Corporate governance and directors' duties in India: overview

A Q&A guide to corporate governance law in India.

The Q&A gives a high level overview of board composition, the comply or explain approach, management rules and authority, directors’ duties and liabilities, transactions with directors and conflicts, company meetings, internal controls, accounts and audit, institutional investors and reform proposals.

To compare answers across multiple jurisdictions, visit the Corporate Governance Country Q&A tool.

The Q&A is part of the global guide to corporate governance law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corpgov-mjg

Contents

Corporate governance trends

1. What are the main recent corporate governance trends and reform proposals in your jurisdiction?

Applicable laws

The Indian Companies Act 1956 (ICA 1956) was replaced by the new Indian Companies Act 2013 (ICA 2013) about a year ago, which was notified in the Official Gazette on 30 August 2013. The 2013 Act is the main legislation for corporate governance in India. However, at the time of writing, both the ICA 1956 and the ICA 2013 remain in force, as a number of the provisions of the ICA 2013 have not yet been notified and are therefore not yet in force (out of 470 sections, presently 282 sections of the ICA 2013 have been notified). The Ministry of Corporate Affairs of the Government of India (MCA) has also notified a number of rules, notifications, orders, circulars and forms under the ICA 2013 and the provisions of the ICA 2013 must be read along with such rules, notifications, orders, circulars and forms.

Additionally, for listed public companies, the corporate governance principles as prescribed under the Equity Listing Agreement (Listing Agreement) issued by the Securities and Exchange Board of India (SEBI) are also applicable. In particular, clause 49 of the Listing Agreement prescribes several additional corporate governance principles which apply to listed public companies in India. Clause 49 of the Listing Agreement has recently been amended (through SEBI Circulars dated 17 April 2014 and 15 September 2014) to bring it in line with the provisions of the ICA 2013. Further, SEBI has issued the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (Takeover Code) which applies to direct and indirect acquisitions of shares or voting rights or acquisition of control in the target company.

An acquirer must make a public announcement of an open offer for acquiring shares of a target company, if the shares or voting rights acquired by him in the target company, together with the shares or voting rights held by him and by persons acting in concert with him in the target company, entitle them to exercise 25% or more of the voting rights in that target company.

An acquirer who, together with the persons acting in concert with him, has acquired or holds shares or voting rights in the target company entitling them to exercise 25% or more of the voting rights in the target company (but less than the maximum permissible non-public shareholding) must not acquire, within any financial year, additional shares or voting rights in that target company entitling him to exercise more than 5% of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of that target company.

Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer should acquire, directly or indirectly, control over that target company unless the acquirer makes a public announcement of an open offer for acquiring shares of that target company.

Recent approaches to corporate governance by companies

The concept of corporate governance now has increased significance in India in the light of the case of M/s Satyam Computer Services Limited (one of biggest corporate fraud cases in India, which is still ongoing, where investors incurred huge losses).

The ICA 2013 and other relevant laws (as indicated above) have put in place strict provisions to tackle these cases. As a result of the enhanced liability, and penal provisions for non-compliance, contained in the ICA 2013, companies have already been taking preventive measures to create a robust compliance system.

 

Corporate entities

2. What are the main forms of corporate entity used in your jurisdiction?

Private companies

These companies must have both:

  • A minimum paid-up share capital of INR0.1 million.

  • A restriction on the right to transfer shares.

They can have minimum of two and a maximum of 200 members. A private company can also be incorporated as a one-person company.

Public companies

These companies must have both:

  • A minimum paid-up share capital of INR0.5 million.

  • A minimum of seven members.

A company which is a subsidiary of a company, not being a private company, is deemed to be a public company for the purposes of the Indian Companies Act 2013 (ICA 2013) even if that subsidiary company continues to be a private company in its articles of association.

A public company can be a listed company or an unlisted company.

However, the Companies (Amendment) Bill 2014 (CB 2014), which was passed by the Lok Sabha on 17 December 2014, has now omitted the requirement of minimum paid-up share capital under the ICA 2013. As a result, once the CB 2014 is passed by the Rajya Sabha and then notified, the minimum paid-up share capital of INR0.1 million (in the case of a private company) and INR0.5 million (in the case of a public company) will not be required under the ICA 2013. In addition, the CB 2014 has made the requirement of having a common seal optional for all companies.

Other categories

Other types of companies mentioned in the ICA 2013 include:

  • Companies with charitable objects.

  • Foreign companies.

  • Small companies.

  • Government companies.

  • Nidhi companies (that is, mutual benefit companies).

  • Producer companies.

  • Dormant companies.

In addition, the incorporation of a limited liability partnership (LLP) is also possible, and is governed by the Limited Liability Partnership Act 2008. Foreign direct investment in LLPs is regulated. Companies can:

  • Be limited by shares.

  • Be limited by guarantee (which may or may not have share capital).

  • Have unlimited liability.

The most commonly used form in India is a company limited by shares.

 

Legal framework

3. Outline the main corporate governance legislation and authorities that enforce it. How influential are institutional investors and other shareholder groups in monitoring and enforcing good corporate governance? List any such groups with significant influence in this area.

The regulatory framework for corporate governance comprises:

  • The Indian Companies Act 2013 (ICA 2013) and the rules framed under it.

  • Circulars, notifications, orders, and so on issued under the ICA 2013.

  • The Listing Agreement and in particular, clause 49 (which only applies to listed public companies).

  • The Takeover Code (which only applies to listed public companies).

  • The Corporate Governance Voluntary Guidelines, 2009 (2009 Guidelines) and the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business 2011 (2011 Guidelines), issued by the Ministry of Corporate Affairs (MCA). These guidelines are non-binding.

  • The Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises (2014 Guidelines) issued by Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises in October 2014 and effective from 1 April 2014. These Guidelines are not binding.

The following authorities are responsible for monitoring and enforcing corporate governance in companies:

  • Offices of the Registrar of Companies across India, and other officers under the ICA 2013.

  • Regional Directors.

  • National Company Law Tribunal (Tribunal) (note that this has not yet been constituted: the MCA is planning to implement the entire ICA 2013 by 2015, and so the NCLT may also be constituted by 2015, though there is no official announcement on the establishment of the NCLT as yet).

  • Company Law Board.

The Securities and Exchange Board of India (SEBI) and the Securities Appellate Tribunal are responsible for regulating listed public companies in India.

In addition to the above, there are other regulatory authorities which regulate companies engaged in specific sectors (for example, insurance, telecoms, and so on).

 
4. Has your jurisdiction adopted a corporate governance code?

There is no separate corporate governance code in India. However, the corporate governance principles are mainly outlined in the ICA 2013, the Listing Agreement and other relevant laws (see Question 3).

Corporate governance regime

The corporate governance regime introduced by the ICA 2013 (amongst other regulations) provides for the following mandatory requirements:

  • Appointment of specified number of independent directors (IDs) (and the appointment of a woman director for certain classes of companies).

  • Appointment of at least one resident director.

  • Appointment of small shareholders' directors.

  • Constitution of:

    • nomination and remuneration committee (NRC);

    • stakeholder relationship committee (SRC);

    • audit committee (AC).

  • Expenditure on Corporate Social Responsibility (CSR) activities by specified companies.

  • Implementation of vigil mechanism systems for internal audits.

  • Appointment of key managerial personnel (KMP).

  • Prescribed duties and obligations of directors.

  • Implementation of a stringent policy for related party transactions (RPT) and inter-corporate transactions.

  • Creation of a code of conduct for IDs.

  • Rotation of IDs and auditors.

  • Varied minority shareholder protection measures.

  • Appointment of a valuer for carrying out valuations.

In addition to the above requirements, India has also established the Serious Fraud Investigation Office to investigate frauds relating to companies.

Listed public companies are also required, under the Listing Agreement, to appoint a specified number of independent non-executive directors and constitute separate sub-committees of the board of directors (board) (for example, a risk management committee).

Separately, the Ministry of Corporate Affairs (MCA) has released the 2009 Guidelines and the 2011 Guidelines), which provide a set of corporate governance practices (however, these guidelines are not mandatory).

Further, the 2014 Guidelines provide guidelines for all Central Public Sector Enterprises (CPSEs). These guidelines are, in effect, guiding principles). The 2014 Guidelines are intended to reinforce the complimentary nature of CSR) and sustainability, and to advise CPSEs not to overlook the larger objective of sustainable development in conducting business and pursuing a CSR agenda. The 2014 Guidelines follow the "comply or explain" approach.

Comply or explain approach

Most of the provisions of corporate governance are on a "comply" approach basis, and several of these provisions are also on an "explain" approach basis. For example, RPTs are required to be included in the Board's report to the shareholders along with the justification for entering into such transactions. Companies are required to disclose to the members in the financial statements the full particulars of the loan, investment, guarantee or security provided to any other body corporate. In relation to CSR, the Board's report must carry information pertaining to the composition of the Corporate Social Responsibility Committee (CSRC), and also the reasons for not spending the specified amount on CSR (in cases of non-compliance with the CSR provisions).

Reporting of compliance

Compliance with the corporate governance provisions is required to be included in the board's report.

Liability for non-compliance with the corporate governance regime

Non-compliance with the provisions pertaining to corporate governance attracts civil and/or criminal liability under the ICA 2013 and also under the rules and regulations framed by SEBI.

General response of companies

Before the ICA 2013, listed public companies have been very familiar and proactive in complying with the specific corporate governance provisions. However, the ICA 2013 has brought in several new provisions and companies are of the view that some of the provisions are cumbersome. The Government of India has been taking initiatives in addressing some of these concerns of corporate India by issuing necessary clarification.

 

Corporate social responsibility and reporting

5. Is it common for companies to report on social, environmental and ethical issues? Highlight, where relevant, any legal requirements or non-binding guidance/best practice on corporate social responsibility.

Corporate social responsibility (CSR)

The Indian Companies Act 2013 (ICA 2013) has, for the first time, introduced the concept of CSR for companies. It requires specified companies to spend at least 2% of the average net profits of the company made during the three immediately preceding financial years on prescribed CSR activities.

CSR obligations are applicable upon every company with either a:

  • Net worth of at least INR5 billion during any financial year.

  • Turnover of at least INR10 billion during any financial year.

  • Net profit of at least INR50 million during any financial year.

Every company, including its holding or subsidiary company, and a foreign company which has its branch office or project office in India, which fulfils any of the above thresholds is required to comply with the CSR provisions.

Every company which fulfils the above threshold requirements must constitute a Corporate Social Responsibility Committee (CSRC) to:

  • Formulate CSR policy.

  • Make recommendations on CSR to the board.

There is a mandatory requirement to report the details of the CSR policy and the implementation of the CSR initiatives taken by a company during a financial year.

There has to be an attempt/effort on the part of the company to spend the specified amount on CSR activities. Where a company is not able to spend the specified amount on CSR activities, its board must provide justifiable reasons for not spending in its report (which will be laid before the company in a general meeting). Separately, under the Listing Agreement, it is mandatory for the top 100 listed public companies to include a business responsibility report in their annual reports.

Certain large corporates in India have set up trusts to undertake CSR activities, and certain small companies undertake CSR activities in association with non-governmental organisations.

Non-binding guidance

The Ministry of Corporate Affairs (MCA) has issued the 2009 Guidelines and the 2011 Guidelines. Although these guidelines are not mandatory, in practice certain companies comply with their provisions as part of their good corporate governance practice.

 

Board composition and restrictions

6. What is the management/board structure of a company?

Structure

Companies must adopt a single governing board structure. Although there is no specific mandatory requirement to do so under the Indian Companies Act 2013 (ICA 2013), certain listed public companies also adopt (or are currently considering adopting) a supervisory board. The board is also authorised to delegate certain specified powers to:

  • Any committee of directors.

  • The managing director (MD).

  • The manager or any other principal officer of the company.

Management

The board is vested with powers to manage the affairs and management of a company. In addition, the MD is entrusted with substantial powers of management of the affairs of the company. The MD works under the superintendence, control and direction of the board.

The 2013 Act has introduced the concept of whole-time key managerial personnel (KMPs) for listed public companies and every other public company with a specified paid-up share capital. The key managerial personnel will usually include:

  • MD.

  • CEO.

  • Manager.

In their absence, the following will usually be included:

  • Whole-time director (WTD).

  • Company secretary.

  • Chief financial officer (CFO).

The key managerial personnel is subject to specific roles and duties.

Board members

The board consists of the directors of the company, and only individuals can be directors. Every company must have at least one resident director, and every listed public company must have at least one third of the total number of directors as independent directors. Every listed public company, and other specified public companies, must have at least one woman director.

Employees' representation

The employees of a company do not have a statutory right to board representation.

Number of directors or members

A private company must have:

  • A minimum of two members and a maximum of 200 members.

  • A minimum of two directors and a maximum of 15 directors.

A public company must have:

  • A minimum of seven members (there is no prescribed maximum number of members under the ICA 2013).

  • A minimum of three directors and a maximum of 15 directors.

A one-person company can have one person as both a member and a director.

 
7. Are there any general restrictions or requirements on the identity of directors?

Age

The MD, whole-time director and a company manager cannot be below the age of 21 years or above the age of 70 years. A person who has attained the age of majority (18 years of age) is competent to enter into contracts and can be appointed as a director.

Nationality

The Indian Companies Act 2013 (ICA 2013) does not prescribe any nationality requirements for the appointment of directors. However, every company must have at least one resident director (a resident director is a director who has stayed in India for at least 182 days in the previous calendar year).

Gender

Every listed public company and other specified public companies must have at least one woman director (however, there are no specific disclosure requirements in this regard).

 
8. Are non-executive, supervisory or independent directors recognised or required?

Recognition

The Indian Companies Act 2013 (2013 Act) recognises the concept of non-executive directors and independent directors. Listed public companies and specified public companies must have independent directors on their board.

The Listing Agreement also requires public listed companies to appoint a specified number of independent and non-executive directors. At least 50% of the directors on the board must be non-executive directors. Where the chairman of the board is a non-executive director, at least one-third of the board must comprise of independent directors, and where the company does not have a regular non-executive chairman, at least half of the board must comprise of independent directors. Where the regular non-executive chairman is a promoter of the company, or is related to any promoter or person occupying management positions at the board level or at one level below the board, at least one-half of the board must consist of independent directors.

Board composition

Listed public companies must have at least one third of the total number of directors as independent directors. Specified public companies must appoint at least two independent directors s on the board.

Independence

Under the ICA 2013, non-executive directors are directors who are neither promoters nor key managerial personnel.

In order to be an independent director, a person must fulfil the following specific criteria (as contained in the ICA 2013 and clause 49 of the Listing Agreement). An independent director:

  • Must not be a promoter of the company.

  • Must not be related to the promoters or directors of the company.

  • Must have had no pecuniary relationship with the company or its promoters or directors during the immediately preceding two financial years.

  • Must not have been either an employee, or a member of the company's key managerial personnels, during the immediately preceding three financial years.

In addition, independent directors are not entitled to hold any stock options in the company.

 
9. Are the roles of individual board members restricted?

In listed public companies and other specified public companies, an individual appointed as the chairperson cannot also be appointed as either the MD or chief executive officer of the company at the same time (except in cases of companies which are engaged in multiple businesses and which have appointed one or more CEOs for each section of the business, as notified by the central government).

 
10. How are directors appointed and removed? Is shareholder approval required?

Appointment of directors

Generally, directors are appointed by the company in its general meeting by shareholder approval. A company must inform its members of the candidature of a person applying for the office of a director by specified means. Obtaining a Director Identification Number (DIN) is a pre-requisite under the Indian Companies Act 2013 (ICA 2013) for a person to be appointed as a director. However, if the articles of association of a company contain the relevant provisions, the board is empowered to appoint a person as an additional director, alternate director and nominee director. A director is required to give consent to act as a director of a company.

The appointment of an independent director must be approved by the company in a general meeting and the appointment of an independent director must be formalised by way of a letter of appointment. Prescribed terms and conditions of appointment must also be included in the letter of appointment.

Removal of directors

A company can remove a director (where that director has not been appointed by the Tribunal) before the expiry of the period of his office after giving him a reasonable opportunity to be heard, by then passing an ordinary resolution removing him from office and by complying with certain other prescribed conditions (based on section 169 of the ICA 2013).

"Appointed by the Tribunal" means appointed by the National Company Law Tribunal. Where any member of a company makes an application to the Tribunal complaining of oppression and mismanagement, the Tribunal can make such orders as it thinks fit, with a view to bring an end to matters. Such an order can, among other things, provide for the appointment of directors who may be required to report to the Tribunal on specified matters.

11.

 
11. Are there any restrictions on a director's term of appointment?

The Indian Companies Act 2013 (ICA 2013) provides that:

  • A minimum of two thirds of the total number of directors of a public company must be persons whose period of office is liable to determination by the retirement of directors by rotation.

  • One third of the total number of directors will retire from office at the annual general meeting. However, they are then eligible to be re-appointed as a director at the general meeting.

A person cannot be appointed or re-appointed as an MD, whole-time director or manager for a term exceeding five years at a time. In addition, no re-appointment can be made before a period of one year has passed since the expiry of their term in office.

An independent director can hold office for a term of up to five consecutive years on the board of a company, although they will remain eligible for re-appointment upon:

  • The passing of a special resolution by the company.

  • Disclosure of their re-appointment in the board's report.

An independent director cannot hold office for more than two consecutive terms, but that ID will be eligible for appointment after the expiration of three years after ceasing to be an independent director.

 

Directors' remuneration

12. Do directors have to be employees of the company? Can shareholders inspect directors' service contracts?

Directors employed by the company

Directors are not employees of the company, except:

  • Where the Indian Companies Act 2013 (ICA 2013) requires the certain directors (for example, the MD and whole-time director) to be in full-time employment with the company.

  • Where a director's appointment with the company is on a whole-time basis.

Shareholders' inspection

Shareholders are permitted to inspect, amongst other things, information concerning the appointment of directors and key managerial personnel, and any securities held by them.

The company must keep copies of the contracts of service, or a memorandum containing the details of appointment, of the MD and whole-time director at its registered office, and the members are permitted inspect these documents without paying any fee. The members have also have the right to inspect the letters of appointment of any independent directors, and the company is required to post the terms and conditions of appointment of any independent directors on its website. Other directors are appointed by passing an appropriate resolution.

 
13. Are directors allowed or required to own shares in the company?

Directors and key managerial personnel can acquire securities of the company. However, there is no requirement for the directors to hold qualification shares.

 
14. How is directors' remuneration determined? Is its disclosure necessary? Is shareholder approval required?

Determination of directors' remuneration

Listed public companies and other specified public companies must have a nomination and remuneration committee (NRC), which will recommend a policy to the board concerning the remuneration of directors, key managerial personnel and other employees.

The total managerial remuneration payable by a public company to its directors, including the MD, whole-time director and its manager, in respect of any financial year must not exceed 11% of the net profits of that company for that financial year. Stock options granted to directors (which are valued as perquisites as defined under the Income Tax Act 1961 (ITA 1961)) must be included in the remuneration. The remuneration of whole-time key managerial personnel is determined as per the Nomination and Remuneration Policy of the company, in any.

Remuneration paid to an MD, whole-time director and manager is subject to Schedule V of the Indian Companies Act 2013 (ICA 2013) and other relevant provisions of the ICA 2013. The remuneration is approved by the Board at a meeting, which is subject to approval by a resolution at the next company general meeting (and by the central government where the remuneration is at variance with Schedule V of the ICA 2013).

Disclosure

Annual returns of companies must contain disclosures in relation to the remuneration of directors and KMPs. An extract of the annual return must be included in the Board's report.

Shareholder approval

Remuneration payable to an MD, whole-time director or manager must be approved by the board at a meeting. This is subject to approval by a resolution at the next company general meeting (and by the central government in cases where the appointment is at variance with the conditions specified in Schedule V of the ICA 2013).

General issues and trends

Not applicable.

 

Management rules and authority

15. How is a company's internal management regulated? For example, what is the length of notice and quorum for board meetings, and the voting requirements to pass resolutions at them?

Regulation of internal management

The management of a company is regulated by the Indian Companies Act 2013 (ICA 2013), rules made under that Act and also by the company's articles of association. The articles set out the rules and regulations of the company in respect of its management and the rights of the members/shareholders inter se and vis-à-vis the company. In addition, clause 49 of the Listing Agreement provides that the board of a listed public company must set out a code of conduct for all the board members and senior management of the company.

Notice for board meetings

A minimum of seven days' advance notice is required for holding a board meeting. However, in order to transact any urgent business, a meeting can be called at shorter notice provided at least one independent director is present at that meeting (where this is possible). Where there is no independent director at the meeting, decisions taken at the meeting must be circulated to all directors and will be final only upon ratification by at least one independent director (where the company has an independent director).

Quorum for board meetings

The quorum for a board meeting must be one third of its total membership or two directors, whichever is higher. Board meetings can be conducted through video conferencing or by other audio-visual means.

Voting requirements for passing resolutions

In the case of an ordinary resolution, the number of votes cast in favour of the resolution must exceed the number of votes cast against the resolution. In the case of a special resolution, the number of votes cast in favour of the resolution must be at least three times the number of votes cast against the resolution.

 
16. Can directors exercise all the powers of the company or are some powers reserved to the supervisory board (if any) or a general meeting? Can the powers of directors be restricted and are such restrictions enforceable against third parties?

Directors' powers

Except for those matters which require the consent and approval of the shareholders of the company, the board of a company is entitled to exercise all the powers of the company, and to do all such acts and things which the company is authorised to do, in accordance with the Indian Companies Act 2013 (ICA 2013), the articles and the memorandum of association of the company. The ICA 2013 does not recognise the concept of a supervisory board.

Restrictions

Specified powers can be exercised by the board only with the consent of the company by a special resolution. These include:

  • Selling, leasing or otherwise disposing of an undertaking of the company.

  • Investing otherwise in trust securities the amount of compensation received as a result of any merger or amalgamation.

  • Borrowing money in excess of the paid-up share capital and free reserves.

  • Remitting or giving time for repayment of any debt due from a director.

  • Changing the registered office of a company.

  • Alteration of the articles or memorandum of association of a company.

  • Variation of shareholders' rights.

  • Reduction of share capital.

  • Removal of auditors.

  • Appointing more than 15 directors in a company, and the appointment of an ID who is eligible for re-appointment.

  • Giving of any loan/guarantee/providing any security in excess of the specified limits.

  • Related party transactions (RPTs).

  • Remuneration of directors.

  • Voluntary winding-up.

 
17. Can the board delegate responsibility for specific issues to individual directors or a committee of directors? Is the board required to delegate some responsibilities, for example for audit, appointment or directors' remuneration?

The board can delegate specific powers to any committee of directors, the MD, the manager or any other principal officer of the company, by a resolution passed at a meeting. This includes the power to borrow monies, the power to invest the funds of the company and the power to grant loans/give a guarantee/provide security in respect of loans. Any other matter which does not necessarily require approval at a board meeting can also be delegated by the board.

The Indian Companies Act 2013 (ICA 2013) and the Listing Agreement (applicable only to a listed public company) require a company acting through its board to constitute the following committees, and these committees work with the board as required under ICA 2013 and the Listing Agreement:

  • Audit committee (AC). The AC must, among other things:

    • recommend the appointment, remuneration and terms of appointment of company's auditors;

    • review and monitor the auditor's independence and performance;

    • scrutinise the inter-corporate loans and investments.

    The role and powers of the AC has been widened by the ICA 2013 in comparison to its role and powers under the Listing Agreement.

  • Nomination and remuneration committee (NRC). The NRC must formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy concerning the remuneration for of directors and key managerial personnel.

  • Stakeholder relationship committee (SRC). The SRC must consider and resolve the grievances of security holders.

 

Directors' duties and liabilities

18. What is the scope of a director's general duties and liability to the company, shareholders and third parties?

Directors' duties

The Indian Companies Act 2013 (ICA 2013) has specifically provided for the statutory duties of directors, which include:

  • Duty to act in accordance with the articles of association of the company.

  • Duty to act in good faith to promote the objects of the company.

  • Duty of care, skill and diligence and to exercise independent judgement.

  • Duty not to be involved any situation which presents a conflict of interests to the company.

  • Duty not to obtain any undue gain or advantage.

  • Duty not to assign his office.

Directors also have a fiduciary duty to the company and the shareholders of the company as a whole. IDs have additional duties, codified under the ICA 2013.

In the case of any conflict of interest (including any perceived conflict), full and adequate disclosures must be made and a director must refrain from participating in discussions or voting on such matters.

Liability for breach of duties

A director who commits a breach can be liable for both civil and criminal sanctions, depending upon the nature of the breach and the statutory provisions.

Provisions under the Listing Agreement

Clause 49 of the Listing Agreement contains the duties and liabilities of directors of listed public companies.

 
19. Briefly outline the regulatory framework for theft, fraud, and bribery that can apply to directors.

The Indian Companies Act 2013 (ICA 2013) makes specific provision for fraud (by any person). Based on section 447 of the ICA 2013, fraud in relation to a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position, with the intent to deceive, to gain undue advantage from, or to injure the interests of, the company/its shareholders/its creditors/any other person, whether or not there is any wrongful gain or wrongful loss. A case of fraud can attract imprisonment for a term ranging from six months to ten years, and also a fine ranging from the amount involved in the fraud to three times the amount involved in the fraud.

The 2013 Act does not make specific provisions for theft and bribery. Theft has been dealt with under the Indian Penal Code 1860 (IPC 1860). Relevant provisions under the IPC 1860 have general applicability (that is, they apply to any person, including directors). Bribery has been dealt with under the Prevention of Corruption Act 1988, the IPC 1860, and special statutes such as the Representation of People Act 1951 and other subordinate legislation. These items of legislation do not make specific provisions for the liability of directors. However, directors will be held liable if found guilty under the various legislation (due to their general applicability).

 
20. Briefly outline the potential liability for directors under securities laws.

The main pieces of legislation dealing with securities in India are:

  • The SEBI Act and the regulations issued under that Act. These include, in particular:

    • SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009.

    • SEBI Takeover Regulations.

    • SEBI Insider Trading Regulations.

    • SEBI Delisting Regulations.

    • Securities Contracts (Regulation) Act, 1956 (SCRA).

  • Listing Agreement with stock exchanges.

Separately, the Indian Companies Act 2013 (ICA 2013) has made the following provisions in relation to the securities of a company:

  • Specific provisions have been introduced in the ICA 2013 prohibiting forward dealing and insider trading of securities.

  • In the case where a director or a member of key managerial personnel enters into forward dealing in securities of a company, he will be punishable with:

    • imprisonment for up to two years;

    • a fine ranging from INR0.1 million to INR0.5 million.

    Both imprisonment and a fine can be imposed. He will also be liable to surrender the acquired securities to the company.

  • In the case where a director or a member of key managerial personnel enters into insider trading, he will be punishable with:

    • imprisonment for up to five years;

    • a fine ranging from INR0.5 million to INR250 million, or three times the amount of profit made out of the insider trading (whichever is higher).

    Both imprisonment and a fine can be imposed.

 
21. What is the scope of a director's duties and liability under insolvency laws?

Insolvency

Currently, the Indian Companies Act 2013 (ICA 2013) and the Sick Industrial Companies (Special Provisions) Act 1985 (SICA) are the relevant laws concerning the insolvency of companies (although the relevant provisions of the ICA 2013 have not yet been notified). Given that the relevant provisions of the ICA 2013 have not yet been notified, SICA is currently the main applicable law. Under the ICA 2013, a company must not dispose of its properties or assets except as required in the normal course of business, and the Board must not take any steps likely to prejudice the interests of the creditors, during the time an application by the secured creditors is pending with the Tribunal to determine the company's solvency.

Any person who has taken part in the promotion, formation or management of the insolvent company or its undertaking (including any director, manager, officer or employee of the insolvent company who are, or have been in employment of the company) may be held liable for misapplying or retaining any money or property of the insolvent company, or for any misfeasance, malfeasance, nonfeasance or breach of trust. The Tribunal can direct that person to repay or restore the money or property, or pay compensation to the insolvent company. In addition, action can be taken against the person for fraud under section 447 of the ICA 2013.

SICA makes special provisions for securing the timely detection of insolvent and potentially insolvent companies which own industrial undertakings, for the swift determination of adequate measures and their enforcement. Under SICA, the Board of an insolvent industrial company must make a reference to the Board for Industrial and Financial Reconstruction (BIFR) to determine the measures which must be adopted with respect to the company. SICA also makes provisions concerning the liability of these companies and the persons in charge of the company for any violation of its provisions.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) is also relevant in this context. It regulates the securitisation and reconstruction of financial assets and the enforcement of security interests.

Winding up

The ICA 2013 also makes provisions for winding up a company. A company can be wound up by the Tribunal under specified circumstances, which include:

  • The inability of the company to pay its debts.

  • Where the revival and rehabilitation of a company is not possible.

  • Where the affairs of the company have been conducted in a fraudulent manner.

The winding up petition must be presented by specified persons, which can include:

  • Creditors.

  • Registrar of Companies.

  • Persons authorised by central government.

  • The company itself.

A company liquidator must be appointed by the Tribunal for the purposes of winding up a company.

The directors and other officers of a company for which a winding up order has been passed by the Tribunal must submit the company's complete and audited books of accounts to the liquidator specified by the Tribunal within 30 days of the passing of the winding up order. In the case of a contravention of this provision, the director or officer can be liable to:

  • Imprisonment for up to six months.

  • A fine ranging from INR25,000 to INR0.5million.

Both imprisonment and a fine can be imposed.

The promoters, directors, officers and employees must extend full co-operation to the company liquidator in relation to the winding up proceedings. In the case of contravention of this provision, the promoters, directors, officers and employees can be liable to:

  • Imprisonment for up to six months.

  • A fine of up to INR50,000.

Both imprisonment and a fine can be imposed.

 
22. Briefly outline the potential liability for directors under environment and health and safety laws.

Directors can be prosecuted and made vicariously liable for a violation of pollution control laws by the company. The Environment Protection Act 1986 imposes liability on a company as well as every person in charge of the company for violation of its provisions.

Under environmental laws, the principle of res ipsa loquitur applies. In addition, the judgments pronounced by the Supreme Court of India in M.C. Mehta v Union of India, AIR 1987 SC 1086 and Union Carbide Corporation v Union of India, AIR 1992 SC 248 are also applicable in cases under environmental law. In these judgments, the Supreme Court reserved the right to lift the corporate veil and proceed against the promoters of the concerned company, and also evolved the concept of "deep pocket theory" for satisfying claims in cases of mass tort.

Non-compliance with the requirements under various labour laws (in relation to health and safety of workmen) also attracts liability. For example, the Factories Act 1948 makes provisions for health and safety of workers at a factory, and a violation of this provision attracts liability for the occupier (who will be a director in the case of a company).

 
23. Briefly outline the potential liability for directors under anti-trust laws.

Under the Competition Act, 2002 (CA 2002), a director's failure to notify a combination, failure to furnish information or providing false information attracts certain penalties under the CA 2002.

In the case where a company violates any of the provisions of the CA 2002, the company and every person in charge of the company are held liable.

Where it is proved that a contravention of any provision of the CA 2002 involves a director, manager, secretary or other officer of the company, that person will also be deemed to be guilty of that contravention and will be subject to certain penalties under the CA 2002.

Personal liability can also be imposed on the responsible officers (including directors) of a company.

 
24. Briefly outline any other liability that directors can incur under other specific laws.

Liability under the tax laws

Under the Income Tax Act 1961 (ITA 1961), persons who are responsible for and in charge of the business of the company are held responsible for any issues arising under the tax legislation.

Liability under labour and employment laws

Under specific labour welfare legislation (for example, the Employees' Provident Funds and Miscellaneous Provisions Act 1952; the Payment of Gratuity Act 1972; and the Contract Labour (Regulation and Abolition) Act 1970) the company, or the person who has the ultimate control over the affairs of the company (which can include a director) can be held liable for failure to comply with the provisions of the relevant legislation.

Liability under data protection and cyber-crime laws

The Information Technology Act 2000 (ITA 2000) contains provisions relating to data protection and imposes both:

  • Civil liability for the negligent handling of sensitive personal information.

  • Criminal liability with punishment in cases of disclosure of information in breach of a lawful contract.

The ITA 2000 imposes liability on a body corporate in the event that the body corporate is negligent in implementing and maintaining reasonable security practices and procedures, which causes either the wrongful loss or wrongful gain of sensitive personal data. The body corporate is liable in the instances to pay damages by way of compensation to the person who is affected. The ITA 2000 makes data theft an offence, punishable with damages by way of compensation of up to INR10 million (to be paid to the affected person). It also makes hacking an offence, punishable with imprisonment for up to three years, or a fine of up to INR0.2 million, or both. Publishing obscene information in electronic form is also an offence, punishable:

  • On first conviction with imprisonment of up to five years and a fine of up to INR0.1 million.

  • For second and subsequent offences, with imprisonment for up to ten years and a fine of up to INR0.2 million.

The ITA 2000 further imposes liability on companies and persons in charge and responsible to the company for the conduct of its affairs, for contravention of any of the provisions of the ITA 2000.

The Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules 2011 lay down directions to be followed by a body corporate for the protection of personal information, including sensitive personal information/data, and the procedure to be followed for the collection of that data and further disclosure of that collected data. The ITA 2000 provides penalties for contravention of the rules and regulations made under it (for which a specific penalty has not been provided for elsewhere). Concerned persons will be liable to pay compensation of up to INR25,000 to the affected person, or a penalty of up to INR25,000.

 
25. Can a director's liability be restricted or limited? Is it possible for the company to indemnify a director against liabilities?

The liability of a director of a company cannot be limited generally. In any proceedings for negligence, default, breach of duty, and so on, against an officer of a company, the court may relieve him, either wholly or partly, from his liability, taking into account the circumstances of the case.

A director can be indemnified by the company against liabilities. That indemnity will be enforceable if it is against any liability incurred by a director or officer in defending any proceedings in which judgment is given in his favour, or for which he is acquitted or discharged, or where it is determined that, although liable, he acted honestly and reasonably and should be excused. However, he cannot be indemnified against liability in a civil or criminal prosecution for which he is found guilty.

 
26. Can a director obtain insurance against personal liability? If so, can the company pay the insurance premium?

A company can obtain insurance on behalf of its MD, whole-time director, manager, chief executive officer, chief financial officer or company secretary to indemnify them against liabilities.

Where any insurance is taken out by a company on behalf of its MD, whole-time director, manager, chief executive officer, chief financial officer or company secretary to indemnify them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, then the premium paid on that insurance will not be treated as part of the remuneration payable to that person where they are not guilty of any negligence, default, misfeasance, breach of duty or breach of trust. Where they are proved guilty, the premium paid will be treated as part of the remuneration.

 
27. Can a third party (such as a parent company or controlling shareholder) be liable as a de facto director (even though such person has not been formally appointed as a director)?

The Indian Companies Act 2013 (ICA 2013) does not envisage a situation where a parent company or the controlling shareholder can be held liable as a de facto director without having been involved in the matter as a director.

 

Transactions with directors and conflicts

28. Are there general rules relating to conflicts of interest between a director and the company?

The Indian Companies Act 2013 (ICA 2013) provides that director of a company must act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and act in the best interests of the company, its employees, shareholders, community and for the protection of environment.

The director of a company must not involve himself in a situation in which he may have a direct or indirect interest that conflicts with the interest of the company. A director of a company must not achieve any undue gain or advantage either to himself or to his relatives, partners or associates. The concept of conflict of interest includes the rule of pecuniary interest and the rule of influence.

 
29. Are there restrictions on particular transactions between a company and its directors?

Where a director is interested in a contract or arrangement between the company and either a body corporate in which he holds more than a specified percentage of shares, or a firm or other entity in which he is a partner, owner or member, then that director:

  • Must disclose the nature of his interest to the board.

  • Must not participate in the board meeting to discuss that contract or arrangement.

Where a company enters into a contract or arrangement without such disclosure, then that contract or arrangement will be voidable at the option of the company.

A company must not either:

  • Advance any loan to any of its directors, or to any person in whom he is interested.

  • Give any guarantee, or provide any security in connection with any loan taken by the director or any connected person.

A company cannot enter into a contract or arrangement or transaction(s) with its related party (where a director is also a related party), unless that arrangement or transaction has been approved by the board through a resolution, and by the shareholders through a special resolution (in the case where the prescribed thresholds are met). Transactions which are in the ordinary course of business and which are on an arm's length basis do not require such approvals. For certain types of companies, the approval of the audit committee (AC) is also required.

The Companies (Amendment) Bill 2014 has replaced the special resolution with an ordinary resolution for the approval of related party transactions (RPTs).

 
30. Are there restrictions on the purchase or sale by a director of the shares and other securities of the company he is a director of?

Directors and KMPs are prohibited from engaging in forward dealings in the securities of the company and from entering into insider trading.

 

Disclosure of information

31. Do directors have to disclose information about the company to shareholders, the public or regulatory bodies?

Where a company offers its securities to the public, its prospectus must disclose specified information, which includes:

  • Names and addresses of the registered office of the company and that of specified persons.

  • Dates of opening and closing of the issue.

  • A declaration about the issue of allotment letters and refunds within the prescribed time.

  • A statement by the board regarding the separate bank account where monies received out of the issue will be transferred and disclosure of details of all monies out of the previous issue.

  • Details regarding underwriting the issue.

  • Procedure and time schedule for allotment and issue of securities.

  • Capital structure of the company.

  • Main objects of public offer, terms of the issue and other specified particulars.

  • Main objects and present business of the company and its location, and the schedule of implementation of the project.

  • Details of directors, including their appointment, remuneration and interest in the company.

 

Shareholder rights

Company meetings

32. Does a company have to hold an annual shareholders' meeting? If so, when? What issues must be discussed and approved?

Every company (other than a one-person company must hold a general meeting every year, as its annual general meeting (AGM). The time gap between two AGMs must not exceed 15 months.

In the case of an AGM, the following are the general items which are discussed:

  • The consideration of financial statements and the reports of the board and auditors.

  • The declaration of any dividend.

  • The appointment of directors in place of those retiring.

  • The appointment of, and the fixing of the remuneration of, the auditors.

However, the company can propose to discuss any other item (which will be considered as a special item).

 
33. What are the notice, quorum and voting requirements for holding meetings and passing resolutions?

Notice for general meetings

A general meeting of a company can be called by giving notice of not less than 21 clear days. A general meeting can also be called at shorter notice with the consent of not less than 95% of the members entitled to vote at that meeting.

Quorum for meetings

Unless the articles of association of a company provide for a larger number, the quorum for a general meeting is as follows:

  • For a public company:

    • five members personally present if the number of members on the date of the meeting is not more than 1,000;

    • 15 members personally present if the number of members on the date of the meeting is more than 1,000 but not more than 5,000;

    • 30 members personally present if the number of members on the date of the meeting exceeds 5,000.

  • For a private company, two members must be personally present at the meeting.

A chairman must also be elected for the meeting.

Proxy

Any member of a company entitled to attend and vote at a meeting of the company is entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf. A proxy does not have the right to speak at the meeting and is also not entitled to vote except on a poll. This provision relating to proxies is not applicable to a company that does not have a share capital, unless the articles of that company provide otherwise.

Voting requirements

A member entitled to more than one vote is not required to use all his votes or cast all of them in the same way.

At any general meeting, a resolution put to the vote of the meeting must be decided on a show of hands, unless a poll is demanded or voting is carried out electronically. Before or on the declaration of the result of the voting on any resolution on a show of hands, a poll can be ordered to be taken by the chairman of the meeting on his own motion, and must be ordered to be taken by him where a demand is made to do so on behalf of the members of the company.

Resolutions can also be passed by circulation, on a request being made by a specified number of members of a company.

Resolutions can be ordinary or special. In the case of an ordinary resolution, the number of votes cast in favour of the resolution must exceed the number of votes cast against it. In the case of a special resolution, the number of votes cast in favour of the resolution must be at least three times the number of votes cast against it.

Applicability of the aforesaid provisions to a one-person company

The aforesaid provisions relating to notice, quorum and voting requirements are not applicable to a one-person company.

Teleconferencing and/or written resolutions

The Indian Companies Act 2013 (ICA 2013) provides that a prescribed class of companies are required to provide an e-voting facility for voting by shareholders.

 
34. Are specific voting majorities required by statute for certain corporate actions?

Under the Indian Companies Act 2013 (ICA 2013), members'/shareholders' approval is required for different corporate actions, either by an ordinary resolution or by a special resolution. Actions requiring a special resolution include:

  • Changing the registered office of a company.

  • Alteration of the articles or memorandum of association of a company.

  • Variation of shareholders' rights.

  • Reduction of share capital.

  • Removal of auditors.

  • Appointing more than 15 directors in a company, and the re-appointment of an independent director who is re-eligible for re-appointment.

  • Giving of any loan/guarantee/providing any security in excess of the specified limits.

  • Related party transactions (RPTs).

  • Remuneration of directors.

  • Voluntary winding up.

 
35. Can shareholders call a meeting or propose a specific resolution for a meeting? If so, what level of shareholding is required to do this?

The Board must call an extraordinary general meeting (EGM) of the company at the request of either:

  • Members who hold, on the date of the request for an EGM, not less than one-tenth of the paid-up share capital of the company which carry voting rights.

  • Members who hold, on the date of the request for an EGM, not less than one-tenth of the total voting power of all the members (where the company does not have any share capital).

Minority shareholder action

 
36. What action, if any, can a minority shareholder take if it believes the company is being mismanaged and what level of shareholding is required to do this?

Oppression and mismanagement

Where a company has share capital, the following minority shareholders (whichever is the least) can apply to the Tribunal where they believe there is oppression or mismanagement (subject to specified conditions):

  • Not less than 100 members.

  • Not less than one-tenth of the total number of members.

  • Any member(s) holding not less than one-tenth of the issued share capital of the company.

Where a company does not have any share capital, not less than one-fifth of the total number of members can apply to the Tribunal:

  • Where there is oppression of the minority or mismanagement of the company by the persons in control of the company or the majority shareholders.

  • If it is likely that the affairs of the company are/will be conducted in a manner prejudicial to the interest of members, or a class of members.

Class action suits

An application for a class action suit can be filed by a specified number of members of the company, or by members holding a specified percentage of share capital of the company. A class action suit can also be filed by a specified number of depositors of the company, or by depositors to whom the company owes a specified percentage of its total deposits. Please note that the percentage applicable has not yet been prescribed.

The requisite number of members will be:

  • At least 100 members of the company, or at least the prescribed percentage of the total number of its members, whichever is less, or any member(s) holding at least the prescribed percentage of the issued share capital of the company, subject to the condition that the applicant(s) has paid all calls and other sums due on his shares (in the case where a company has a share capital).

  • At least one-fifth of the total number of its members (in the case where a company does not have a share capital).

The requisite number of depositors will be at least 100 or at least the prescribed percentage of the total number of depositors, whichever is less, or any depositor(s) to whom the company owes prescribed percentage of total deposits of the company.

The application can be filed if the member(s) or depositor(s) are of the opinion that the management, or conduct of affairs, of the company is prejudicial to the company, members and/or depositors. A direct claim can be made against third parties for damages or compensation for unlawful or wrongful acts.

Minority shareholders have exit opportunities as dissenting shareholders, under certain circumstances. In addition, shareholders owning at least 10% of shares/voting rights have been provided with certain minority protection rights, including the right to request an EGM of the company.

 

Internal controls, accounts and audit

37. Are there any formal requirements or guidelines relating to the internal control of business risks?

The board's report must include a statement indicating the development and implementation of a risk management policy for the company, which must include the procedure for identifying elements of risk, if any, which in the opinion of the board may threaten the existence of the company. The directors' statement of responsibility must state that the directors, in the case of a listed public company, have set out internal financial controls to be followed by the company, and that those internal financial controls are adequate and are operating effectively.

Clause 49 of the Listing Agreement requires listed public companies to constitute a risk management committee.

 
38. What are the responsibilities and potential liabilities of directors in relation to the company's accounts?

The financial statement of a company must be approved by the board, for submission to the auditor for his report. Violation of this provision attracts civil as well as criminal liability. Every director, officer or other employee of the company has a duty to produce books of accounts and other books and papers to the Registrar of Companies or inspector, to furnish such information and explanations as required and provide them with assistance. Violation of this provision attracts civil as well as criminal liability.

The MD, the whole-time director in charge of finance, the chief financial officer (or any other person of a company empowered by the board) are required to prepare the books of account and other relevant books and papers and the financial statement for every financial year which provide a true and fair view of the state of the affairs of the company (including that of its branch office or offices, if any). Violation of this provision attracts civil as well as criminal liability.

At every AGM of a company, the board of the company must present at that meeting financial statements for the financial year. The board of a company must issue a board report, which must be annexed to the financial statements and presented before the company in the general meeting. The board report must also have a directors' statement of responsibility which will, among other things, include provisions that:

  • Directors have devised proper systems to ensure compliance with the provisions of all applicable laws.

  • These systems are adequate and are operating effectively.

  • In the preparation of the annual accounts, the applicable accounting standards have been followed.

 
39. Do a company's accounts have to be audited?

The accounts of companies must be audited. Clause 49 of the Listing Agreement also contains provisions for the audit of the accounts of listed public companies.

 
40. How are the company's auditors appointed? Is there a limit on the length of their appointment?

Internal auditor

The following classes of companies are required to appoint an internal auditor (or a firm of auditors) to conduct an internal audit of the functions and activities of the company:

  • Every listed public company.

  • Every unlisted public company which has:

    • paid-up share capital of at least INR500 million during the preceding financial year; or

    • turnover of at least INR2 billion during the preceding financial year; or

    • outstanding loans or borrowings from banks or public financial institutions exceeding INR1 billion at any point of time during the preceding financial year; or

    • outstanding deposits of at least INR250 million at any point of time during the preceding financial year.

  • Every private company which has:

    • turnover of at least INR2 billion during the preceding financial year; or

    • outstanding loans or borrowings from banks or public financial institutions exceeding INR1 billion at any point of time during the preceding financial year.

Appointment of auditors

All companies are required to appoint an individual or a firm as an auditor who will hold office for a period of five years. Listed public companies and other specified companies can appoint an individual auditor for one term of five years and an audit firm for two terms of five years each. A transition period of three years has been prescribed. Auditors must mandatorily be rotated every five years. Shareholders can require that the audit partner, and the audit team, be rotated every year. Clause 49 of the Listing Agreement also makes provisions for the appointment of auditors.

 
41. Are there restrictions on who can be the company's auditors?

A person is eligible for appointment as an auditor of a company only if he is a chartered accountant. A firm in which the majority of partners practising in India are qualified for appointment as auditors of a company may be appointed as the auditor of the company (by the name of the firm).

The Companies Act (ICA 2013) provides for specific disqualifications for appointment as an auditor of a company. For example, an officer or employee of the company, or a person whose relative is a director or a member of key managerial personnel in the company, cannot be appointed as an auditor.

 
42. Are there restrictions on non-audit work that auditors can do for the company that they audit accounts for?

Auditors are prohibited from rendering the following services to the company/its holding company/subsidiary company:

  • Accounting and book-keeping services.

  • Internal audit.

  • Design and implementation of any financial information system.

  • Investment banking services.

  • Outsourced financial services.

  • Actuarial services.

  • Investment advisory services.

  • Management services.

  • Any other kind of services as may be prescribed.

 
43. What is the potential liability of auditors to the company, its shareholders and third parties if the audited accounts are inaccurate? Can their liability be limited or excluded?

Liabilities of auditors

Any contravention or non-compliance with respect to the powers and duties of the auditor can result in the auditor being subjected to the payment of a specified penalty. Where an auditor contravenes the provisions knowingly or wilfully, with the intention to deceive the company, or its shareholders or creditors, or the tax authorities, he can be subject to a term of imprisonment and a fine. Where an auditor is convicted (as stated above), he is liable to both:

  • Refund the remuneration received by him to the company.

  • Pay damages to the company, statutory bodies or authorities, or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report.

Where, in the case of an audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has, or have, acted in a fraudulent manner, or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided for in the Indian Companies Act 2013 (ICA 2013) (or in any other law for the time being in force) the partner or partners and the firm will be jointly and severally liable.

Limitation of liability

The ICA 2013 does not make provisions for the limitation or exclusion of liability of auditors.

 
44. What is the role of the company secretary (or equivalent) in corporate governance?

The Indian Companies Act 2013 (ICA 2013) provides for the following duties/functions specific to a company secretary:

  • Report to the board about compliance with the provisions of the ICA 2013, the rules made under that Act and other laws applicable to the company.

  • Ensure that the company complies with the applicable secretarial standards.

  • Provide guidance to the directors of the company with regard to their duties, responsibilities and powers.

  • Facilitate the convening of meetings and attend board, committee and general meetings, and maintain the minutes of these meetings.

  • Obtain approvals from the board, the general meeting, the government and other relevant authorities.

  • Represent before various regulators and other authorities under the ICA 2013 in connection with their discharge of various duties.

  • Assist the board in the conduct of the affairs of the company.

  • Assist and advise the board in ensuring good corporate governance and in complying with the corporate governance requirements and best practices.

  • Follow such other duties as may be assigned by the board from time to time.

In addition, the company secretary of a company must sign the annual returns prepared by companies (for filing with the Registrar of Companies). Clause 49 of the Listing Agreement also makes provisions for the company secretary for listed public companies.

 

Online resources

Ministry of Corporate Affairs

W www.mca.gov.in

Description. Contains the Companies Act 2013, the rules framed under that Act, the circulars, notifications, orders, and so on, issued under this Act.

Securities and Exchange Board of India

W www.sebi.gov.in

Description. Contains the SEBI Equity Listing Agreement and other SEBI laws referred in this chapter.

Income Tax Department

W http://www.incometaxindia.gov.in/Pages/default.aspx

Description. Contains the Income Tax Act 1961.

Ministry of Environment and Forests

W http://envfor.nic.in/

Description: Contains the Environment Protection Act 1986 and other environment related laws.

Ministry of Labour and Employment

W http://labour.gov.in/content/

Description: Contains the labour and employment laws, including the Factories Act 1948.

Competition Commission of India

W http://www.cci.gov.in/

Description. Contains the Competition Act 2002.

Department of Telecommunications, Ministry of Communications and Information Technology

W http://www.dot.gov.in/

Description. Contains the Information Technology Act 2000 and the rules framed under that Act.

India Code

W http://indiacode.nic.in/

Description Contains all the central laws, including Indian Penal Code 1860; the Prevention of Corruption Act 1988; the Sick Industrial Companies (Special Provisions) Act 1985.

The information available on these websites is uploaded by the respective ministries/regulatory bodies. It is available in English language and the English language version is always binding.



Contributor profiles

Shardul S Shroff, Managing Partner

Amarchand & Mangaldas & Suresh A. Shroff & Co

T (91-11) 41590700, 40606060, 41000541, ext.6016
F (91-11) 2692 4900
E shardul.shroff@amarchand.com

Professional qualifications. Advocate, India

Non-professional qualifications. B.Com(H); LL.B.

Areas of practice. Banking & finance; capital markets; corporate restructuring; general corporate advisory; joint ventures; infrastructures; mergers & acquisitions; oil & gas; private equity; project finance; real estate; regulatory policies & takeovers.

Rudra Kumar Pandey

Amarchand & Mangaldas & Suresh A. Shroff & Co

T (91-11) 41590700, 40606060, 41000541, ext.4370
F (91-11) 2692 4900
E rudra.pandey@amarchand.com

Professional qualifications. Advocate, India

Non-professional qualifications. B.Com(H); CS; LL.B.

Areas of practice. M&A; private equity; banking & finance; real estate; funds; corporate restructuring; general corporate.

Vishal Nijhawan, Associate

Amarchand & Mangaldas & Suresh A. Shroff & Co

T (91-11) 41590700, 40606060, 41000541, ext.4308
F (91-11) 2692 4900
E vishal.nijhawan@amarchand.com

Professional qualifications. Advocate, India, 2013.

Non-professional qualifications. LL.B

Areas of practice. Mergers and acquisitions; banking and finance; funds; corporate restructuring; general corporate; public policy and regulatory affairs.


{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247494723758", "objName" : "Corporate governance and directors duties in India_overview", "userID" : "2", "objUrl" : "http://uk.practicallaw.com/cs/Satellite/resource/0-506-6482?null", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "22e97be00:15b0af9e485:3fe6", "analyticsSessionCookie" : "22e97be00:15b0af9e485:3fe7", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }