CORPORATE GOVERNANCE

Dr. Nidhi Jain , Associate Professor ,

University of Delhi , South Campus.
 CERTAIN PROVISIONS OF THE COMPANIES ACT, 2013 VIS-À-VIS
CORPORATE GOVERNANCE

• The Companies Act , 2013 has incorporated a number

of provisions to promote good corporate governance .
Some of the key provisions of the Act in this regard ,
are :
i. Passing of resolution through postal ballot [Section
110]
ii. Compulsory audit rotation [Section 139]
iii. Auditors not to perform specified services [Section
144]
iv. Directors Responsibility statement [Section 134(5)]
v. Internal audit [Section 138]
CERTAIN PROVISIONS OF THE COMPANIES ACT, 2013
VIS-À-VIS CORPORATE GOVERNANCE

vi. Secretarial Audit [Section 204

vii. Audit Committee [Section 177
viii. Vigil mechanism [Section 177(9)
ix. Board composition [Section 149
x. Code of conduct for independent directors
[Schedule IV
CERTAIN PROVISIONS OF THE COMPANIES ACT, 2013 VIS-À-VIS
CORPORATE GOVERNANCE

xi. Disclosure of interest [Section 184

xii. Related party transactions [Section 188
xiii. Forward dealing and insider trading
[Section 194 & 195
xiv. Class Action [Section 245
xv.Corporate Social Responsibility [Section 135
 Postal ballot
• In order to encourage wider participation of
shareholders , section 110 allows
members/shareholders to vote on a particular
resolution through postal ballot.
• This facility is likely to result in true democracy
in management of companies.
 Audit rotation
• Listed and other specified companies are
required to rotate their auditor after five years
in case of individual auditor and after ten
years in case of a firm of auditors .
• After completing a term of five years or ten
years as the case may be , the same auditor
shall not be re-appointed for the next five
years.
 Specified services
• The statutory auditors of a company are
prohibited from performing certain specified
services to the same company under section
144.
 Directors statement
• The directors report –to include a
responsibility statement with respect to
matters relating to accounting , financial
statements and financial and other internal
controls including compliance with applicable
laws.
 Internal Audit
• In addition to statutory audit , certain class or
class of companies are required to appoint an
internal auditor . The internal audit shall be
conducted by a chartered accountant or cost
accountant or other professional
 Secretarial audit
• Every listed company and other companies as
may be specified need to annex with the
Board’s report, a secretarial audit report from
a company secretary in practice.
 Audit committee
• Every listed company and other specified
companies to constitute an audit committee
consisting of at least 3 directors with
independent directors forming a majority.
• The terms of reference for the audit
committee have been defined in the section
177.
 Vigil mechanism
• Every listed company and other specified
companies to have a vigil mechanism to
enable the directors and employees to raise
genuine concerns .
• The person shall be protected from
victimization and shall be provided direct
access to the chairperson of Audit Committee.
 Board composition
• One third of the Board of Directors of every
listed company shall be independent directors
. Independent directors shall be appointed for
a term of five years at a time and shall not
hold office for more than two consecutive
terms.
 Code of conduct for ID
• Under section 149(8), the independent
directors are required to follow the code of
conduct given in schedule IV of the Act.
 Disclosure of interest
• Every director is required to make disclosure in
the first meeting after his appointment
regarding his concern or interest in the
company.
• In case of any change , an annual disclosure is
also required to be made.
 Related party transactions
• A company shall not enter into any contract or
arrangement with a related party without a
board resolution.
• However such a transaction shall require a
members’ resolution in respect of companies
or size of transaction as may be specified.
 Forward dealing and insider trading
• Section 194 : prohibits a director or other key
managerial personnel from forward dealing in
the securities of the company or in its holding
, subsidiary or associate company.
• Section 195 : prohibits any person including a
director or other key managerial personnel
(KMP) to indulge in insider trading in the
securities of the company based upon
non-public price sensitive information.
 Class Action
• A specified number of members or depositors
or class of them are allowed to file an
application to the tribunal on behalf of
members or depositors or class of them if the
affairs of the company are being conducted in
a manner prejudicial to the interest of the
members , depositors or the company.
 Corporate Social Responsibility
• Companies with net worth exceeding rupees
five hundred crore or turnover exceeding
rupees one thousand crore or net profit
exceeding rupees five crore are required to
form a CSR committee of the Board and
formulate a CSR Policy. In pursuant of the CSR
Policy the company shall spent not less than
two per cent of its average net profit in the
last three financial years on CSR activities.