and as may be applicable.

viii. The listed entity shall make the specified disclosures and follow its obligations in letter and
spirit taking into consideration the interest of all stakeholders.

ix. Filings, reports, statements, documents and information which are event based or are filed
periodically shall contain relevant information.

x. Periodic filings, reports, statements, documents and information reports shall contain
information that shall enable investors to track the performance of a listed entity over regular
intervals of time and shall provide sufficient information to enable investors to assess the
current status of a listed entity.

DISCLOSURE IN CORPORATE GOVERNANCE REPORT:

The following disclosures shall be made in the section on the corporate governance of the annual
report of the listed entities:

i. A brief statement on listed entity's philosophy on code of governance.

ii. Information, as prescribed in the Regulations, about the following:

a. Board of directors,

b. Audit committee,

c. Nomination and Remuneration Committee,

d. Remuneration of Directors,

e. Stakeholders' grievance committee,

f. General body meetings,

g. Means of communication,

h. General shareholder information,

 iii. Other Disclosures:

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

potential conflict with the interests of listed entity at large;

b. Details of non-compliance by the listed entity, penalties imposed on the listed entity
by stock exchange(s) or the board or any statutory authority, on any matter related
to capital markets, during the last three years;

c. Details of establishment of vigil mechanism, whistle blower policy, and affirmation

that no personnel has been denied access to the audit committee;

d. Details of compliance with mandatory requirements and adoption of the

nonmandatory requirements;

e. Web link where policy for determining 'material' subsidiaries is disclosed;

f. Web link where policy on dealing with related party transactions;

g. Disclosure of commodity price risks and commodity hedging activities.

Where there is any non-compliance of any requirement of corporate governance report, reasons
thereof also needs to be disclosed.

DISCLOSURE OF EVENTS OR INFORMATION

1. Every listed entity shall make disclosures of any events or information which, in the opinion
of the board of directors of the listed company, is material. Events specified in Para (A) of Part
(A) of Schedule III of the Regulations are deemed to be material events and listed entity shall
make disclosure of such events. The listed entity shall make disclosure of events specified in
Para (B) of Part (A) of Schedule III, based on application of the guidelines for materiality, as
specified.

2. The listed entity shall consider the following criteria for determination of materiality of
events/ information:

a. the omission of an event or information, which is likely to result in discontinuity or

alteration of event or information already available publicly; or

b. the omission of an event or information is likely to result in significant market reaction

if the said omission came to light at a later date;

c. In case where the criteria specified in sub-clauses a) and b) are not applicable, an
event/information may be treated as being material if in the opinion of the Board of
Directors of listed entity, the event / information is considered material.

The listed entity shall frame a policy for determination of materiality, based on criteria specified
above, duly approved by its board of directors, which shall be disclosed on its website.

3. The board of directors of the listed entity shall authorize one or more Key Managerial
Personnel for the purpose of determining materiality of an event or information and for the
purpose of making disclosures to stock exchange(s) under this regulation and the contact
 details of such personnel shall be also disclosed to the stock exchange(s) and as well as on the
listed entity's website.

4. The listed entity shall first disclose to stock exchange(s) of all events, as specified in Part A of
Schedule III, or information as soon as reasonably possible and not later than 24 hours from
the occurrence of event or information.

In case the disclosure is made after 24 hours of occurrence of the event or information, the
listed entity shall, along with such disclosures provide explanation for delay. Disclosure with
respect to the outcome of board meeting shall be made within 30 minutes of the conclusion
of such board meeting.

5. The listed entity shall, with respect to disclosures referred to in these regulations, make
disclosures updating material developments on a regular basis, till such time the event is
resolved/closed, with relevant explanations.

6. The listed entity shall disclose on its website all such events or information which has been
disclosed to stock exchange(s) under this regulation, and such disclosures shall be hosted on
the website of the listed entity for a minimum period of 5 years and thereafter as per the
archival policy of the listed entity, as disclosed on its website.

LISTING AGREEMENT UNDER THE REGULATIONS

"Listing agreement" shall mean an agreement that is entered into between a recognised stock
exchange and an entity, on the application of that entity to the recognised stock exchange,
undertaking to comply with conditions for listing of designated securities;

On and from the commencement of these Regulations, all previous circulars stipulating or modifying
the provisions of the listing agreements including those specified in theses Regulations, shall stand
rescinded.

Accordingly, as per these Regulations, every issuer or the issuing company desirous of listing its
securities on a recognised stock exchange shall execute a listing agreement with such stock exchange.

Where issuer or the issuing company has previously entered into agreement(s) with a recognised stock
exchange to list its securities shall execute a fresh listing agreement with such stock exchange within
6 months of the date of notification of Securities and Exchange Board of India (Listing Obligations and
Disclosure Requirements) Regulations, 2015.