Judicial development in corporate governance in India by Charu V at LEXCLIQ

  • Major issues exist with the functioning of private companies and even independent directors and independent boards which also form a part of the decision making process of any corporate house and can be the substantial points of unfettered mis-governance thereby risking the loss of financial resources of multiple innocent stakeholders.
  • In such cases we need to take recourse to the judiciary who can help in filing this gap so as to hold these independent stakeholders equally responsible to the process.
  • In terms of judicial development, till date one of the landmark and path breaking case was the Satyam Computer Services scam case, wherein the Chairman Ramalinga Raju confessed to a fraud amounting to more than Rs. 7000 crores which sent ripples in the corporate world with respect to the inefficiency of the legal framework to prevent and deal with insider trading, unethical conduct on the part of chairman, function of independent directors, lack of oversight by auditors, fraudulent accounting, etc.
  • The falsification of the company’s assets and the fraudulent accounting shown to the shareholders sent ripples in the ministry of corporate affairs about the inefficiency of the then regulatory framework and hence brought about amendments in the companies act as well as in the corporate governance guidelines.
  • The case also rocked the auditors at Price Waterhouse Coopers and challenged their integrity as well led to stricter guidelines for the auditors and auditing firms.
  • The Andhra Pradesh High Court in the case of B. Ramalinga Raju v. Union of India, highlighted the need for increased accountability by linking it to the democratic context which is the core value for a nation like India and where governance should be guided by a democratic setup.
  • In a similar line, in the case of Satyam Computer Services Ltd. V. Enforcement Directorate, the High Court further highlighted the need for proper principles of corporate governance as the guiding principle of any company.
  • This point was reiterated by the Company Law Board while hearing the case and thereby concluded that accountability and transparency towards the shareholders is not only at the core of a democratic setup of corporate governance but also in turn can lead in the betterment of an ailing company, like in this case being Satyam Computer Services Ltd., which presently is going through amalgamation and is in the midst of an arbitration process with regard to the same, with its chairman behind the bars for the commission of the offence of money laundering.
  • Another recent case in the Calcutta High Court which is set to steer the course of corporate governance is that Andrew Yule Head Office Retired Employees Association union of India and another, where the question involved was the accountability of a public sector enterprise and whether they can be subjected to the meaning of article 12 by virtue of the corporate governance guidelines issued by the Ministry of Heavy Industries and Public Enterprises, wherein guideline 1.6 allows writ to be filed against management in situations of non-observance of corporate governance leading to arbitrariness.
  • Further, in the landmark case of Sahara India Real Estate Limited v. SEBI the court while investigating in the worth crores of rupees of scam by the company, came to the inevitable conclusion that historical facts have shown that fraudulent accounting and non-disclosure of information have the core enemies of good corporate governance which has been able to bring big multi-dollar companies and thus should be curbed at the very base.
  • While these elements form the antithesis of good corporate governance, at the same time it is imperative that the responsibility on the shoulders of the management and auditors should be increased so as to evoke proper practices to be followed in the company. This not only involves statutory following of the law but also besides that looking into the basic guidelines of corporate governance, them being accountability and transparency.

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