POWERS OF BOARD OF DIRECTORS

Role of Board of Directors in a company

The Act provides clarity on the responsibilities and powers of the Board of Directors of the Company. It
states that the director is required to act in good faith and exercise independent judgment in the best interests
of the company. Disclosure of conflict of interest is an essential duty of a director in furtherance of which
they are required to abstain from participating in discussions involving such matters. It is the duty of the
BoD to ensure that the company has adequate systems and processes in place to manage risks and maintain
an appropriate level of accountability and transparency. The Companies Act, 2013 aims to enable the
directors to establish internal controls, financial reporting systems, and a code of conduct for the members of
the company. The directors are also vested with the responsibility of overseeing the preparation of the
company’s financial statements and ensuring that they are accurate and transparent.
The statute has provisions for the appointment of committees of the board, such as the audit committee, the
nomination and remuneration committee, and the stakeholders’ relationship committee. These committees
play a critical role in ensuring that the company’s management and governance systems are robust and
effective.
The Board is responsible for setting the strategic direction of the organisation, overseeing the fiscal
performance of the company, and deciding upon vital corporate policies. It is also their responsibility to
check whether the company is operating in compliance with all applicable laws and regulations and to act in
the best interests of shareholders at all times.
In furtherance, the performance of the senior executives of the company is also overseen by the directors.
They play a key role in decision-making for actions like mergers-acquisitions etc. To sum up, a director’s
role is critical to the success of any company.

Powers of the Board of Directors

Under the Companies Act 2013 in India, Board of Directors have various powers that are specified by law.
Some of them are as follows –
Power to make decisions – The Board of Directors is vested with the power to make decisions on behalf of
the company. It is their responsibility to provide strategic guidance to the company, and therefore they have
the power of important decision-making and steering the organisation in the right direction. It is of
paramount importance that the company runs in a manner that is in the best interest of the stakeholders and,
at the same time, is in compliance with the laws and regulations in force. Therefore the directors have been
given the power to approve or reject major business transactions, such as the decision of a
merger/acquisition or to approve or disapprove the financial plans of the company.
Power to appoint and remove directors – The Board of Directors has the power to appoint and remove other
directors from the company. This must be done in accordance with the company’s article of association and
the procedures set out under the companies act. Under Section 152 of the Act, the directors exercise this
power by way of voting. In addition to the power of appointment, the power of removal also vests with the
directors under Section 169 of the Companies Act, 2013. (Add from provisions).
Power to act as an agent of the company– The Board of Directors has a fiduciary relationship with the
company. That is to say that they have a relationship of trust and confidence and the power to act on behalf
of the company. The director acts as an agent of the company for its benefit. Thereby they have the power to
enter into contracts and legal agreements on behalf of the company. The authorisation for the exercise of
such power comes from the Articles of Association of the Company or by resolutions passed by the Board of
Directors.
Power to delegate – The power to delegate certain duties and responsibilities to other individuals within the
company is enjoyed by the Board of Directors. Responsibilities relating to certain business transactions or
management of specific departments are some of the functions that could be delegated by a director. These
delegations must be made in accordance with the Article of Association and Companies Act, 2013.
Power to approve dividends – The decision regarding the approval of dividends to be paid to the
shareholders is taken by the directors. The decision to pay dividends must be based on the company’s
financial performance and the company’s ability to pay dividends. Dividends can only be paid out of the
company’s profits and must be approved by a resolution of the Board of Directors.
Power to approve financial statements – The power of approving financial statements of the company vests
with the directors. Statements such as balance sheets, income statements, and cash flow statements fall under
this category. Such statements must be prepared in accordance with accounting standards and must be a true
and fair representation of the company’s financial position.
Powers to manage the company– The Board of Directors of a company have the power to manage the
organisation. Management power includes the power to make business decisions, provide strategic decisions
and run the company in an efficient manner. This power must be exercised by the directors in a manner that
would be in consonance with their fiduciary duties, including their duty to act in good faith and in the best
interests of the company.
Analysis of Section 179 of the Companies Act, 2013
Section 179(1)
The provision begins with prescribing principles of agency to the directors. It provides that the director
would be empowered to exercise such powers and do such acts as the company is authorised to do. This
brings into play the agency and fiduciary roles of the directors. They act on behalf of the company.
There are two provisos provided in this Section.
The first one provides the limits within which the board is required to use its power. It lays down that the
Board of Directors shall exercise their powers subject to the Companies Act, 2013 Memorandum of
Association, Articles of Association and regulations made in the general meetings.
The second proviso to the Section provides that the Board shall refrain from doing any act or thing which is
to be done by the company in the general meeting or directed or required under the Companies Act,
Memorandum of Association, and Article of Association.
Section 179(2)
Section 179(2) of the Companies Act, 2013 goes on to say that an act done by the Board of Directors would
not be invalidated by any regulation passed by the company in the general meeting, which otherwise would
have been valid had the regulation not been passed.
This provision is a reflection of the balance of power between the shareholders and the directors. The tussle
for power between the directors and the shareholders of a company is long-drawn. However, the
shareholders are not empowered to subside the power of the directors, as held in the case of The Public
Prosecutor v. T.P. Khaitan (1956).
Section 179(3)
Section 179(3) provides what powers the Board of Directors can exercise on behalf of the company by
means of passing resolutions at Board meetings.
Power to make calls on shareholders in respect of money unpaid on their shares – The Companies Act, 2013
provides the directors the power to make calls in respect of money unpaid on shares and this is a key aspect
of corporate governance. It enables the director to require the shareholders to pay amounts outstanding on
their shares. The company usually takes the amounts from the shareholders in the form of calls. The first
installment for the share amount is paid at the time of issue and the rest of the installments are known as
calls. This serves as an important tool to ensure that the shareholders do not fail to meet their obligations to
the company and the dues on their shares are paid in full.
The Articles of Association of the company provide the directors with this authority. The directors are
required to send notice to each and every shareholder stating the amount due and the date by which it must
be paid. In situations where there is a failure to pay the amount by the due date, the directors are empowered
to take enforcement action to recover the debt, which includes filing a legal claim or appointing a debt
collection agency. The directors also have the power to forfeit shares if the shareholder fails to pay the
amount due on time. Such actions have serious repercussions for the shareholders; for example, result in the
loss of their equity in the company and their right to participate in the organisation’s management. This
power, however, is not unfettered in nature. The Companies Act, 2013 provides that such power cannot be
exercised in an arbitrary manner. The directors must act in good faith, keeping in mind their fiduciary duties
and the best interests of the company. The directors must be given a reasonable opportunity to pay the
amount, and the process should be fair and transparent.
Power to authorise buy-back of securities – Section 68 of the Companies Act, 2013 allows a company to buy
back its own securities subject to the approval of its board of directors and shareholders. This power vests
with the Boards and is an essential tool for the organisation to manage its capital structure. It aids the
company in returning surplus funds to its shareholders and thereby increases shareholder value. The buying
back of shares is subject to the conditions laid down under Section 62 of the Companies Act, 2013. It can be
made from the existing shareholders, open market purchases, or through a tender offer. The maximum
amount that can be utilised for the buyback is 25% of its total paid-up capital and free reserves.
Authorisation of such buy-backs results in the reduction of outstanding shares, enhances the earnings per
share and increases the shareholder value. Furthermore, since the number of shares available for acquisition
is brought down, hostile takeovers are also more likely to be prevented. There are certain restrictions on this
power of the directors, for example- the requirement for a special resolution to be passed by the shareholders
and the prohibition on buyback in case of default in repayment of deposit or interest thereon, among others.
Power to issue securities, including debenture in or outside India – Under the Act, the power to issue
securities, including debentures, is vested with the board of directors. The BoD is empowered to issue
securities for the purpose of raising capital for the company’s business operations, expansion, or investment.
This can be done within India as well as outside. The Board of Directors are required to pass a resolution
specifying the type of securities, the number of securities to be issued, the face value of the securities, and
the price at which the securities are to be issued. The entire process must be done in compliance with the
prevailing laws and must be authorised under the articles of the company. Additionally, the directors must
take due care that the necessary approvals have been obtained from the regulatory authorities. Furthermore,
all disclosures must be made as per the requirement of SEBI, failure to which shall lead to legal
consequences.
Power to borrow money – The Board of Directors under this provision are empowered to borrow monies on
behalf of the company. In order to exercise this power, a board resolution is required to be passed, which
would outline the purpose of borrowing, the amount to be borrowed, the terms and conditions of the
borrowing, and any security that may be required to be provided to the creditors. The financial advisors of
the company play a key role in approving such a resolution. The Articles of Association lay and the
borrowing policies of the company lay down the limits within which such power is to be exercised. This
power is required to be used prudently by the directors and only for purposes that will benefit the interest of
the company such as financing business operations, funding new projects, investing in capital assets, or
repaying existing debt.
Power to invest the funds of the company – Under the Companies Act, 2013 the power to invest the funds of
the company is vested with the Board of Directors. This function is of vital importance since this involves a
certain quantum of risk and the BOD is expected to exercise it judiciously. A thorough evaluation is required
to be done in respect of the nature of the investment, the risk involved, and the potential returns before the
investment is made. Along similar lines, the resolution which approves a decision to invest the funds of the
company must, in detail, outline the purpose of the investment, the amount to be invested, the expected
returns, and the risks involved. The financial position of the organisation and the probable impact of the
investment in the operations of the company are some of the other factors that must be taken care of. After
the investment is made, it is the responsibility of the directors to regularly review the investments and ensure
they are in line with the company’s financial objectives and investment policies so that the interests of the
company and its stakeholders are protected.
Power to grant loans or give security in respect of loans – The BoD is empowered to grant loans, give
guarantees, or provide security in respect of loans. However, the directors cannot exercise this power in an
unfettered manner. Under Section 185 of the Companies Act, 2013 a company cannot provide loans,
guarantees, or security to its directors or any person in whom the director is interested. The Act has
stipulated certain exceptions to this such as loans provided in the ordinary course of business and loans
given to employees as part of their terms of employment. The directors must make sure the loans or
securities are being given only after approval from the board by means of a resolution and are within the
limitations set out in the articles and the policies of the company.
Power to approve company’s financial statements and the board’s report- A company’s financial statements
include a balance sheet, profit and loss account, and cash flow statement, along with other related documents
such as notes to accounts and auditor’s report. Section 134 of the Companies Act, 2013 provides that the
board report must contain details, such as the state of the company’s affairs, the financial results, and the
details of the board’s meetings. Additionally, the Corporate Social Responsibility policies (these refer to
policies through which a company integrates environmental and social concerns in its operation) must also
be reflected on the board’s report. It is required that the financial statements are prepared in compliance with
the applicable accounting standards and present a true and fair view of the company’s financial position. It
must be done in accordance with a procedure prescribed under the Act as well as in compliance with
relevant rules such as the Companies (Accounts) Rules of 2014. The approval of the financial statements and
the reports must be done at the board meeting and the directors would be required to sign the above-named
documents stating that they have reviewed and approved the same.
Power to diversify the business of the company – This power vests with the Board of Directors. The
directors of the company are empowered to initiate the company to enter into a new arena of business. It is
required to prepare a detailed report, which includes the justification for diversifying the business, the
potential benefits and risks associated with the diversification, and the impact of diversification on the
financials of the company.
Power to acquire a stake in other companies, approve merger acquisitions or amalgamations– In any
acquisition, it is required that the board of directors must approve such a decision. The fiduciary role of the
directors comes into play here. The director is required to inform the stakeholders about the rationale of the
company, the reason behind such merger/acquisition/amalgamation and the benefits sought to be derived
from such transaction at the time of the deal. The SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations 2011 mandates the BOD to set up a committee of independent directors who are required to
provide reasoned recommendations on the transactions. These recommendations are required to be published
by the company. Additionally, the directors are required to file a notice to the Competition Commission of
India within 30 days from the approval of a proposal of a merger or an amalgamation in compliance with
requirements under the Competition Act, 2002.
Section 179 further provides that the BoD can, by means of a resolution passed at a board meeting, delegate
its powers to borrow money, invest funds, grant loans, or give securities to any committee, managing
director, manager or principal officer of the branch office.
Section 179(4)
Section 179(4) provides a restriction on the rights to be exercised by the Board of Directors. It states that the
Company vide its general meeting has the power to impose restrictions and conditions on the Board of
Directors while exercising their powers prescribed under Section 179. Further on, Section 180 of the
Companies Act, 2013 imposes restrictions on the prescribed powers of the BoD and ensures that they are not
exercised in an unfettered manner.
Additional powers of the Board under Rule 8 of the Companies (Meeting of Board and its Powers) Rules,
2014
The Companies (Meeting of Board and its Powers) Rules 2014 provide a framework for the conduct of
board meetings and the exercise of powers by the directors of a company. In addition to Section 179, Rule 8
of the 2014 Rules outlines certain additional powers vested with the Board of Directors.
These powers are as follows –
Making political contributions: Section 182 of the Companies Act, 2013 provides limitations for political
contributions. It puts forth that Government Companies and a Company that has been in existence for less
than three years is prohibited from making any kind of political contribution. Except for these two kinds,
other companies are permitted to make such contributions. Such contributions can be made only after
passing a board resolution and full disclosure in its profit and loss account of the total amount contributed.
Appointing or removing Key Managerial Personnel (KMP): The Rule provides that the following companies
are required to appoint whole-time Key Managerial Personnel –
a. Public Company having a paid-up share capital of Rupees 10 Crore or more;
b. Private Company having a paid-up share capital of Rupees 10 Crore or more;
c. Every listed Company.
A whole-time KMP receives remuneration from the company and is not allowed to hold any position in any
other company simultaneously, other than a subsidiary company. Section 2(51) of the Act provides the
definition of Key Managerial Personnel. They are responsible for taking crucial company decisions and
managing the employees. It is also their duty to see to it that the mandatory compliances laid down by the
Act are being followed by the company.
3. Appointment of internal auditors and secretarial auditor: Section 138(1) of the Companies Act and the
Companies (Accounts) Rules, 2014 provides the classes of companies that are required to appoint an
Internal Auditor. The individual to be appointed can either be an employee of the organisation or an external
member. It is required to obtain written consent from the proposed individual, after which a Board Meeting
is required to be conducted for his appointment and to fix his remuneration. Section 204(1) of the
Companies Act mandates Secretarial Audit for every listed company. It is mandated that only a certified
Company Secretary can become a Secretarial Auditor. The Secretarial Auditor is to be appointed by means
of a board resolution post which the resolution is to be filed with the ROC.
GENERAL PROVISIONS TO KNOW ABOUT CONDUCTING VALID COMPANY MEETINGS
Proper authority to convene meetings
In order for a meeting to be regarded as valid, it must be called by a proper authority, like the board of
directors. In a valid board meeting, the decision to convene a general meeting and issue notice in this regard
must be taken by passing a resolution.
Notice
For a meeting to be conducted properly, a proper notice must be issued by the proper authority. It means that
such a notice must be drafted properly according to the provisions laid down under the Companies Act,
2013. Also, such a notice must be duly served on all the members who are entitled to attend and vote at the
meeting. Moreover, the valid notice of the company must specifically mention the place, the day, the time,
and the statement of the business to be transacted at the meeting.
Quorum
A quorum is defined as the minimum number of members that are required to be present as mentioned under
the provisions of a particular meeting. Any business transaction carried out at a meeting without a quorum
shall be deemed to be invalid. The main object of having a quorum is to avoid taking decisions by a small
minority of members that may not be accepted by the vast majority. Every company meeting has its own
number of quorum, the same has been discussed under separate headings in the upcoming passages.
Agenda
The agenda can be described as the list of businesses to be transacted while conducting any meeting. An
agenda is important for carrying out a business meeting in a systematic manner and in a proper,
predetermined order. An agenda, along with a notice of the meeting, is usually sent to all the members who
are entitled to attend a meeting. The discussion in the meeting has to be conducted in the same manner as
stated in the agenda, and changes can be made in the order only with the proper consent of the members at
the meeting.
Minutes
The minutes of the meetings contain a just and accurate summary of the proceedings of the meeting.
Minutes of the meetings have to be prepared and signed within 30 days of the conclusion of the meeting.
Further, the minutes books must be kept at the registered office of the company or any place where the board
of directors has given their approval.
Proxy
The term ‘proxy’ can be used to refer to a person who is chosen by a shareholder of a company to represent
him at a general meeting of the company. Further, it also refers to the process through which such an
individual is named and permitted to attend the meeting.
Resolutions
Business transactions in company meetings are carried out in the form of resolutions. There are two kinds of
resolutions, namely:
Ordinary resolution, and Special resolution.
General meeting, and Class meeting.
The first category is further divided into three subcategories, each of which is discussed in detail below.
General meeting
The general meeting is subdivided into three categories. Let us have a look at the nitty-gritty of each of
them.
Statutory meeting
A statutory meeting is a type of general meeting that must be held by every company limited by shares and
every company limited by guarantee with a share capital within not less than a month and not more than six
months from the date it was incorporated. Private companies are exempt from conducting a statutory
meeting. In this meeting, a report known as the ‘statutory report’ is discussed by the directors of the
company.
Which companies do not need to conduct a statutory meeting
The following companies do not have any obligation to conduct a statutory meeting:
 Private company,
 Company limited by guarantee having no share capital,
 Unlimited liability company,
 A public company that was registered as a private company earlier,
 A company that has been deemed as a public company under Sec. 43 A.
What is notice of the meeting
The board of directors of a company is duty-bond to forward a notice of the meeting to all the shareholders
or members of the company. This has to be done at least 21 days prior to holding the meeting, and an
explicit mention of ‘statutory meeting’ of the company has to be made in the notice. If the board of directors
does not name it the ‘statutory meeting’, it will be a breach of the provision.
What will be the effect of non-compliance with the provisions on conducting a statutory meeting
The following are the repercussions of not complying with the provisions on conducting a statutory meeting:
If there is any mistake in complying with the provision for holding a statutory meeting under Section 165,
the directors or other officers of the company who are at fault will be liable to pay a fine that is extendable
up to ₹500.
Under Section 43(6) of the Companies Act, 1956, in case the company errs in conducting the statutory
meeting or if the statutory report is not in compliance with the provisions of the Act, the company may be
compulsorily wound up if the court orders the same. However, under Section 443(3) of the Companies Act,
1956, the court may pass an order to conduct a statutory meeting or to send the statutory report, as the case
may be, instead of winding up the company.
Before we study the annual general meeting (AGM) and extraordinary general meeting (EGM), let us have a
look at the key differences between them in a tabular format. This is done for a better understanding of the
topics.

Extraordinary general meeting

Basis Annual general meeting (AGM)
(EGM)

An annual general meeting, commonly An extraordinary general

What is it? known as an AGM, is a regular meeting held meeting (EGM), is a meeting
annually. other than an AGM.

Similarly, EGMs are applicable

Applicability AGMs are applicable to all the companies.
to all companies.

Time of holding the An AGM has to be held within six months of An EGM can be held at any
meeting the close of the financial year. time.

An AGM is held to serve the following

purposes: Electing the directors of the Whereas, an EGM is to be held
Purpose company,Passing of annual for any matter for which a proper
accounts, Declaring the dividends, notice is given.
and Appointing auditors.

The board of directors, along

Who may call such a The board of directors has the authority to
with requisitionists, have the
meeting? call such a meeting.
authority to call such a meeting.

Similarly, the tribunal may call

Repercussions of The tribunal may call and impose a fine in
and impose a fine in case a
default in conducting case a company defaults in holding an AGM
company errs in holding an
such a meeting in a requisite manner.
EGM in the prescribed manner.

Annual General Meeting (AGM)

The annual general meeting is defined under Section 96 of the Companies Act, 2013. As the name suggests,
an annual general meeting is one of the general meetings held once a year. As per Section 96 of the
Companies Act, 2013, all companies have to hold an AGM within the stipulated time. An AGM provides a
chance for the members of the company to review the workings of the company and express their opinions
on the management and workings of the company.
Purpose of conducting an annual general meeting
The main purpose of conducting an AGM is to transact the ordinary business of the company. Ordinary
business includes the following:
 Consideration of financial statements and reports from the directors and auditors.
  Making declarations on dividends.
 Appointing a replacement of director or directors in place of those who have retired.
 Appointing and setting up the amount of remuneration for the auditors of the company.
 It also includes annual accounts, crucial reports, and audits.
Importance of conducting an annual general meeting
Under corporate law, an annual general meeting is regarded as one of the most important institutions for
protecting the members of the company. It is at this meeting— even though it is held only once in a fiscal
year- that the members of the company get the opportunity to question the management on matters relating
to the following:
 The affairs of the company,
 The business of the company, and
 The accounts of the company.
It is only at this meeting that the members of the company have the chance not to re-elect those directors in
whom they have lost faith or confidence. Further, as auditors also retire at this meeting, members of the
company have another opportunity to think about the re-election of these auditors.
Last but not least, it is at the AGM that members disclose the amount of dividend payable by the company.
While talking about dividends, it may be noted that the board of directors makes recommendations on the
amount of dividend, whereas the members at the AGM declare the dividend. Further, the dividend cannot
surpass the recommended amount by the board of directors.
The three rules of conducting an annual general meeting
 The meeting must be conducted on an annual basis.
 A maximum duration of 15 months is permitted between holding two annual general meetings.
 The meeting must be conducted within six months of preparing the balance sheet.
If any of these rules are not complied with, the same will be said to be an offence under the Companies Act,
2013. It has been discussed in the upcoming passages.
Notice of conducting the annual general meeting
The company has to send a clear 21 days’ notice to its members to conduct the annual general meeting. The
notice must mention the day, date, and location of the meeting, along with the hour at which it is decided to
be held. The notice should explicitly mention the business to be conducted at the AGM. A company is
obligated to send the AGM notice to the following:
 All the members of the company, including the legal representatives of a deceased member and the
assignee of an insolvent member.
 The statutory auditors of the company.
 All the directors of the company.
 The notice can be sent either by speed or registered mail or even through electronic means like email.
 Date, time, and place of conducting an annual general meeting
Further, as per Section 101 of the 2013 Act, if any member files an application in case a company errs in
holding an annual general meeting, the time frame for notice to call for the meeting can be reduced to less
than 21 days (21 days is the time frame to send a notice to call for an annual general meeting) with the
agreement of members who are entitled to vote.
First annual general meeting and relaxations
As per Section 96 of the Companies Act, 2013, a general meeting must be held annually, as the name
suggests. It is mandatory that all companies hold such meetings at regular intervals. When the annual
general meeting is held for the first time after the company’s incorporation, it has to be held within a period
of nine months from the date of the closing of the financial year of the company, and in other cases, within
six months from the date of the closing of the financial year. Further, as per Section 96 of the Companies
Act, 2013, a company has no obligation to hold any general meetings until it holds its first annual general
meeting. Such a relaxation is provided so that the company can set up its final reports for a longer duration.
Another provision that is provided under Section 166(1) is that, with proper authorization from the registrar,
the company can postpone the date of the annual general meeting. The registrar has the authority to postpone
the date for a further three months at the most, however, such a relaxation does not apply in the case of the
company’s first annual general meeting. Further, a company may not hold an annual general meeting in a
year provided the registrar has consented to it, however, the justification for such an extension should be
reasonable and genuine.
Gaps between two annual general meetings
According to Section 96 of the Companies Act, the gap between two annual general meetings must not
exceed fifteen months. Further, Section 210 of the Act states that a company must provide a report on the
accounts of all the profits and losses of the company, and if the company does not have any profits, an
income and expenditure report must be submitted.
Furthermore, the following pointers are crucial to note in cases of gaps between two annual general
meetings:
When a company presents its report on profits and losses incurred, it has to mention all the profits and
losses endured by the company right from the day of incorporation.
The account shall have an update of at least 9 months from the date of the last annual general meeting.
A balance sheet along with the account report has to be submitted, as well.
Also, after conducting the first annual general meeting, the next AGM must be held within 6 months from
the end of the financial year. If, due to any unforeseeable circumstance, the company fails to hold the
meeting, the tribunal may grant an extension of 3 months.
Quorum
Public company
The quorum in the case of a public company shall consist of the following:
5 if the company has less than 1000 members,
15 if the members are between 1000 and 5000, and
30 if the number of members exceeds 5000.
Private company
In the case of a private company, only two members who are present will constitute the quorum.
Proxy in annual general meetings
Any member of the company who has the authority to vote at a meeting will be entitled to appoint a proxy,
i.e., another person to attend and vote instead of himself. The appointment of a proxy shall be in Form No.
MGT.11. Further, an individual cannot act as a proxy on behalf of members exceeding a total of 50 and
holding in aggregate not more than 10% of total capital with the authority to vote.
Procedure to be followed after conducting the annual general meeting and penalty if the company fails
After conducting the annual general meeting, a report in the form of MGT-15 within a period of 30 days has
to be filed. Further, under Section 121, the report will include how the meeting was convened, held, and
conducted as per the provisions of the 2013 Act. If the company errs in doing so, a penalty of ₹1 lakh shall
be imposed. Further, on every officer who has erred in following the procedure of the meeting, a penalty of
₹25,000 minimum shall be imposed, and in case the issue persists, a penalty of ₹500 for every day after the
failure persists can be imposed, and the same shall be for a maximum of ₹1 lakh.
Penalty for not holding an annual general meeting
If a company errs in holding an annual general meeting in accordance with Section 99 of the Companies
Act, 1956, the act shall be considered a serious offence in the eyes of the law. Every member of the company
who is at fault shall be deemed to be a defaulter.
Further, a fine extendable to ₹100,000 may be levied on the defaulters. Moreover, as per Section 99 of the
Companies Act, if the defaulters persist with the same mistakes, and if the provisions under Sections 96 and
97 are not complied with, a fine of ₹5000 will be imposed on the defaulter until the problem continues.
Extraordinary general meeting (EGM)
In a company, there are certain matters that are so crucial to be discussed that they need to be addressed
immediately to the members, which is where an extraordinary general meeting comes into play. Such
meetings are discussed under Section 100 of the Companies Act, 2013. An extraordinary general meeting is
any general meeting apart from the statutory meeting, an annual general meeting, or any adjournment
meeting. Such a meeting is held to discuss special business, especially those businesses that do not fall under
the ordinary business that is discussed at annual general meetings. Such meetings are usually called for
matters that are urgent and for those that cannot be discussed at annual general meetings. Extraordinary
general meetings are usually called by the following:
 The directors or the board of directors of the company,
 The shareholders of the company who hold 1/10th of the paid-up shares.
Calling of extraordinary general meeting
An extraordinary general meeting can be called in the following circumstances:
 By the board of directors suo moto
In cases when the board of directors has some urgent matters to discuss and such matters cannot be
postponed until the next general meeting, the board of directors may hold an extraordinary general meeting
if need be. The same is discussed under Section 100 (1) of the 2013 Act.
 By the Board on the requisition of members
The board of directors may call an extraordinary general meeting on the requisition of the following number
of members:
 In case of a company having a share capital
Members who own 1/10th of the paid-up share capital of the company on the date of receipt of the
requisition on the date of exercising the voting rights.
 In case of a company not having a share capital
Members who own 1/10th of the paid-up share capital of the company on the date of receipt of the
requisition on the date of exercising the voting rights.
 By requisitionists
Under Section 100(4) of the Company Act, 2013, if a board does not, within 21 days from the date of receipt
of a valid requisition in relation to any matters thereto, take any steps to call a meeting to consider the
matter not later than forty-five days from the date of receiving such a requisition, then the meeting may be
called upon and conducted by the requisitionists themselves within a time span of three months from the
date of the requisition.
Further, it is important to note the following pointers for a better understanding of the topic:
Notice : The notice must specify the date, day, time, and place of holding the meeting, and must be held in
the same city as the registered office and on a working day.
Notice to be signed: The notice has to be duly signed by all the requisitionists or on behalf of those
requisitionists who have permission to sign in place of the requisitionists, provided the permission is in
writing. This can also be done via an electronic request attached to a scanned copy to give such permission.
No need of an explanatory statement to be attached to the notice
There is no need for any explanatory statement under Section 102 to be attached with the notice of an
extraordinary general meeting that is convened by the requisitionists and the requisitionists.
Serving notice of the meeting
The notice of the meeting has to be served on all those members whose names are on the list of registered
members of the company. It should be served within three days of the requisitionists depositing a valid
request for conducting an EGM in the company.
Method of serving the notice
The notice of the meeting can be sent through speed mail, registered mail, or even electronic means like
emails. If there is an issue with serving the notice or if some member does not receive the notice for any
reason, the meeting shall not be invalidated by any member.
By the tribunal
According to Section 98 of the Companies Act, 2013, if it is not possible to conduct a meeting in the
company, the tribunal may either suo moto or through an application submitted by any director or member
of the company who has the authority to vote at the meeting-
Notice for extraordinary general meeting
The notice of an extraordinary general meeting must be served in writing or through an electronic mode in at
least 21 days of conducting such a meeting.
Penalty for not holding an extraordinary general meeting properly
In cases where an extraordinary general meeting is not conducted properly, a fine of ₹10,000 within a
prescribed time can be levied on the defaulters. Moreover, in case the issue persists, a fine of ₹1000 per day
shall be levied. Additionally, the maximum fines in cases of erring in conducting an EGM successfully are:
₹50,000 for a member of the company, and
₹200,000 for the company itself.
Class meeting
Class meetings, as the name suggests, are meetings conducted for shareholders of the company that hold a
particular class of shares. Such a meeting is conducted to pass a resolution that is binding only on members
of the concerned class. Also, only members belonging to that particular class of shares have the right to
attend and vote at the meeting. Usually, the voting rules are applicable to class meetings as they govern
voting at general meetings.
Such class meetings can be conducted whenever there is a need to alter or change the rights or privileges of
that class as stated in the articles of association. In order to execute such changes, it is crucial that these
amendments be approved in a separate meeting of the shareholders and supported by passing a special
resolution. Under Section 48 of the Companies Act, 2013, which talks about variations in shareholders’
rights, class meetings of the holders of the different classes of shares must be conducted in case there are any
variations. Similarly, under Section 232, which discusses mergers and amalgamations of companies, where a
scheme of arrangement is proposed, there is a requirement that meetings of several classes of shareholders
and creditors be conducted.

Meetings of directors
Board of directors
Board meetings
As per Section 173 of the Companies Act, 2013, a company has to hold the meeting of board of directors in
the following manner:
The first board meeting has to be conducted within a span of thirty days from the date of incorporation.
In addition to the above meeting, every company has to hold a minimum of four board meetings annually,
and there shall not be a gap of more than one hundred and twenty days between consecutive two meetings.
Please note: With the issuance of Secretarial Standard 1 (SS-1), a circular by ICSI, a clarification was given
that the board shall conduct a meeting at least once every six months with a maximum gap of one hundred
and twenty days between two consecutive board meetings. Further, the SS also specified that it will be
sufficient if a company holds one meeting in every renaming calendar quarter in the year of its incorporation
in addition to the first meeting, which is to be held within thirty days from the date of incorporation.
In matters relating to Section 8 of the Companies Act, with an exemption by MCA dated 5.06.2015, it was
held that the sub clause (1) of Section 173 will be applicable only to the extent that the board of directors of
such companies hold at least one meeting in every six months.
Purpose of holding a board meeting
 For issuing shares and debentures.
 For making calls on shares.
 For forfeiting the shares.
 For transferring the shares.
 For fixing the rate of dividend.
 For taking loans in addition to debentures.
 For making an investment in the wealth of the company.
 For pondering over the difficulties of the company.
 For making decisions of the policies of the company.
Notice of board meetings
As per Section 173(3) of the Companies Act, 2013-
A notice of not less than seven days must be sent to every director at the address that is registered with the
company.
Such notice can be sent either via speed post, by hand delivery, or through any electronic means.
The SS-1 (mentioned above) states that if the company sends the notice by speed post, or registered post, or
by courier, an additional two days shall be added to the notice served period.
In situations when the board meeting is called at shorter notice, it has to be conducted in the presence of at
least one independent director.
Further, if the independent director is absent, the decision occurred at must be circulated to all the directors,
and it shall be final only after ratification of decision by at least one independent director.
Moreover, in cases where a company does not have its own independent director, the decision shall be said
to be final only if it is ratified by a majority of directors, unless a majority of directors gave their approval at
the meeting itself.
Some important pointers on the requirements and procedures for convening and conducting a valid board
meeting
Directors can join the meeting-
In person,
Through video conferencing, or
Other audio visual means.
Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014, has provisions related to the
requirements and procedures, along with the procedures needed for board meetings in person for matters
relating to conveying and conducting board meetings via video conferencing.
While conducting virtual meetings, it is necessary that companies make proper arrangements to avoid any
issues at the last moment.
The chairperson and the secretary of the company have to ensure that they take necessary precautions in
matters relating to video conferencing, like proper security, recording the proceedings and preparing the
minutes of the meeting, having proper audio visual equipment, etc.
The notice for holding the meeting must be in accordance with the provisions laid under Section 173,
subsection 3 of the Act.
While beginning the meeting, the chairperson has the duty to roll call every director participating through
video conferencing or other such means to record the following:
Name of the director;
The place from where the director is participating;
An affirmation that the director can completely see, listen, and communicate with the other participants in
the meeting;
A confirmation that the director has received the agenda and all the relevant material related to the meeting;
A proclamation that no other individual other than the director is attending or has access to the proceedings
of the meeting at the palace mentioned in pointer (b).
After the roll call, the chairperson or the secretary has to inform the board about the names of the members
who are attending the meeting at the request or with the authorization of the chairman and affirm that the
required quorum is complete.
There are some matters that must not be dealt with through video conferencing or other audiovisual means,
namely:
An approval of the annual financial statements;
An approval of the report of the board;
An approval of the prospectus;
The audit committee meetings for consideration of statements related to finance, including a consolidated
financial statement, if any, that needs an approval from the board under subsection (1) of Section 134 of the
Act; and
An approval on matters related to the amalgamation, merger, demerger, acquisition, and takeover.
Agenda
The word “agenda” can be described as things to be done. In the case of company meetings, it can be said to
be a statement of the business that must be transacted at a meeting, along with the order in which the
business must be dealt with. Even though there is no explicit mention or provision in the Companies Act,
2013, for the secretary to send an agenda or include the same in the notice of the board meeting, it is
necessary by convention for the agenda to be mentioned with the notice served to conduct the meeting.
When an agenda is attached to the notice, the director is aware of the proposed business and the objects of
conducting the meeting, thus, he can come duly prepared for the discussion to be held in the meeting.
Quorum
As we know, every company needs to have a proper quorum to conduct a valid company meeting. Now, the
quorum for a board meeting under Section 174 of the Act is one third of the total strength or two directors,
whichever is higher. It must be noted that, any director participating through video conferencing or any other
audiovisual means must also be considered to determine the quorum.
Further, if the number of directors is reduced or there is any removal of a director or directors, the directors
who continue may act on behalf of the missing number of directors to fill the missing gap for the quorum or
for summoning a general meeting of the company; however, they shall not act for any other purpose.
Moreover, in cases where the number of directors interested surpasses or is equal to two-thirds of the total
strength of the board of directors, the number of directors who are not interested and are there to attend the
meeting, the number not being below two, shall be the quorum at such times.
It is pertinent to note that the quorum has to be present not only at the time of commencement of the meeting
but also at the time of transacting business with the company.
Committee of directors
The board of directors has the authority to form committees and delegate powers to such committees;
however, it is crucial that such a committee only consist of directors and no other members. Further, it is
mandatory for such committees to be authorised by the articles of association of the company and be in lieu
of the provisions set out in the Companies Act. The meetings of all these committees are held in the same
manner as board meetings.
In large companies, the following routine matters are looked after by the sub-committees of the board of
directors:
Allotment,
Transfer,
Finance.
Other meetings
Debenture holders meeting
A company is entitled to issue debentures, and to further implement the same, a meeting for debenture
holders can be called. This meeting is between the board of directors and the debenture holders. These
meetings are usually called to discuss the rights and responsibilities of debenture holders.
Meetings of debenture holders are conducted in accordance with the provisions laid down in the debenture
trust deed. The rules and regulations mentioned in the trust deed are related to the following:
 Notice of the meeting,
 Appointment of a chairman of the meeting,
 Passing resolutions,
 Quorum of the meeting, and
 Writing and signing of minutes of the meeting.
Debenture holder meetings are generally conducted from time to time to discuss matters where the interest
of debenture holders is involved, like at the time of:
 Reconstruction,
 Reorganisation,
 Amalgamation, or
 Winding up of the company.
Creditors meeting
Meetings of creditors is a term used to describe a meeting setup by the company to conduct a meeting of the
company’s creditors. Under the Company Act, 2013, companies are not only entrusted with the power to
negotiate with creditors but also set up a procedure to do so. Such meetings are always arranged in matters
where a creditor decides to voluntarily wind up.
Moreover, Section 108 of the Companies Act, 2013, discusses the holding of meetings of creditors. It also
states that meetings be held in accordance with the provisions laid down under the following sections of the
said Act:
Section 109 that discusses demand for poll,
Section 110 that talks about postal ballot, and
Section 111 that has provisions in relation to the circulation of members’ resolutions.
In the creditors meeting, the creditors can decide to either approve, amend, or reject the repayment plan.
Further, the resolution professional must make sure that any sort of changes or modifications suggested by
the creditors of the company are approved by the directors of the company before carrying out that particular
change. Furthermore, the resolution professional also has the authority to adjourn the meeting of the
creditors for a period of not more than seven days at a time.
Notice of meetings of creditors
If a company is voluntarily winding up, a meeting of creditors must be called to propose a resolution for
voluntary winding up. Such a meeting has to be called either on the day of taking such a decision or the
subsequent day, and a general meeting must be conducted to propose the resolution.
The notice to creditors must either be sent by post along with the notices regarding the general meeting of
the company for winding up. Additionally, with the notice to the creditors, the company also has to
advertise at least once in the official gazette and once in two newspapers that are circulated in the district
where the company’s registered office or principal place of business is situated.
Procedure for conducting a company meeting
While discussing the procedure for consulting the meeting of the creditors, the following pointers are
noteworthy:
Obligation of the board of directors
While conducting a meeting, the board of directors must submit a statement on the position of the
company’s affairs along with a list of the company’s creditors and the estimated amount of their claims. The
director who is entrusted with the duty to conduct the meeting of creditors or who is in charge of the same
must attend the meeting and hold it at the same time.
Next course of winding up of the company
Based on the decision that occurred at the meeting of creditors, the company shall decide its next course of
action. The decision could be one of the following:
The company would wind up on a voluntary basis if all the parties agree to it unanimously.
In case the company is not able to repay all the debts from the assets sold in the voluntary winding up of the
company, then a resolution can be passed from winding up the company by involving the tribunal.
Passing the notice of resolution
When a notice of resolution is passed in the meeting of creditors, the same must be filed with the registrar
within 10 days of passing such a resolution. If the company does not adhere to the set provisions of company
law under the Companies Act, 2013, a penalty with a fine that will not be less than fifty thousand rupees and
extendable up to two lakh rupees shall be imposed. Further, the director of the company who errs in
following the procedure, will also be penalised with an imprisonment for a term extendable to six months or
with a fine not less than fifty thousand rupees and extendable up to two lakh rupees.
Quorum of creditors
A meeting cannot be commenced unless the creditors of the company, known as quorum attend the meeting.
The requisite quorum is as follows:
Quorum in case of creditors
In the case of creditors, at least one creditor entitled to vote must be in the quorum.
Creditors and contributors meeting
Creditor and contributor meetings are usually conducted when the company has gone into liquidation to
calculate the total amount due by the company to its creditors. The main motive of holding such meetings is
to seek the approval of the contributors to the scheme of compromise or rearrangement to save the company
from economic difficulties.
At times, even a court can pass an order to conduct such a meeting. It should be noted that the term
“contributory” encompasses every individual who is accountable for making contributions to the assets of
the company at the time of winding up.
Quorum in case of contributors
In the case of a meeting of contributors, at least one creditor is entitled to vote, or all the contributors if their
number does not exceed two.
Requisites of a valid company meeting
If the business carried on in a company is valid and legally binding, it is necessary that the meeting called to
conduct such business also be held in a valid manner. To understand the same, there are some pointers one
must understand to consider a meeting valid. The following are the requisites for conducting a valid
company meeting:
The meeting is convened by proper authority.
The announcement of holding the meeting is served through a proper notice. The same has been discussed
under Section 101 and 102 of the Companies Act, 2013.
Summary
Annual general meeting (AGM)
An AGM is conducted to transact the ordinary business of the company. Ordinary business includes the
following:
Consideration of financial statements and reports from the directors and auditors.
Making declarations on dividends.
Appointing a replacement of directors in place of those who have retired.
Appointing and setting up the amount of remuneration for auditors of the company.
It also includes annual accounts, crucial reports, audits.
Extraordinary general meeting (EGM)
An EGM is conducted to discuss special businesses, usually those that do not fall under the category of
ordinary businesses, which are discussed at AGMs. These meetings are generally called only in cases of
urgent matters or for those matters that are not discussed at AGMs.
Class meetings
Class meetings are conducted for shareholders belonging to a particular class. These meetings are held to
gain approval via a special resolution of all such members belonging to the particular class to seek their
approval on important matters or amends in any field related to their interests.
Board of directors meeting
A board of directors is held for several purposes, namely, for making calls on shares, issuing shares and
debentures, forfeiting the shares, for discussing the difficulties of the company, etc.
Committee of directors meeting
A committee of directors meeting can be held for issues relating to the allotment or transfer of any share or
asset of the company, or even for any issues relating to the finances of the company.
Debenture holders meeting
Debenture holders meetings are conducted to decide upon matters relating to the reconstruction,
reorganisation, amalgamation, or winding up of the company.
Creditors meeting
Creditors meetings are usually conducted for the creditors to either approve, change, or deny the repayment
plans of a company when it decides to wind up voluntarily.
Creditors and contributors meeting
Similar to the aforementioned meeting, a contributors meeting is conducted for the calculation of the total
amount due by the company to repay creditors or contributors when the company has gone into liquidation.
What happens if there is a breach in conducting company law meetings
As discussed under each heading (wherever relevant), in case a company errs in conducting a meeting, a
penalty in the form of fine, is imposed by the tribunal. The penalty is either imposed on the company or its
members, or both. The penalty keeps recurring up to a certain amount in case of continuation of the blunder.
BOARD COMMITTES
Committees are a sub-set of the board, deriving their authority from the powers delegated to them by the
board.
Under Section 177 of Companies Act, 2013, Board of Directors may delegate certain matters to the
committees set up for the purpose. Committees are formed as a means to improve board effectiveness and
efficiency in areas where more focused, specialised and technically oriented discussions is required.
Following are some of the important committees to be constituted by the Board:
1. Audit Committee:
Applicability: Every Listed Public Companies and Public Companies having a Paid-up share capital of 10
crore rupees or more, and a turnover of Rs. 100 Crore or more. Additionally All Public Companies which
have in aggregate outstanding loans, debentures and deposits exceeding 50 crore rupees are required to
constitute an Audit Committee.
Composition of Audit Committee as per Companies Act, 2013:
 Minimum 3 directors with majority of Independent Director.
 Members including the Chairman of Audit Committee should be able to read and understand
financial statement.
Composition of Audit Committee as per clause 49 of Listing Agreement:
 Minimum of 3 Director of which 2/3rd are independent Directors.
 All members should be financially literate and at least 1 member shall have accounting or related
financial management expertise.
Vigil Mechanism: Vigil Mechanism provides adequate safeguard against victimisation of persons. It is
established for directors and employees to report their grievances and concerns.
Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014 describes about establishment of Vigil
Mechanism for every Listed Company and companies prescribed below:
Companies which accepts deposits from public.
Companies which have borrowed money from bank and public financial institutions in excess of Rs.50
Crores.
The Board of Directors shall nominate a director to play role of Audit Committee for the purpose of Vigil
Mechanism for reporting purpose. The aggrieved person will have direct access with the
Chairperson/Nominated Director of the Audit Committee.
The details of establishment of such mechanism shall be disclosed on the company’s website, and in the
Board ‘report.
Penalty for the Violation of Audit Committee Provisions: The Company shall be punishable with a fine of
Rs. 1 lakh to Rs. 5lakh and every officer of the company who is in default shall be punishable with
imprisonment upto 1 year or with Rs. 25,000 to Rs. 1 lakh or with both.
Function of Audit Committee:
 To recommend appointment, remuneration and terms of appointment of the Auditor of the Company.
 To establish a Vigil Mechanism Policy.
 To call for remarks of the auditors about the internal control system.
 At the Annual General Meeting, the chairman of the Committee should be present to answer the
shareholder’s inquiry.
 To discuss any issues related to internal and statutory auditors and the management of the Company.
 2. Nomination and Remuneration Committee:
Applicability:
 Every Listed Public Companies and Public Companies having a Paid-up share capital of 10 crore
rupees or more, and a turnover of Rs. 100 Crore or more.
 Additionally All Public Companies which have in aggregate outstanding loans, debentures and
deposits exceeding 50 crore rupees are required to constitute an Audit Committee.
Composition of Nomination and Remuneration Committee as per Companies Act,2013:
 Minimum of 3 Non-Executive Directors out of which two shall be Independent Directors.
 Chairperson shall be an Independent director.
Functions of Nomination and Remuneration Committee:
 Recommendation of success plans for the directors.
 To review the elements of the remuneration package, structure of remuneration package.
 To review the changes to remuneration package, terms of appointment, severance fee, requirement
and termination policies and procedures.
 To recommend the shortlisted candidates who are qualified to be director and who can be
appointment in senior management.
 The committee is authorised to seek information about any employee and the management is directed
to co-operate.
 The Committee can be present at the General Meeting to answer the shareholder’s queries.

3. Stakeholders Relationship Committee: Section 178 of Companies Act,2013 states that a company
which holds 1000 numbers of shareholders, debenture holders, deposit holders and any other security
holders at any time during a financial year.
Composition of Stakeholders Relationship Committee: As per the SEBI Listing regulations the Committee
should consist of
 least three directors, with at least one being an Independent director, shall be members of the
committee and
 in case of a listed entity having outstanding SR equity shares, at least two-thirds of the committee
shall comprise of independent directors.
 The chairperson of the Committee shall be a non-executive director and such other members as may
be decided by the Board.
As per regulation the Committee shall meet at least once in a year. The chairperson or, in his absence any
other member of the committee authorized by him in this behalf shall attend the general meetings of the
Company.
Functions of Corporate Stakeholders Relationship Committee:
 The Committee shall resolve complaints related to transfer/transmission of shares, non-receipt of
annual report and non-receipt of declared dividends, general meetings, approve issue of new/
duplicate certificates and new certificate on split/consolidation/ renewal etc. approve
transfer/transmission, dematerialization.
Corporate Social Responsibility Committee:
Section 135 of Companies Act,2013 , with Companies(CSR Policy) Rules,2014 states that every company
having :
 net worth of not less than Rs.500 crores or more
  or turnover of not less than Rs. 1000 crores or more
 Or Net Profit of Rs.5crore or more shall constitute a Corporate Social Responsibility Committee.
Composition of CSR Committee as per Companies Act, 2013 :
 In case of Listed Company at least 3 Directors out of which 1 should be an Independent Director.
Functions of Corporate Social Responsibility Committee:
 To suggest and devise a CSR Policy according to the Schedule VII of Companies Act, 2013 to the
board.
 To recommend the amount of expenditure of the devised policy above.
 To monitor the CSR Policy of company from time to time and prepare a transparent monitoring
mechanism.
 Institution of a transparent monitoring mechanism for implementation of the CSR projects or
programs or activities undertaken by the company.

RISK MANAGEMENT AND INTERNAL CONTROL IN CORPORATE GOVERNANCE

Risk management and internal control are crucial components of corporate governance, playing integral
roles in ensuring that companies operate effectively, ethically, and with accountability. Here's an overview of
each and their significance:
Risk Management:
Risk management is the process of identifying, assessing, and prioritizing risks followed by coordinated
efforts to minimize, monitor, and control the impact or likelihood of these risks. In corporate governance,
effective risk management is essential for several reasons:
Protection of Shareholder Value: By identifying potential risks to the business, companies can take steps to
mitigate them, protecting shareholder investments and maintaining the company's financial health.
Compliance: Many industries have regulatory requirements that mandate risk management processes.
Effective risk management ensures compliance with these regulations, avoiding fines and penalties.
Strategic Decision Making: Understanding risks allows for informed decision-making. It helps in assessing
whether potential ventures or strategies are worth pursuing, considering the associated risks.
Reputation Management: Risks such as ethical lapses, fraud, or environmental incidents can severely
damage a company's reputation. Effective risk management helps in avoiding such situations.
Internal Control:
Internal control involves the processes, policies, and procedures a company implements to ensure its
operations are efficient, effective, and compliant with laws and regulations. Internal controls are designed to
safeguard assets, ensure accurate financial reporting, and promote operational efficiency. Here's why they
are vital:
Preventing Fraud and Errors: Strong internal controls help prevent fraud and errors by establishing checks
and balances in financial processes.
Financial Reporting: Accurate financial reporting is essential for investors, regulators, and other
stakeholders. Internal controls ensure that financial information is reliable.
Operational Efficiency: Controls streamline operations, reducing inefficiencies and ensuring resources are
used effectively.
Compliance: Similar to risk management, internal controls ensure compliance with laws and regulations,
reducing the risk of legal consequences.
Relationship to Corporate Governance:
In the context of corporate governance, risk management and internal control are closely intertwined:
Board Oversight: Boards of directors are responsible for overseeing both risk management and internal
control processes. They set the tone for risk appetite and ensure that adequate controls are in place.
Transparency and Accountability: Effective risk management and internal controls enhance transparency and
accountability. Shareholders and stakeholders can trust that the company is managing risks responsibly and
operating ethically.
Audit Committees: Audit committees often play a key role in overseeing the effectiveness of internal
controls and risk management processes.
Disclosure: Companies are often required to disclose their risk management processes and the effectiveness
of internal controls in their financial reports, enhancing transparency.
In summary, risk management and internal control are integral parts of corporate governance, ensuring that
companies operate with transparency, accountability, and efficiency while safeguarding shareholder value
and complying with regulations.
What Is Corporate Fraud? Definition, Types, and Example
What Is Corporate Fraud?
Corporate fraud refers to illegal activities undertaken by an individual or company that are done in a
dishonest or unethical manner. Often, this kind of business fraud is designed to give an advantage to the
perpetrating individual or company. Corporate fraud schemes go beyond the scope of an employee's stated
position and are marked by their complexity and economic impact on the business, other employees, and
outside parties.
KEY TAKEAWAYS
When companies engage in activities that are dishonest or illegal, it is referred to as corporate fraud.
There are many forms of corporate fraud including falsified accounting and misrepresenting services or
products.
The Enron scandal from 2001 is a well-known example of corporate fraud.
How Corporate Fraud Works
Corporate fraud can be challenging to prevent and tricky to catch. By creating effective policies, a system
of checks and balances, and physical security, a company may limit the extent to which fraud can take place.
Corporate fraud is considered a white-collar crime.
Types of Corporate Fraud
Though it may be conducted in a variety of ways, corporate fraud frequently is performed by taking
advantage of confidential information or access to sensitive assets and then leveraging those assets for gain.
Fraud is often hidden behind legitimate business practices or exchanges to disguise illicit activity. Multiple
stakeholders involved in corporate fraud also allow for elaborate fraud schemes to be protected by a group
of complicit actors.
For example, a company's financial accounting records may be altered to present an image of high revenue
and profits compared with the actual financial results. These actions might be taken to hide shortcomings
such as a net loss, slow revenue, declining sales, or hefty expenses. Falsified accounting might be done to
make the company more attractive to potential buyers or investors, or ultimately protect a public company's
stock or valuation from dropping.
Other forms of corporate fraud may aim to disguise or misrepresent a service or product the company is
developing or has in service, hiding its flaws or defects. Rather than investing in repairing, refurbishing, or
redesigning the product, those responsible for the product attempt to deflect or disguise these issues. This
might be done if the department or company does not have the finances to correct the problem or if
revealing the issue might drive away customers and investors.
If a company or individual claims it is putting some of its funds towards investments or other types of
monetary reserves that are intended to gain in value, but in actuality, those funds have been expended or
diverted elsewhere, this counts as a type of corporate fraud.
Example of Corporate Fraud
The deceptive accounting and business practices that led to the downfall of Enron is an example of corporate
fraud. Due to the widespread use of loopholes and other disguising tactics, the company hid debt from failed
deals, the sum reaching into the billions of dollars. To maintain the charade, those responsible pressured
their auditors to hide their deception, which included the destruction of financial documents.
What is Corporate Fraud?
Corporate fraud consists of illegal or unethical and deceptive actions committed either by a company or an
individual acting in their capacity as an employee of the company. Corporate fraud schemes are often
extremely complicated and, therefore, difficult to identify. It often takes an office full of forensic accountants
months to unravel a corporate fraud scheme in its entirety.
When corporate fraud is perpetrated by the top executives of a large corporation, the fraud often extends to
billions of dollars in scale. The victims of corporate fraud are consumers or clients, creditors, investors,
other businesses, and eventually, the company that is the source of the fraud and its employees. When it is
finally discovered, the company committing the fraud is often left in ruins and forced to declare bankruptcy.
Much of the money illegally obtained through corporate fraud is often never recovered, after being spent
long ago by the perpetrators.
Summary
Corporate fraud consists of illegal, deceptive actions committed either by a company or an individual who is
an employee of the company.
Many corporate fraud schemes are highly complicated accounting schemes used to inflate a company’s
apparent profits and may take years to detect.
When massive corporate fraud is eventually discovered, it can take down even huge multinational
companies with billions in annual revenues.
Why Does Corporate Fraud Happen?
1. The desire or perceived need to attract or retain investors
Corporate fraud commonly occurs for the same reason as any other fraud scheme – greed. However, amid
the highly competitive global business environment of the modern world, it may also occur for other
reasons. Many corporate fraud schemes consist of fraudulent accounting schemes used to make a company
appear more profitable than it actually is. The impetus behind such schemes is the desire or perceived need
to attract or retain investors.
2. Problems or defects with a company’s products
Another cause of corporate fraud may be problems or defects with a company’s products, which it tries to
hide. Several recent corporate fraud cases have occurred with pharmaceutical companies that attempted to
hide certain side effects or dangers associated with using certain medicines they manufactured and sold.
Government regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United
States, use laws and regulations to try to prevent, detect, and punish corporate fraud. However, fraud may go
undetected for many years before it becomes apparent to authorities, especially if the guilty company is a
private company that is not required to publicly disclose its financial records.
Examples – Major Corporate Fraud Cases
Due to the rise of so many large, multinational corporations and conglomerates, almost all of the largest
corporate fraud cases have occurred within the past five decades. The following are some of the biggest
incidences of corporate fraud on record:
Enron
One of the most notorious cases of corporate fraud is the Enron scandal. At its height, Enron, a major energy
company, was raking in billions upon billions in profits. However, when the company began to face
declining revenues and debt troubles, company executives hid the facts through massive accounting fraud.
In the end, both Enron and its accounting firm, Arthur Andersen, went under. Thousands of employees lost
their jobs, and Enron’s creditors and investors lost billions.
The Enron accounting scandal is credited with resulting in the passage of the Sarbanes-Oxley Act, which
required more transparency in companies’ financial reporting and imposed significantly harsher penalties on
any company caught committing accounting fraud.
What Is a Whistleblower? Protections, Law, Importance, and Example
What Is a Whistleblower?
A whistleblower is anyone who has and reports insider knowledge of illegal, illicit, and fraudulent activities
occurring in an organization. Whistleblowers can be employees, suppliers, contractors, clients, or any
individual who becomes aware of dubious business activities. Whistleblowers are protected from retaliation
under various programs created by the Occupational Safety and Health Administration (OSHA), Sarbanes-
Oxley Act, and the Securities and Exchange Commission (SEC). Federal employees are protected under the
Whistleblower Protection Act of 1989.1
KEY TAKEAWAYS
Whistleblowers report illegal, unsafe, or fraudulent activities within a private or public organization.
Whistleblowers are protected from retaliation by various laws enforced by the Occupational Safety and
Health Administration (OSHA) and the Securities and Exchange Commission (SEC).
The term originates from the 19th century. Sports referees were also once referred to as whistleblowers.
Whistleblower Explained
Many organizations dedicate themselves to addressing whistleblowing, but some organizations specialize in
specific aspects of it. For example, the Occupational Safety and Health Administration (OSHA) is more
interested in environmental and safety breaches, and the Securities and Exchange Commission (SEC) is
more concerned with securities law violations. Many organizations offer rewards for impactful information,
allow anonymous tips, and provide various methods for submission of information.
A whistleblower may release information to company officials or a large governing or regulating body. In
cases where fraud or other illegal activity involves high-ranking officials and executive members of
management, the optimal choice is to report wrongdoings to a regulating body.
Origin of the Term
The use of the term "whistleblower" dates back to the 19th century. However, Ralph Nader is sometimes
credited with coining the modern usage of the term in the 1970s as a way to avoid the negative connotations
of alternatives like "informer." The term combines "whistle," a device used to alert or call attention to, and
"blower," referencing the person issuing the alert by the blowing of the whistle.
Less commonly, sports referees were also called whistleblowers as they alerted the crowd, players, and
coaches of illegal sports plays. Journalists and other political activists, such as Ralph Nader, excessively
used the term during the 1960s, changing the public's understanding of the term to what it is today.
Notable Whistleblowers
One of the most notable whistleblowers is W. Mark Felt, also known as "Deep Throat," who exposed former
President Richard Nixon's involvement in illegal dealings during the Watergate Scandal. Another famous
whistleblower is Sherron Watkins, a former Enron employee, who shed light on the company's fraudulent
accounting practices. As a result, Enron ceased operations and brought about the birth of the Sarbanes-Oxley
Act.2
Whistleblower Protection
Whistleblowers are protected from retaliation should the information provided be confirmed to be true.
This protection includes prohibiting the accused company from taking adverse or harmful actions against the
reporter. Antagonistic activities include demotion, termination, reprimands, and other punitive reactions.
Whistleblower protection also prohibits the company from pursuing legal action against the whistleblower to
recoup losses incurred during the investigation or imposed penalties.
In certain circumstances, more protection may be offered where threats of physical violence against the
whistleblower or associates and family of the whistleblower are found.
Whistleblower Rewards
Often the whistleblower may be entitled to a reward as compensation for reporting illicit activities. Usually,
this reward is a percentage of the dollar amount recuperated by the government or regulating agency
resulting from the whistleblower's information. Recovery of a minimum amount may be necessary to
qualify, and the information provided must be unique or otherwise not previously reported.
Many companies have mechanisms to inform management of wasteful practices. These practices may, or
may not be, illegal in nature. Therefore, persons reporting wasteful practices may not receive protection as a
whistleblower. However, many organizations encourage suggestions from all associates to improve
operations and practices. The reporting person may be recognized for their efforts in improving efficiency
and may be entitled to some nominal reward.
In incidences involving the discovery of gross waste, or waste involving a significant dollar amount of
value, especially within government agencies, the reporting of waste can qualify the person as a
whistleblower.
Issues and Challenges of Corporate Governance in India
Corporate Governance is basically all about how corporations are directed, managed, controlled and held
accountable to their shareholders. In India, the question of Corporate Governance has come up mainly in the
wake of economic liberalization and de-regularization of industry and business.

With the rapid pace of globalization many companies have been forced to tap international financial markets
and subsequently to face greater competition than before. Both policymakers and business managers have
become increasingly aware of the importance of improved standards of Corporate Governance.
India has one of the best corporate governance laws but poor implementation together with socialistic
policies of the perform era has affected corporate governance. Concentrated ownership of shares,
pyramiding and tunneling of funds among group companies mark the Indian corporate landscape.
Express or implied contracts between the stakeholders and the company for the distribution of rights, duties,
reward and responsibility, etc. among different sharers in the corporation.
Procedure for proper control and supervision of information flow in the company, proper operation of
checks-and- balances.
Procedures for resolving and conforming the clashing interests and opinions of different participators in the
corporation.
This operation ensures responsibility of the Board of Directors to all stakeholders of the corporation i.e.
managers, shareholders, suppliers, creditors, auditors, controllers, workers, guests and society in general; for
giving the company a fair, clear and efficacious administration. So it isn't just mere company administration
but a corporate administration system. It's a code of conduct that must be followed for running and proper
functioning of a corporate entity.

Aims of Corporate Governance

Good governance is an integral to the very existence of a company. It's nothing more than how a corporation
is administered or controlled. Good governance inspires and strengthens investors' confidence by assuring
company's commitment to high growth and earnings. The need for the growth of corporate governance
concept is of course and basically deals with to achieve objects of corporate governance.

The system of corporate governance is to achieve the specific goals to fulfilling long- term strategic
pretensions of owners. To taking care of the interests of employees. To consideration for the atmosphere and
regional community to maintaining excellent relations with guests and suppliers. To fulfil all the applicable
legal and regulatory conditions.

By using corporate governance procedures wisely and participating results, an organization can motivate all
stakeholders to figure toward the corporation's goals by demonstrating the advantages to stakeholders, of the
pot's success. Good governance is good business. To conclude, by and large attempt of the Board should be
to take the organisation forward and to maximize future value and shareholders wealth.
Why corporate governance is important?
Changing ownership and business structure:
In recent years, the ownership structure of companies has changed a lot. Now Public financial institutions,
mutual funds, etc. are the single largest shareholders in most of the large companies. They have effective
control on the management of the companies.

They force the management to become more efficient, transparent, accountable, etc. They also ask the
management to make consumer-friendly policies, to protect all social groups and to protect the environment.
That is how the changing ownership structure has resulted in corporate governance.

Scale of business activities has grown in manifolds. For obtain the economies of growth many takeovers and
mergers takes place in the business world. And corporate governance is required to protect the interest of all
the parties during that takeovers and mergers.
Increased importance of corporate social responsibility:
In current scenario corporate social responsibility is given a lot of importance. As businesses gain everything
from society so society also has some expectation from businesses. And responsibility for fulfilling these
expectation by corporate is called corporate social responsibility. Social responsibility requires from the
board to protect the rights of the every related party i.e. customers, employees, shareholders, suppliers, local
communities, etc. For fulfilling all these liabilities they need corporate governance.
Increased corrupt practices in business:
In recent years, many scams, frauds, and corrupt practices have come to light. Misuse and misappropriation
of public funds are happening in the stock market, banks, financial institutions, companies, and government
offices at large scale. For the purpose to avoid these financial irregularities, many companies have started
corporate governance.
Inactiveness of shareholders:
shareholders only attend the Annual general meeting of their companies. They are generally inactive in the
management. Shareholders' associations are also not strong. Directors generally make a profit of this
situation and misuse their power. So, there is an imperative need for corporate governance to protect all the
stakeholders of the company.

Globalized era:
As now Indian economy had become globalized, most big companies are selling their goods in the global
market. For maintaining and growing they have to attract foreign investors and foreign customers and they
also have to follow foreign rules and regulations. All this requires corporate governance. Without Corporate
governance, it is impossible to enter, survive in the global market.
Legal bindings:
Practice of corporate governance is also required by the law. In India SEBI and Indian companies, the Act
defines the scope and process of corporate governance.
Development of Corporate Governance in India
The notion of good governance is really old in India dating back to third century B.C. Where Chanakya
(Vazir of Parliputra) developed fourfold duties of a king Raksha, Vriddhi, Palana and Yogakshema.
Substituting the king of the State with the Company CEO or Board of Directors the principles of Corporate
Governance refers to securing shareholders wealth (Raksha), enhancing the wealth by proper use of Assets
(Vriddhi), maintenance of wealth through profitable ventures (Palana), and above all protecting the interests
of the shareholders (Yogakshema or safeguard).

Corporate Governance wasn't in the agenda of Indian Companies until the early 1990s and no one would
find an important reference to this subject in the book of law till then. In India, weaknesses in the system
such as undesirable stock market practices, boards of directors without satisfactory fiduciary liabilities, poor
disclosure practices, lack of transparency, and chronic capitalism were all crying for reforms and upgraded
governance.
Issues and Challenges in Corporate Governance
Selection procedure and term of Board:
The selection procedure adopted in Indian corporations is the biggest challenge for good corporate
governance. Law requires a healthy mix of executive and non-executive directors, independent directors,
and woman directors. Most companies in India tend to only comply on paper; board appointments are still
by way of word of mouth or fellow board member recommendations. It is common for friends and family of
promoters and management to be appointed as board members.

Life-term board members can pose many problems to business say fixed beliefs, power gaining etc. so no
business prefers to appoint board members for life-term. And if the board is very short then they will not
take long term decisions with full of their efficiency because in long run they will be changed or relieved
from their duties. So the term of board must be fixed with due attention. Typically in a board of directors,
directors sit for a brief term say 2 to 5 years and it is good practice to switch some of directors at a fixed
time interval instead of changing whole board at a single time.
Performance Evaluation of Directors:
SEBI, India's capital markets regulator, has released a 'Guidance Note on Board Evaluation' in January 2017.
Which cover all major aspects of Board Evaluation including the Subject & Process of Evaluation, Feedback
to the persons being evaluated, Action Plan based on the results of the evaluation process, Disclosure to
stakeholders, Frequency & Responsibility of Board Evaluation. But for achieving the desired objectives
from performance evaluation, they need to make the evaluation result public and these disclosures may put
the corporate in big trouble.
Missing Independence of Directors:
Independent directors' appointment was supposed to be the biggest corporate governance reform by kumar
mangalam committee on corporate governance in 1999. However in reality independent directors have
hardly been able to make the desired impact. Till now the appointment of directors in most of companies is
made at the discretion of promoters, so it is still questionable. For providing the true success it is necessary
to limit the promoter's powers in matters relating to independent directors.

Removal of Independent Directors:

Under law, an independent director can be easily removed by promoters or majority shareholders. When an
independent director doesn't take the side with promoter's decisions, they are removed from their position by
promoters. So to save their post directors have to work for the interest of promoters. To resolve this issue
SEBl's International Advisory Board had proposed an increase in transparency for the appointment and
removal of directors.
Liability toward Stakeholders:
Indian company act 2013 mandates that directors owe duties not only towards the company and shareholders
but also towards the other stakeholders and for the protection of the environment. But generally, board tries
to limit and escape from these kinds of accountability good idea to require the entire board to be present at
general meetings to give stakeholders an opportunity to pose questions to the board.
Founder/Promoter's extensive Role:
In India, instead of separate entity of businesses, promoters or founders continuously influence the business
decisions Family owned Indian companies suffer an inherent inhibition to let go of control. They affect the
decisions by influencing the board and management. This is done because they had the significant portion of
company's share. So to remove this issue it will be good idea to amplify the shareholder base and reduce the
shareholding of founders.
Transparency and Data Protection:
Corporate governance is based on the principle of transparency but it cannot be defined what information is
to be disclosed or not. In today's cut throat environment of competition it can be very dangerous if wrong
information be disclosed. In digitalization Privacy and data protection is a central governance issue. For this
the board must be capable of handling data and to ensure the protection of such data from potential misuse.
And by looking at the importance of data and the potential cost if data be misused, we can say that
organization must invest a reasonable amount of resources to protect the data.
Business Structure and internal conflicts:
Business structures also put hindrance on the way to good governance as they require many layers of
management, executives and other officers. This makes it very difficult for the company leaders to receive
accurate, important data from the lower levels and to command orders to lower level of the company as the
data may be distorted at any point of chain. Board of executives can make much good decisions and policies.
But if the internal relationship in the organization says between board and managers is not good then the
implementation of decisions and policies also get affected. Rebellious managers can sabotage corporate
decisions and policies at many levels of the business.
Environment of mistrust:
In recent years, many scams, frauds, misappropriation of public money, and corrupt practices have taken
place and because of the doubtful practices of key executives and board members, confidence of investors
and society has diminished. It is happening in the stock market, banks, financial institutions, companies and
government offices. This has made the business environment distrustful
Challenges & Imperatives
A corporation should be fair and transparent to its stakeholders in all its transactions. This has turn
imperative in present's globalized business world where corporations need to access global pools of capital
need to attract and retain the good human capital from various parts of the world. Unless a corporation
embraces and demonstrates ethical conduct, it'll not be capable to succeed.
What's Corporate Governance it's known fact that vital necessities of success of any association lingers on
its ability to mobilize and use all kinds of resources to meet the objects easily set as part of the planning
process.

Corporate governance is about ethical conduct in business. Ethics is concerned with the law of values and
principles that enables a person to choose between right and wrong. Further, ethical dilemmas arise from
clashing interests of the parties involved.
It's enough possible that in the effort at arriving the best possible financial results or business results there
could be attempts at doing things which are verging on the illegal or indeed illegal. There's also the
possibility of grey areas where an act isn't illegal but considered unethical. These raise moral issues.

The quick migration of four elements across national borders. These are:

Physical capital in terms of plant and machinery;

pecuniary capital;
Technology; and
Labor.

Strong corporate governance is essential to flexible and vibrant capital markets and is an important
instrument of investor protection.

Companies raise capital from market and investors suffered due to unscrupulous guidance that performed
much worse than past reported figures. Numerous corporates didn't pay heed to investors grievances.

The board of directors and the elderly position administration of an enterprise- walking their talk. It's by
walking their talk that the top administration can earn credibility. This also has a direct bearing on the
morale of an organization.
When it comes to the hardware aspect of corporate governance, we go into the issue of a law, which
becomes a reference point for actions. But the sad fact in our country is that even though there's a lot of talk
about corporate governance, when it comes to reality, nothing big happens.

In the Indian context lack of clarity that leads to corrupt or illegal actions.

Maybe the most important challenge we face towards better corporate governance is the mindset of the
people and the organizational culture. This change will have to come from within.

Another important aspect is to realise that eventually the spirit of corporate governance is more important
than the form. Substance is more important than style. Values are the substance of commercial governance
and these will have to be definitely articulated and systems and procedures devised, so that these values are
practiced.

We then come to a common moral problem in running enterprises. One can have practices which are legal
but which are unethical. In fact, numerous a time, tax planning exercises may border on the fine razor's edge
between the rigorously legal and the patently unethical.

Conclusion
The concept of corporate governance hinges on total transparency, integrity and responsibility of the
administration and the board of directors. Be it finance, taxation, banking or legal structure each and every
place requires good corporate governance. Corporate Governance is a means not an end, Corporate
Excellence should be the end. Once, the good Corporate Governance is achieved and the Indian Commercial
Body will shine to outshine the whole world.

In the Indian context, the need for corporate governance has been pointed because of the frauds occurring
constantly since the emergence of the concept of liberalisation from 1991. We had the Harshad Mehta fraud,
Ketan Parikh Scam, UTI fraud, Vansishing Company Scam, Bhansali Scam and so on. In the Indian
corporate scene, there's a need to induct global standards so that at least while the scope for frauds may still
exist, it can be at least reduced to the minimum.

Corporate governance and ethical actions have a number of advantages. Primarily, they help to make good
brand image for the company. Once there's a brand image, there's greater faithfulness, once there's greater
loyalty, there's greater commitment to the employees, and when there's a commitment to workers, the
workers will turn more creative.

In the current competitive atmosphere, creativity is vital to get a competitive edge. Corporate Governance in
the Public Sector cannot be avoided and for this reason it must be embraced. But Corporate Governance
should be embraced because it has much to offer to the Public Sector. Good Corporate Governance, Good
Government and Good Business go hand in hand.
Independent Directors- Applicability, Roles And Duties
The Board of Directors manage the operations of a company. The Board of Directors consists of
individual directors of a company. As per the Companies Act, 2013 ('Act'), certain companies must have
independent directors on their Board of Directors.
The Companies Act, 1956 did not provide a specific definition of an Independent Director. But Independent
Directors are in the limelight as per the Companies Act, 2013. The term “Independent Director” has been
defined in the Act, along with several new requirements relating to their appointment, duties, role, and
responsibilities.
Independent Director
An independent director is a non-executive director of a company who helps the company in improving
corporate credibility and governance standards. The independent director should not be a managing director,
a whole-time director or a nominee director.
He or she does not have any kind of relationship with the company that may affect the independence of
his/her judgment. The provisions relating to the appointment of Independent directors are contained in
Section 149 of the Companies Act, 2013 should be read along with Rule 4 and Rule 5 of the Companies
(Appointment and Qualification of Directors) Rules, 2014
Applicability On Appointing An Independent Director
Listed Public Company
Every listed public company must have at least one-third of a total number of directors as independent
directors. Any fraction contained in that one-third shall be rounded off as one.
Unlisted Public Company
As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following
classes of companies must have at least 2 directors as independent directors:
Public companies with paid-up share capital of Rs.10 crore or more.
Public companies with a turnover of Rs.100 crore or more.
Public companies with aggregate outstanding loans, debentures, and deposits, exceeding Rs.50 crore.
Points to remember :
1. The amount existing on the last date of latest audited financial statements shall be taken into account for
calculating the paid-up share capital or turnover or outstanding loans, debentures and deposits.

2. The company must appoint a higher number of directors if a higher number of independent directors ir
required to compose audit committee.

3. These unlisted public companies - joint venture, wholly owned subsidiary and dormat company are not
required to appoint an independent director even if they meet the criteria.
Every independent director should give a declaration that he/she meets the criteria of independence at the
first meeting of the board in which he participates as a director and thereafter at the first meeting of the
Board in every financial year or when a situation arises which affects his status of independence. The terms
and conditions of appointment of independent directors should also be posted on the company’s website.
Qualifications of an Independent Director
The person should possess appropriate experience, skills and knowledge in one or more fields of law,
finance, management, marketing, sales, research, administration, technical operations, corporate governance,
or other disciplines related to the company’s business.
The relatives of an independent director should not -
be indebted to the company, its subsidiary, holding or associate company or their director or promoters.
have given a guarantee or security in connection with the indebtedness of a third person to the company, its
subsidiary, holding or associate company or their directors or promoters of such holding company, for an
amount of Rs.50 lakhs, at any time during the two immediately preceding financial years or during the
current financial year.
The person is not:
A promoter of the company or its subsidiary, holding or associate companies.
Related to the directors or promoters in the company, or any of its subsidiary, holding or associate
companies.
The person should not have any financial relationship (other than remuneration as a director or having
transaction not exceeding 10% of the total income) with company or any of its subsidiary, holding or
associate companies or their directors or promoters, during the current financial year or the last two
immediately preceding financial years.
The person or his/her relatives should not:
Held or holds the position of Key Managerial Personnel (KMP) or has been the employee of the company or
any of its subsidiary, holding or associate companies in any of three financial years immediately preceding
the financial year in which such person is proposed to be appointed.
Be or has been and employee, proprietor or a partner in any three financial years immediately preceding the
financial year in which such person is proposed to be appointed – as an auditor firm, cost auditor, legal
consultant or company secretary of the company or any of its subsidiary, holding or associate companies.
Holds together with relatives a total voting power exceeding 2% in the company.
Be a Chief Executive or director of any non-profit organisation that receives 25% or more of its receipts
from the company, any of its promoters or directors or its subsidiary, holding or associate companies or that
holds 2% or more of the total voting power of the company.
Role of an Independent Director
Independent Director acts as a guide, coach, and mentor to the company. The role includes improving
corporate credibility and governance standards by working as a watchdog and help in managing risk.
Independent directors are responsible for ensuring better governance by actively involving in various
committees set up by the company. The independent directors are required because they perform the
following important roles:
Facilitate withstanding and countering pressures from owners.
Fulfil a useful role in succession planning.
On issues such as strategy, performance, risk management, resources, key appointments and standards of
conduct he or she must support in gaining independent judgment to bear the board’s deliberations.
While evaluating the performance of the board and management of the company, he or she needs to bring an
objective view.
Scrutinising, monitoring and reporting management’s performance regarding goals and objectives agreed in
the board meetings.
Safeguard the interests of all stakeholders, particularly the minority shareholders.
Balance the conflicting interest of the stakeholders.
Check on the integrity of financial information and ensure financial controls and systems of risk
management are in operation.
In situations of conflict between management and shareholder’s interest, aim towards the solutions which
are in the best interest of the company.
Establishing suitable levels of remuneration of executive directors, key managerial personnel, and senior
management.
Conduct of an Independent Director
The independent directors must adhere to the code of conduct and fulfil their responsibilities in a
professional and faithful manner. Such conduct in discharging their duties and fulfilling responsibilities will
promote confidence in the investment community, especially minority shareholders and regulators. The Act
provides the following guidelines for professional conduct for independent directors:
Uphold ethical standards of probity and integrity.
Act constructively and objectively while exercising duties.
Exercise powers in a bona fide manner in the interest of the company.
Devote sufficient attention and time towards professional obligations for balanced and informed decision
making.
Not allow any extraneous considerations to interfere in exercising objective, independent judgment in the
company's best interest while concurring in or dissenting from the collective judgment of the Board in its
decision-making.
Not take advantage of the position to the detriment of the company and its shareholders or to gain direct or
indirect personal advantage or advantage for an associated person.
Refrain from an action that would lead to loss of independent decision-making.
Where circumstances make an independent director lose his independence, the independent director must
immediately inform the Board.
Assist the company in implementing the best corporate governance practices.
Duties of an Independent Director
Undertake appropriate induction and regularly update and refresh their skills, knowledge, and familiarity
with the company.
Attempt to attend company’s general meetings.
Attempt to attend Board of Director's meetings and board committees meeting being a member.
Have adequate knowledge about the company and the external environment in which it operates.
Report matters concerning unethical behaviour, actual or suspected fraud or violation of the company’s code
of conduct or ethics policy.
Acting within his/her authority, assist in protecting the legitimate interests of the company, shareholders and
its employees.
Not to unfairly obstruct the functioning of the company or committee of the Board.
Participate in the Board’s committee being chairpersons or members of that committee.
Not to disclose confidential information, including commercial secrets, technologies, advertising and sales
promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by
the Board or required by law.
Ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that
the interests of a person who uses such mechanism are not prejudicially affected on account of such use.
Other Provisions Related to Independent Directors Under Companies Act, 2013:
Certain companies are required to form a Corporate Social Responsibility (CSR) Committee to formulate
and monitor the CSR policy. The CSR committee should consist of at least three directors, including at least
one independent director.
Where a company is not required to appoint an independent director, it shall have in its CSR Committee two
or more directors.
The Independent director’s appointment process must be independent of the company’s management. An
independent director can be selected from a data bank containing names, qualifications and addresses of
persons who are eligible and willing to act as independent directors, maintained by an institute, body or
association notified by the Central Government.
The appointment of the independent director must be approved by the company in a general meeting, and
the explanatory statement annexed to the general meeting notice should indicate the justification for
choosing the proposed person for appointment as independent director.
Every independent director shall give a declaration that he meets the criteria of independence when :
He or she attends the first board meeting as a director.
In every financial year, at the first meeting of the board of directors.
When a situation arises which affects his or her status of independence being an independent director.
The independent director shall be appointed for a maximum term of 5 years. The term shall not be more than
2 consecutive terms. He or she shall be re-appointed only by special resolution by the company.
Any vacancy in the office of independent director shall be filled in the very next Board Meeting or within 3
months of such vacancy, whichever is later.
A person must be an independent director in not more than seven listed companies at a time.
An independent director shall not retire by rotation and shall not be included in the ‘total number of
directors’ for the purpose of computation of rotational directors.
A small shareholder director shall be considered as an independent director, if:
He or she is eligible for appointment as independent director u/s 149 (6).
He or she gives a declaration that he or she meets the criteria of Independence as specified u/s 149(7).
If the Board meeting is called at shorter notice so as to transact some urgent business, then the presence of at
least 1 independent director is mandatory. In absence of any independent director, a decision shall be
circulated to all the directors and later approved by at least 1 independent director.
Women Directors
Women empowerment is not something where a woman can merely play a simple role in a corporate but
should be a part the higher level of decision making process. As per the available data, European countries
lead in appointing Women as Director on a Company’s Board. Among them, Norway stands top with 45%
wheres India holds only 4.7%. However, the percentage of women Directors appointed in Indian companies
is expected to increase. In this article, we look at the role and requirement for appointment of Women
Directors in Company as per Companies Act, 2013.
Woman Director – Companies Act 2013
As per the Companies Act, 2013, it is mandatory to appoint at least one woman director as a board member
in certain types of companies. The penalty for non-compliance of provision extends to a fine of Rs.10,000
with a further fine of Rs.1000 per day if the contravention continues.
Criteria
A company, whether a public company or a private concern, will be required to mandatorily appoint at least
one woman director if it fulfils any of the following criteria:
It is a listed company whose securities are listed on any stock exchange.
It is a company having paid-up capital of Rupees one hundred crore or more, and a turnover of Rupees three
hundred crores or more.
Procedure for Appointment of Woman Director
A Woman Director can be appointed during the time of company registration or after incorporation by the
Board Members and the Shareholders.
Director Identification Number
Any person who wishes to hold the position of Director in an Indian company must first obtain Director
Identification Number (DIN) which is a unique identification number for each director. A Woman Director
must first obtain DIN to become Director of a Company. In case a Woman Director is being appointed
during the company incorporation process itself, DIN will be generated along with the incorporation
certificate. No person can hold or acquire more than one DIN.
Consent to Act as Director
In case of appointment of Woman Director in existing company, consent in Form DIR-2 given by the
Woman Director is to be filed with the Registrar of Companies within 30 days of her appointment.
Know more about procedure for adding or removing Director.
Roles of Women Directors
Women director has to play the role like any other director. Women can take up a role of Nominee Director
who will be nominated by a party in the company to take care of its interest. Also, Women can take up a role
of Independent Director who is not liable to retire by rotation.
Women Directosr can hold a maximum of twenty directorships that includes the sub-limit of ten public
companies. Any contravention on this part shall be subjected to a fine ranging between Rs.5000-Rs.25000.
Know more about the Duties & Responsibilities of Directors.
Vacancy in the Position of a Women Director
A Woman Director may leave the company on any reasons such as resignation, removal, automatic vacation
or retirement by rotation before the expiry of her term as a Director. The Board of Directors must fulfill this
vacancy known as intermittent vacancy within a period of three months.
A company can also have more than one woman director and the vacancy caused by one of them will not be
considered as an intermittent vacancy, as the company still satisfied the Companies Act of 2013 with respect
to Women Directors.
Alternative Director
In case of absence of a Woman Director for a period of not less than three months, the board must appoint an
alternative director to ensure the smooth functioning of the company. The alternative director shall leave the
firm after the return of the woman Director. In case of more than one woman director, it is optional for the
company to appoint an alternative director.
Term of Women Director
A woman director can hold the position of Director until her next Annual General Meeting from the date of
appointment. She is also entitled to seek for reappointment at the general meeting. The tenure of women
director is liable to retirement by rotation similar to other directors. Like any other director, a Woman
Director can also tender her resignation any time before the expiry of her term by giving a notice to the
company.