M.COM.

– FIRST YEAR
(II SEMESTER)
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Paper: Corporate Laws and Governance

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UNIT -IV: Corporate Governance- I

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Topic: Regulatory Framework of Corporate Governance

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Lecture: 17
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By: Dr. Reena

Generally, Corporate Governance refers to practices by
which organizations are controlled, directed and governed.
The fundamental concern of Corporate Governance is to
ensure the conditions whereby organization’s directors
and manager’s act in the interest of the organization and
its stakeholders and to ensure the means by which
managers are held accountable to capital providers for the
use of assets. To achieve the objectives of ensuring fair
corporate governance, the Government of India has put in
place a statutory framework.
Regulatory framework on corporate governance

The Indian statutory framework has, by and large, been in

consonance with the international best practices of
corporate governance. Broadly speaking, the corporate
governance mechanism for companies in India is
enumerated in the following enactments/ regulations/
guidelines/ listing agreement:
1. The Companies Act, 2013 inter alia contains provisions
relating to board constitution, board meetings, board
processes, independent directors, general meetings, audit
committees, related party transactions, disclosure
requirements in financial statements, etc.
2. Securities and Exchange Board of India (SEBI)
Guidelines: SEBI is a regulatory authority having
jurisdiction over listed companies and which issues
regulations, rules and guidelines to companies to ensure
protection of investors.
3. Standard Listing Agreement of Stock Exchanges: For
companies whose shares are listed on the stock
exchanges.
4. Accounting Standards issued by the Institute of
Chartered Accountants of India (ICAI): ICAI is an
autonomous body, which issues accounting standards
providing guidelines for disclosures of financial
information. Section 129 of the New Companies Act inter
alia provides that the financial statements shall give a true
and fair view of the state of affairs of the company or
companies, comply with the accounting standards notified
under s 133 of the New Companies Act. It is further
provided that items contained in such financial statements
shall be in accordance with the accounting standards.
5. Secretarial Standards issued by the Institute of Company
Secretaries of India (ICSI): ICSI is an autonomous body,
which issues secretarial standards in terms of the
provisions of the New Companies Act. So far, the ICSI has
issued Secretarial Standard on "Meetings of the Board of
Directors" (SS-1) and Secretarial Standards on "General
Meetings" (SS-2). These Secretarial Standards have come
into force w.e.f. July 1, 2015. Section 118(10) of the New
Companies Act provide that every company (other than
one person company) shall observe Secretarial Standards
specified as such by the ICSI with respect to general and
board meetings.
Key legal framework for corporate governance in India
The Companies Act, 2013

The Government of India has recently notified Companies

Act, 2013 ("New Companies Act"), which replaces the
erstwhile Companies Act, 1956. The New Act has greater
emphasis on corporate governance through the board and
board processes. The New Act covers corporate
governance through its following provisions:
• New Companies Act introduces significant changes to
the composition of the boards of directors.
• Every company is required to appoint 1 (one) resident
director on its board.
• Nominee directors shall no longer be treated as
independent directors.
• Listed companies and specified classes of public
companies are required to appoint independent
directors and women directors on their boards.
• New Companies Act for the first time codifies the
duties of directors.
• Listed companies and certain other public companies
shall be required to appoint at least 1 (one) woman
director on its board.
• New Companies Act mandates following committees
to be constituted by the board for prescribed class of
companies:
o Audit committee
o Nomination and remuneration committee
o Stakeholders relationship committee
 o Corporate social responsibility committee
Listing agreement – Applicable to the listed
companies

SEBI has amended the Listing Agreement with effect from

October 1, 2014 to align it with New Companies Act.
Clause 49 of the Listing Agreement can be said to be a
bold initiative towards strengthening corporate governance
amongst the listed companies. This Clause intends to put
a check over the activities of companies in order to save
the interest of the shareholders. Broadly, cl 49 provides for
the following:
1. Board of Directors
The Board of Directors shall comprise of such number of
minimum independent directors, as prescribed. In case
where the Chairman of the Board is a non-executive
director, at least one-third of the Board shall comprise of
independent directors and where the Chairman of the
Board is an executive director, at least half of the Board
shall comprise of independent directors. A relative of a
promoter or an executive director shall not be regarded as
an independent director.
2. Audit Committee
The Audit Committee to be set up shall comprise of
minimum three directors as members, two-thirds of which
shall be independent.
3. Disclosure Requirements
Periodical disclosures relating to the financial and
commercial transactions, remuneration of directors, etc, to
ensure transparency.
4. CEO/ CFO Certification
To certify to the Board that they have reviewed the
financial statements and the same are fair and in
compliance with the laws/ regulations and accept
responsibility for internal control systems.
5. Report and Compliance
A separate section in the annual report on compliance with
Corporate Governance, quarterly compliance report to
stock exchange signed by the compliance officer or CEO,
company to disclose compliance with non-mandatory
requirements in annual reports.
.