January 23, 2022

Corporate Governance vis-à-vis Companies Act 2013

Companies Act

INTRODUCTION

[1]Corporate governance infers dealing with the business capably, promise to morals and sufficient and opportune divulgence on every single material issue in order to build general partner certainty which will thus prompt effective designation of capital and supported monetary development. Governance is tied in with running the organization, yet great governance is tied in with guaranteeing that is run reasonably and straightforwardly (du Plessis, Varottil, & Veldman, 2018). The Companies Act, 2013 was passed by the Rajya Sabha on eighth August 2013 clearing route for another organization law and got the consent of the president on 29th August, 2013(du Plessis et al., 2018; Hathi, 2014). The Act, 2013 replaces the current Companies Act, 1956 which was authorized 57 years prior .

The new Act looks to introduce more straight forwardness and governance in the corporate bodies other than making the fundamental condition for development in the present worldwide structure (Jhunjhunwala & Deepa, 2013). It can possibly be a notable point of reference, as it expects to enhance corporate governance, disentangle directions, improves the premiums of minority financial specialists and out of the blue expresses the part of shriek blowers(Sekar & FCA, 2014). The Act supports great governance rehearses by putting the onus on free executives to get oversight the working of the Board and secure the enthusiasm of minority investors (Vijay, BBA.LLB, Year, School, & PUNE, 2011).The new Act is a noteworthy point of reference in the corporate governance circle in India and is probably going to have huge effect on the governance of organizations in the nation.

OBJECTIVES

  • [2]To understand the concept of Corporate Governance.
  • To examine Corporate Governance Rules under Companies Act, 2013
  • To analyse various developments and present framework in Corporate Governance in India.

KEY CHANGES INTRODUCED BY COMPANIES ACT 2013

BOARD COMPOSITION

NUMBER OF DIRECTORS

  • [3]A one person company shall have a minimum of 1 (one) director;
  • CA 1956 permitted a company to determine the maximum number of directors on its board by way of its articles of association. CA 2013, however, specifically provides that a company may have a maximum of 15 (fifteen) directors.
  • CA 1956 required public companies to obtain Central Government’s approval for increasing the number of its directors above the limit prescribed in its articles or if such increase would lead to the total number of directors on the board exceeding 12 (twelve) directors. CA 2013 however, permits every company to appoint directors above the prescribed limit of 15 (fifteen) by authorizing such increase through a special resolution.

INDEPENDENT DIRECTORS

As per the Listing Agreement, only listed companies were required to appoint independent directors. The number of independent directors on the board of a listed company was required to be equal to (i) one third of the board, where the chairman of the board is a non-executive director; or one half of the board, where the chairman is an executive director.

QUALIFICATION CRITERIA

  • He / she should be a person of integrity, relevant expertise and experience;
  • He / she is not or was not a promoter of, or related to the promoter or director of the company or its holding, subsidiary or associate company;
  • He / she has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors during the 2 (two) immediately preceding financial years or during the current financial year.

WOMAN DIRECTORS

  • Listed companies and certain other public companies shall be required to appoint at least 1 (one) woman director on its board.
  • Companies incorporated under CA 2013 shall be required to comply with this provision within 6 (six) months from date of incorporation. In case of companies incorporated under CA 1956, companies are required to comply with the provision within a period of 1 (one) year from the commencement of the act.

LANDMARK CASES UNDER CORPORATE GOVERNANCE

  1. Saurashtra Cement Ltd. And Anr. vs Union Of India

[4]A group of writ petitions had been disposed of by the Gujarat High Court, dismissing the same, following the judgment of the said High Court dated 22nd of June, 1994 in Special Civil Application No. 6226 of 1994. While dismissing the writ applications, though the interim orders stood vacated, the Court had not passed any order with regard to payment of interest. But in Special Civil Application No. 6226/94, while vacating the interim order and discharging the rule, the Court has specifically ordered for payment of interest @ 18% per annum. On application for clarification being filed in that group of writ petitions, where no order with regard to payment of interest had been made, the High Court directed the payment of interest @ 18% per annum, which direction had not been made while disposing of the writ petitions. Those orders of the High Court, clarifying the earlier order directing payment of interest @ 18% per annum, are also subject matter of appeals in some of these appeals including Civil Appeal No. 3119/95. We have heard the learned counsel for the parties and in our considered opinion, the direction to pay interest @ 18% per annum must be held to be unreasonable. We, therefore, modify the same and direct that the interest would be paid @ 9% per annum. Civil Appeal Nos.7607/95 & 7472/94 and SLP (Civil) No.21620/94:–

These Civil Appeals and the Special Leave Petition arise out of judgment of the Madhya Pradesh High Court. The High Court had followed the earlier decision in Mahalaxmis case. The said decision in Mahalaxmi, has been upheld by the Supreme Court in 1995(Supp.) 1 S.C.C.642. Consequently, these appeals and the special leave petition stand dismissed.

  • Vodafone International Holdings By v. Union Of India

[5]The landmark judgement was made by the Supreme Court of India in Vodafone International Holding (VIH) v. Union of India (UOI). In the transaction dated 11.2.2007 between VIH and Hutchinson Telecommunication International Limited or HTIL, the Bench consisting of Chief Justice S.H Kapadia, K. S. Radha krishnan and Swatanter Kumar quashed the order of the High Court of claim for Rs 12000 crores as capital gain tax and exempted VIH from responsibility for payment of Rs 12000 crores as capital gain tax(non-resident company for tax purposes).The court held that the Indian revenue authorities do not have authority to tax an offshore transaction between two non-resident companies where the non-resident company is purchased in the transaction in order to control the interest in the (Indian) resident company.

The selling of HTIL’s CGP shares to Vodafone or VIH does not lead to the transfer of capital assets under the scope of Section 2(14) of the Income Tax Act and therefore does not attract capital gains tax on all rights and entitlements resulting from the shareholder agreement, etc., which form an integral part of CGP ‘s shares. The order of High Court of the demand of nearly Rs.12, 000 crores by way of capital gains tax would amount to imposing capital punishment for capital investment and it lacks authority of law and therefore is quashed. In Vodafone International Holding v. Union of India, the Supreme Court released a landmark judgement and explained the ambiguity with regard to the imposition of taxes. Finally, it can be said that this judgment helped to remove complexities with regard to the imposition of taxes and agreed that the concept that the object of the transaction is to escape tax does not necessarily lead to the hypothesis of tax evasion and the Supreme Court embraced the view of legitimate tax.

CONCLUSION

It is evident from above that it is essential that good governance practices must be effectively implemented and enforced preferably by self-regulation and voluntary adoption of ethical code of business conduct and if necessary through relevant regulatory laws and rules framed by Govern­ment or its agencies such as SFBI, RBI.The effective implementation of good governance practices would ensure investors’ confidence in the corporate companies which will lead to greater investment in them ensuring their sustained growth. Thus good corporate governance would greatly benefit the companies enabling them to thrive and prosper. Further, in the context of liberalization and globalization there is growing realization in the emerging economies including India that a country’s business environment must be maintained and operated in a manner that is conducive to investors’ confidence so that both domestic and foreign investors are induced to make adequate investment in corporate companies. This will be conducive to rapid capital formation and sustained growth of the economy. Some persons regard certain good corporate practices as ‘irritants’ to the growth of their busi­nesses since they require the implementation of minimum standards of corporate governance. How­ever, fact of the matter is that the observance of practices of good corporate governance will ensure investors’ confidence in the companies which have record of good corporate governance.

Further, it needs to be emphasized that practices and principles of good corporate governance have been evolved which stimulate business rather than stifle it. In fact in good corporate governance structure what is ensured is that companies must preferably follow voluntarily ethical code of busi­ness conduct which are conducive to the expansion of investment in them and ensure good outcome in terms of rates of return.


[1] https://www.lexology.com/library/detail.aspx?g=259ba402-8b1d-48ee-837e-63261752aef1

[2] https://www.caclubindia.com/articles/importance-of-corporate-governance-and-companies-act-2013-24923.asp

[3] https://acadpubl.eu/hub/2018-119-17/1/84.pdf

[4] http://www.legalserviceindia.com/legal/article-3862-a-case-study-of-vodafone-international-holding-v-s-union-of-india.html

[5] https://taxguru.in/income-tax/case-commentary-vodafone-international-holdings-b-vvs-union-india-uoi-ors-20-01-2012-sc-formula-world-championship-cit.html


Author Details: Prishi Kothari [Student, Balasaheb Apte College of Law]

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