TAX LEVIED

CORPORATE GOVERNANCE
&

UNDER GST
THE DIRECTOR
(AS PROVIDED UNDER COMPANIES
ACT 2013)
SUBMITTED BY:
NAME: PARTH BINDAL

SAP ID: 500078319

ROLL NO.: R760219190

BATCH & SEM: BBA LLB (BATCH 2), SEM 6

INDEX:

[1]
 PAGE
S.NO PARTICULARS
NO.

1. INTRODUCTION 3-4

2. RESEARCH METHODOLOGY 5

3. MEANING OF CORPORATE GOVERNANCE 5-7

RELEVANT SECTIONS OF THE COMPANIES ACT

2013 WITH EXPLANATION & THE ROLE OF THE
4. 8-12
CONCERNED SECTION/S IN FURTHERING
CORPORATE GOVERNANCE:

FUTURE OF CORPORATE GOVERNANCE IN

5. 12
INDIA

6. CONCLUSION 13

INTRODUCTION:

[2]
Overview-

Corporate governance is a mechanism for governing a company that is based on certain systems
and principles. Governance ensures that a company is directed and controlled in such a way that
it achieves its goals and objectives, which include providing long-term benefits to stakeholders
such as shareholders, employees, suppliers, customers, and society, as well as adding value to the
company. It is actually run by the board of directors and the relevant committees for the benefit
of the company's stakeholders.' Corporate governance is all about striking a balance between
individual and societal goals, as well as economic and social objectives.

Corporate governance consists of the following elements-

 Explicit and implicit contracts between the company and its stakeholders for the
distribution of responsibilities, rights, and rewards.
 Procedures for reconciling stakeholders' competing interests in accordance with their
duties, privileges, and roles.
 Procedures for proper supervision, control, and the flow of information to serve as a
system of checks and balances.

Why any company needs Corporate Governance?

The need for corporate governance has arisen as a result of growing concerns about
noncompliance with financial reporting standards and accountability by boards of directors and
company management, which has resulted in significant losses for investors. The following are
India's corporate governance requirements:

1. Changing the Structure of Ownership:

A corporate firm has many stakeholders, each with a different attitude toward corporate affairs;
corporate governance protects the stakeholders' rights by enforcing them through its code of
conduct. Today, a company has a large number of stakeholders spread across the country and
even the world, and the majority of shareholders act unaware and with a disinterest in corporate
affairs. Maintaining a proper corporate structure necessitates the practical application of rules
and regulations via a corporate governance code of conduct.

2. Social responsibility:

[3]
Society has higher expectations of corporations; they expect corporations to care about the
environment, pollution, the quality of goods and services, sustainable development, and so on.
All of these expectations can only be met with good corporate governance.

3. Takeovers and Mergers:

In the past, corporate takeovers and mergers caused a slew of issues. It affects the rights of
various stakeholders in the company and creates a problem of chaos; this factor also pushes the
country's need for corporate governance.

4. Confidence booster:

In recent years, corporate scams or frauds have shaken public trust in corporate management.
The need for corporate governance is then critical for reviving investors' confidence in the
corporate sector as a means of contributing to societal economic development.

5. Mismanagement and corruption:

There has been a significant increase in the monetary payments and packages of top level
corporate executives in both developing and developed economies. There is no justification for
exorbitant payments to top-level executives from corporate funds that are the property of
shareholders and society. This factor necessitates corporate governance in order to limit the ill-
practices of top management in businesses.

“The preceding discussion provides an overview of corporate governance and

why it is necessary in India. Aside from that, the government of India makes
significant changes to the Company Law in 2013, which will aid in ensuring
better corporate governance practises in India. This paper will go over the
definition of a director as defined by the Companies Act of 2013, as well as
how directors play an important role in ensuring effective and efficient
corporate governance in their respective domains.”

RESEARCH METHODOLOGY:

[4]
The research paper is an exploratory research attempt based on secondary data gathered from
journals, magazines, articles, and media reports. The research design is based on the study's
objectives. The methodology used in the study is descriptive in nature. Keeping the objectives in
mind, this research design was chosen to achieve greater accuracy and in-depth examination of
the research study. Secondary data was extensively used in the research. The investigator gathers
the necessary information through a secondary survey. Various news articles, books, and
websites were used, which were counted and documented.

MEANING OF CORPORATE GOVERNANCE:

General Overview of what Corporate Governance is all about-

Corporate Governance is essentially about leadership; leadership for efficiency in order for
companies to compete effectively in the global economy, and thus create jobs; leadership for
probity in order for investors to have confidence and assurance that a company's management
will act honestly and with integrity in regard to their shareholders and others. Leadership with
responsibility, as companies are increasingly being called upon to address legitimate social
concerns related to their activities; and, leadership that is both transparent and accountable, as
otherwise business leaders cannot be trusted, resulting in the decline of companies and,
ultimately, the demise of a country's economy.1

Meaning-

The term "Governance" refers to the process of governing, whether by government, market, or
network, over a family, tribe, formal or informal organisation, or territory, and whether through
general laws, norms, or power. It entails the interaction and decision-making process. When
applied to a business organisation, the term "Governance" is defined as a combination of
processes established and executed by the Board of Directors, which are reflected in the
organisation structure and how it is managed and led toward achieving goals. The term
"Corporate Governance" gained prominence in the business world after accounting fraud of
high-profile companies was discovered, which was caused by a lack of adequate governance
mechanisms.
1
Mervyn King, King Report on Corporate Governance for South Africa [King II Report] [Parktown, South Africa:
Institute of Directors in Southern Africa, 2002] p.18

[5]
To apply the term Governance to the corporate world, the relationship between the company's
management, its Board of Directors, shareholders, auditors, and other stakeholders is ideally
addressed. If we want to define corporate governance, we can say that it refers to the rules,
processes, or laws that govern how businesses are run, regulated, and controlled. Transparency
of corporate structures and operations; accountability of managers and the Board of Directors to
shareholders; and corporate responsibility to stakeholders are key aspects of good corporate
governance.

Corporate Governance Initiative in India-

The establishment of India's Corporate Governance system, i.e. the contribution of each and
every organ in its upbringing and establishment, is highly commendable, The Confederation of
Indian Industry (CII), India's largest industry and business association, launched the first
initiative.2 The Security Exchange Board of India (SEBI) took the second major initiative as
clause 493 of the listing agreement.4 The Naresh Chandra Committee and the Narayana
Murthy Committee took the third initiative. These committees examined corporate governance
from the perspective of stakeholders, particularly shareholders and investors. Shareholders, the
Board of Directors, and management have been identified as three key constituents of corporate
governance by the committees. The committees have identified three major aspects:
accountability, transparency, and treating all shareholders equally.5

The Ministry of Corporate Affairs (MCA)6 issued a new set of "Corporate Governance
Voluntary Guidelines 2009"7 in 2009 to encourage companies to improve the operation of the
Board and Board committees, the appointment and rotation of external auditors, and the
establishment of a whistle blowing mechanism. The guidelines introduced are recommendatory
in nature and can be broadly divided into six parts, which include the Board of Directors, Board

2
https://www2.deloitte.com/in/en/pages/risk/articles/governance-101.html.
3
The provisions in Clause 49 of the Equity Listing Agreement are both mandatory and non-mandatory. Those that
are absolutely necessary for corporate governance and that can be enforced without any legislative changes are
classified as mandatory. Others are classified as non-mandatory because they are either desirable or may
necessitate a change in the law. Non-mandatory requirements may be implemented at the company's discretion.
However, disclosures of compliance with mandatory requirements and adoption (and compliance) / non-adoption
of non-mandatory requirements must be made in the Annual Report's section on corporate governance.
4
https://bit.ly/3xAeNch.
5
https://www.caclubindia.com/articles/importance-of-corporate-governance-and-companies-act-2013-24923.asp.
6
https://bit.ly/3JPKkcJ.
7
https://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.pdf.

[6]
Responsibilities, Audit committees, Auditors, Secretarial audit, and the establishment of a
mechanism for whistle blowing. While some Indian companies have actively pursued high
standards of governance, the vast majority of companies have not taken the guidelines seriously.

Corporate Governance Issues in India-

Although there are numerous issues in the field of Corporate Governance, particularly in India,
an effort has been made to highlight only the most significant ones here:

1. Performance of the Board:

At least one female director is required, and the balance of executive and non-executive directors
is not maintained. Evaluation is not done on a regular basis, and transparency has been lost
somewhere. The performance is not oriented toward results. These standards are not always met.

2. Problem pertaining to Independent Director:

Independent directors are appointed for a reason that does not appear to be met in the current
situation. Even after SEBI guidelines for the appointment of an audit committee or the provision
of a comprehensive definition of independent directors were issued to corporations, the actual
situation appears to be worse.

3. Stakeholder Accountability:

The accountability does not stop with the shareholders or the company; it extends to society as a
whole as well as the environment. The directors must consider not only their own interests, but
also the interests of the community.

4. Management of Risks:

The risk management techniques must be implemented by the directors in accordance with the
Company Laws, and they must also be mentioned in their annual report to shareholders. This is
not done with the utmost sincerity required for the job.

RELEVANT SECTIONS OF THE COMPANIES ACT 2013 WITH

EXPLANATION & THE ROLE OF THE CONCERNED SECTION/S IN
FURTHERING CORPORATE GOVERNANCE:
[7]
The Companies Act of 2013 focuses on great corporate governance practises by expanding the
Board's roles and responsibilities, ensuring investor enthusiasm, acquiring a revelation-based
administration, and inherent prevention through self-direction. The 2013 Act fundamentally
alters how businesses are represented.

The Act makes provision for the following arrangements which are discussed in detail
below:

1. Appointment of Board:

According to the Companies Act of 2013, an open and additionally privately owned business can
have a maximum of fifteen executives on the Board,8 and naming more than fifteen executives
would require the approval of investors through an uncommon decision in the General
Meeting.9It also allows for the appointment of at least one female executive to the Board of
Directors for whatever class or classes of companies are recommended. 10 The Act requires
organisations to have at least one executive who has lived in the country for at least a year.11

2. Independent Directors:

The majority of the qualities of the posting understanding are contained in the definition of
independent director given in the Companies Act, 2013. 12 An independent director should be a
man of integrity with significant aptitude and experience. The Act expressly states that
independent director should not have any material monetary relationship with the organisation,
its promoters, executives, or auxiliaries that could influence the director’s autonomy in the
current fiscal year or in the next two years. The Act includes the following provisions for
independent director: According to the Companies Act of 2013, each registered organisation
must have at least 33 percent of its total number of directors as independent directors, with any
portion counted as one.13 The central government will be able to recommend the fewest
number of independent directors in various classes of open companies.

Independent Directors' Code of Conduct-

8
Section 149(1) of the Companies Act, 2013.
9
Section 149(1) of the Companies Act, 2013.
10
Section 149(1) of the Companies Act, 2013.
11
Section 149 (3) of the Companies Act 2013.
12
Section 149 (6) of the Companies Act 2013.
13
Section 149(6), Companies Act, 2013.

[8]
Schedule IV,14 of the Act includes a Code for Independent Directors, which independent
directors must follow. The "Code for Independent Directors" establishes clear guidelines for
professional leadership, roles, and responsibilities. It includes the following perspectives:
Professional conduct; data illumination; safeguarding the interests of all partners; actual
performance of obligations and duties; and evaluation of board and administration execution,
among other things.

Independent Directors' Liabilities-

Under the Companies Act of 2013, an independent director and a non-official executive who is
not a promoter or KMP will be held liable for such demonstrations of oversight or commission
by an organisation that occurred with his insight, as evidenced by board forms, and with his
assent, or where he did not act decisively.15

3. Committees of Board:
(A). Audit Committee-

Review panels are required for recorded companies and other recommended classes of
companies under Section 177 of the Companies Act of 2013. According to the Act, the review
panel should consist of at least three chiefs, with independent executives playing a dominant
role. The 1956 Act made no mention of academic or professional qualifications for executives.
According to the 2013 Act, the majority of members of the Audit Committee, including the
Chairperson, must be able to read and comprehend financial articulations.

(B). Committee on Nominations and Remuneration-

Review boards are required for recorded companies and other recommended classes of
companies under Section 177 of the Companies Act of 2013. According to the Act, the review
panel should consist of at least three executives, with independent chiefs playing a dominant
role. The 1956 Act made no mention of scholarly or professional qualifications for executives.
According to the 2013 Act, the majority of individuals on the Audit Committee, including the
Chairperson, must be able to read and comprehend the directors.

(C). The Committee on Corporate Social Responsibility (CSR)-

14
Company Act 2013.
15
Section 149(12) of the Companies Act, 2013.

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According to the Act, any organisation that meets certain criteria must form a Corporate Social
Responsibility Committee of the Board, comprised of at least three executives. At least one
independent executive should serve on the CSR Committee. CSR strategies should be planned
and screened by the CSR advisory group, and they should be discussed in the Board's report. The
board must endorse the CSR strategy and reveal the substance in the board report, which must be
posted on the organization's website.

(D). Committee for Relationships with Stakeholders-

The Act protects all security holders, including value speculators. It is required that an
organisation with more than 1000 investors, debenture holders, store holders, and other
security holders form a Stakeholders Relationship Committee at some point during the fiscal
year. It will be led by a non-official executive and will be made up of individuals chosen by the
board. The board will consider and resolve the organization's security holders' grievances.16

(E). Related Party Transactions-

According to the Companies Act of 2013, a related gathering exchange can be entered into only
if it is approved by a unanimous decision at the general gathering. A member of the organisation
who is a related gathering cannot vote on such an extraordinary decision. The restrictions will
have no effect on any transactions conducted by the organisation in its normal course of
business, other than transactions conducted on an at-a-distance premise. 17 Each agreement or
course of action entered into with a related gathering should be mentioned in the Board's report,
along with the defence for entering such contract or game plan. The central government may
propose additional conditions for participating in related gathering exchanges.

(F). Prohibition of Insider Trading-

No one, including any executive or KMP of a company, should engage in insider trading aside
from correspondence required in the ordinary course of business, profession, or work, or under
any law. Insider trading by any executive or key administrative faculty of an organisation is
punishable by imprisonment for up to five years and a fine of up to 25 crore INR or three times

16
https://taxguru.in/company-law/stakeholder-relationship-committee.html#:~:text=Stakeholder%20Relationship
%20Committee%20(Committee)%20is,Corporate%20Governance%20of%20the%20Company..
17
https://www.investopedia.com/terms/r/related-partytransaction.asp#:~:text=The%20term%20related%2Dparty
%20transaction,or%20have%20a%20common%20interest.

[10]
the amount of profits made from insider trading, whichever is greater, or both. 18 Despite the fact
that corporate administration practises can be traced back to 1961 around the world, India lagged
behind. It wasn't until 1991 that progress was made and corporate administration established a
global network.19

The most important event in 1992 was the change of the Securities and Exchange Board of
India (SEBI). SEBI's primary goal was to manage and institutionalize stock trading, but it
gradually framed numerous corporate administration standards and controls. 20 The following
significant change was the establishment of the Confederation of Indian Industry (CII) in
1996, which established a set of laws for Indian organisations in order to begin the demonstration
toward corporate administration. At that point, two advisory groups led by Kumar Mangalam
Birla and Narayan Murthy of the Securities and Exchange Board of India began laying the
groundwork for formalizing the prescribed corporate administration procedures.21

Clause 49 was presented as a major aspect of the posting contract for the organisations listed on
the Indian stock exchange in response to the recommendations of these committees. Nonetheless,
outrages like Enron, Satyam, WorldCom, and so on compelled the condition 49 to be changed in
order to consolidate and defeat the issues that caused these organisations to crumple and smash
the economies of the specific nations. From 2000 to 2003, Statement 49 of the posting
understanding of Indian stock trade produced results. It included all of the controls and
prerequisites, for example, the least number of free executives, board members, various vital
advisory groups, a set of accepted rules, review council principles and breaking points, and so
on.22

FUTURE OF CORPORATE GOVERNANCE IN INDIA:

Although corporate governance in India is far from perfect, it has a long way to go before it can
be considered the best in the world. Many CEOs now believe that their companies require
financial and human capital to develop the standards required to compete on a global scale.
18
https://blog.ipleaders.in/insider-trading-regulations/#:~:text=It%20is%20illegal%20to%20use,trading%20was
%20taken%20in%201948.
19
https://bit.ly/3rDxrfv.
20
https://www.mca.gov.in/content/mca/global/en/home.html.
21
https://bit.ly/3KZUOHT.
22
https://www.sebi.gov.in/sebi_data/commondocs/cir2803an1_p.pdf.

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Stakeholders are increasingly aware of the market, and they begin analyzing every aspect of a
company in order to pass it in terms of corporate governance. As a result, the CEOs and owners
of the company are well-versed in corporate governance. They also understand that such capital
will not be available in a non-transparent corporate regime devoid of international disclosure and
accountability standards.

Corporate Governance is a growing trend concept that may be able to expand further in India in
the future. India's current market is very different from that of the future. As a result, it can be
stated that the theory of corporate governance will be applicable in every company in India with
some additional and advanced modifications and policies.

Another issue that needs to be addressed in the future is the record number of independent
directors and auditors leaving companies before the end of their terms. A record number of mid-
term resignations of auditors and independent directors have resulted from a rash of corporate
governance scandals in 2019. According to data from nseinfobase.com, the number of exits
of independent directors from boards of Indian companies increased 54% year on year in
calendar 2019. In addition, 58 auditors stepped down mid-term in 2019, slightly more than
in 2018.23 SEBI, the market regulator, has taken action against auditors for faulty audits and
made qualifying examinations for independent directors mandatory.

CONCLUSION:

India's corporate governance structure includes a variety of measures that promote governance

accountability and transparency of financial and other data. On the administrative structure of

corporate governance, the Indian government has attempted a series of changes to improve

money-related data disclosure standards and to refresh bookkeeping rules. The authorization of

the Companies Act 2013 merits mention in the context of corporate governance.

23
https://economictimes.indiatimes.com/markets/stocks/news/five-trends-that-defined-india-incs-corporate-
governance-standards-in-2019/articleshow/73027056.cms.

[12]
The new Act, which replaces the Companies Act of 1956, is intended, among other things, to

improve corporate governance standards. The purpose of this paper is to examine the

arrangement and various improvements in corporate governance in India under the Companies

Act, 2013.

According to the Companies Act of 2013, the role of the Board of Directors is extremely

important in terms of better Corporate Governance motivation. Numerous arrangements relating

to chiefs' and inspectors' autonomy, strict exposure standards, and financial specialists' insurance

will have broad ramifications and acquire more noteworthy straightforwardness and

responsibility in the organization's working while limiting the occurrences of corporate cheating.

Its primary goal isn't simply to satisfy the requirements of the law, but to ensure the Board's duty

in dealing with the organisation in a straightforward way to maximize partner esteem.

However, in a broader sense, good corporate governance extends beyond the tenets and controls

that the government can impose. It should come from within, allowing the organisation to

establish a profitable relationship with its inward clients and a long-term business relationship

with its outside clients. The genuine onus of achieving desired levels of corporate governance

rests with corporations themselves, not on external measures.

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