ACCOUNTABILITY & CORPORATE GOVERNANCE MECHANISM IN INDIA:STUDY OF CO. ACT 2013 WITH PRESENT SCENARIO
📘 Corporate Governance & Accountability in India – An Overview
🔹 Corporate Governance
Corporate Governance refers to a system of rules, practices, and processes by which a company is directed and controlled. It includes the relationships among stakeholders (shareholders, board of directors, employees, customers, regulators) and the goals for which the company is governed.
🔹 Accountability
Accountability means being answerable for one's actions. In corporate governance, this means:
Directors are accountable to shareholders
Management is accountable to the board
The company is accountable to regulatory bodies, stakeholders, and the public
🏛️ Legal Framework for Corporate Governance in India
The Companies Act, 2013 is the primary legislation governing corporate governance and accountability mechanisms in India. It replaced the Companies Act, 1956, to introduce a more modern and transparent legal framework.
🧾 Key Provisions of the Companies Act, 2013 Ensuring Corporate Governance
1. Board of Directors (Section 149 to 172)
Minimum and maximum number of directors prescribed
At least one woman director (for certain companies)
Resident director (minimum 182 days in India)
Independent Directors for listed and large public companies
Duties codified under Section 166
2. Audit Committees and Other Committees (Section 177)
Mandatory for certain public companies
Role: Oversee financial reporting, internal audit, compliance
3. Corporate Social Responsibility (CSR) – Section 135
Mandatory CSR spending for companies meeting certain financial thresholds
Minimum 2% of average net profits to be spent on CSR activities
4. Disclosure & Transparency – Sections 134 & 92
Directors’ Report must include details on financials, risk management, CSR, etc.
Annual Return (MGT-7) and Financial Statements (AOC-4) to be filed with Registrar of Companies (RoC)
5. Independent Directors (Section 149(6))
To provide unbiased opinions
Not involved in day-to-day operations
Must attend at least one board meeting without management (Section 149(8) read with Schedule IV)
6. Whistleblower Mechanism – Section 177(9)
Establish a vigil mechanism for reporting unethical behavior or fraud
Protects whistleblowers from retaliation
7. Serious Fraud Investigation Office (SFIO) – Section 211
A specialized agency to investigate corporate frauds
8. Removal and Disqualification of Directors – Section 164
Directors can be disqualified for non-compliance, fraud, or conviction
📊 Present Scenario: Corporate Governance Challenges & Reforms
✅ Recent Trends & Developments
Increased digitalization in reporting and governance (MCA21 portal)
Emphasis on Environmental, Social & Governance (ESG) compliance
Use of AI and data analytics for fraud detection and auditing
Tightening of rules on related party transactions and board independence
❌ Key Challenges
Lack of true independence of independent directors in some cases
Insider trading and corporate frauds still exist
Misuse of CSR funds in certain sectors
Weak internal audits in some mid-sized companies
⚖️ Important Case Laws on Corporate Governance in India
📌 1. Satyam Computer Services Ltd. Scam (2009)
Case: Ramalinga Raju’s confession of manipulating accounts of Satyam
Key Issues:
Massive corporate fraud and failure of internal governance
Involvement of top management in financial manipulation
Outcome:
Arrest of senior management
Triggered the overhaul of corporate governance laws
Direct influence on framing of Companies Act, 2013, especially:
Enhanced role of auditors
Stronger penalties
Mandatory internal audits
📌 2. Tata Sons Ltd. v. Cyrus Mistry (2021)
Facts:
Removal of Cyrus Mistry as Chairman of Tata Sons
Alleged governance issues and oppression of minority shareholders
Supreme Court’s Judgment:
Ruled in favor of Tata Sons
Emphasized the role of majority shareholders and board decisions
Highlighted that governance must be aligned with company constitution (Articles of Association)
Significance:
Clarified the limits of minority shareholder rights
Reaffirmed board autonomy when acting within the law
📌 3. PIL in IL&FS Crisis (2018)
Facts:
Infrastructure Leasing & Financial Services Ltd. defaulted on debt
Allegations of mismanagement, fake reporting
Outcome:
Government superseded the board
Investigation by SFIO
Raised questions about auditor negligence and regulatory failure
📘 Summary Table: Key Corporate Governance Mechanisms under Companies Act, 2013
| Mechanism | Legal Provision | Purpose |
|---|---|---|
| Board Composition | Sec. 149 | Ensures diversity and independence |
| Audit Committee | Sec. 177 | Oversight of financial integrity |
| CSR | Sec. 135 | Promote social responsibility |
| Vigil Mechanism | Sec. 177(9) | Encourage whistleblowing |
| Director’s Duties | Sec. 166 | Codifies fiduciary responsibilities |
| Fraud Investigation | Sec. 211 | Detect and prosecute serious frauds |
| Financial Disclosures | Sec. 134 & 92 | Ensures transparency |
🧠 Conclusion
The Companies Act, 2013 introduced a modern and robust framework for corporate governance and accountability in India. It emphasizes:
Transparency
Ethical conduct
Protection of stakeholders
Strong internal controls
While reforms have strengthened governance structures, corporate scandals like Satyam, IL&FS, and governance battles like Tata-Mistry reveal ongoing challenges. Going forward, the focus must be on strengthening enforcement, training independent directors, and using technology for governance auditing.
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