Corporate Governance In Unlisted Public Companies
1. Meaning of Corporate Governance in Unlisted Public Companies
Corporate governance in unlisted public companies refers to the framework of legal rules, board practices, internal controls, and ethical standards through which such companies are:
Directed and managed
Controlled and supervised
Made accountable to shareholders and stakeholders
Although not listed on stock exchanges, unlisted public companies often have wide public shareholding, making governance standards stricter than private companies.
2. Distinctive Nature of Unlisted Public Companies
Unlisted public companies differ from listed and private companies because:
Shares are not traded on stock exchanges
SEBI LODR does not apply
Public interest and shareholder protection remain high
Governance is governed mainly by Companies Act, 2013 and judicial principles
Courts consistently hold that public company status attracts enhanced governance duties.
3. Legal Framework Governing Governance of Unlisted Public Companies
A. Companies Act, 2013
Key provisions:
Section 149 – Board composition and independent directors
Section 166 – Duties of directors
Section 177 – Audit committee
Section 178 – NRC (where applicable)
Section 184 – Disclosure of interest
Section 188 – Related party transactions
B. Rules and Notifications
Companies (Appointment and Qualification of Directors) Rules
Companies (Meetings of Board and its Powers) Rules
Companies (Accounts) Rules
C. Judicial Principles
Fiduciary duty
Fairness to minority shareholders
Prevention of oppression and mismanagement
4. Corporate Governance Requirements for Unlisted Public Companies
A. Board Composition
Minimum three directors
Independent directors required for specified classes of unlisted public companies
Woman director mandatory for certain thresholds
B. Independent Directors
Mandatory for:
Large unlisted public companies
Public interest entities
Independent directors act as watchdogs protecting minority interests.
C. Board Committees
Audit Committee mandatory for prescribed unlisted public companies
Nomination and Remuneration Committee where thresholds are met
D. Related Party Transactions
Board and shareholder approvals
Disclosure requirements
Arm’s length and ordinary course scrutiny
E. Transparency and Disclosures
Financial statements
Director responsibility statement
Auditor’s reports and internal control disclosures
5. Duties and Responsibilities of Directors
Directors owe:
Duty to act in good faith
Duty of care, skill, and diligence
Duty to avoid conflicts of interest
Duty to protect minority shareholders
These duties apply equally to unlisted public companies.
6. Role of Minority Shareholder Protection
Right to approach NCLT under Sections 241–242
Class action suits under Section 245
Right to information and inspection
Courts strictly scrutinise actions prejudicial to minority shareholders.
7. Judicial Approach to Corporate Governance
(At least 6 Case Laws)
1. Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.
Principle:
Directors must act bona fide in the interest of the company as a whole.
Relevance:
Applies to unlisted public companies where minority protection is crucial.
2. Dale and Carrington Investment (P) Ltd. v. P.K. Prathapan
Principle:
Allotment of shares to dilute minority shareholding amounts to oppression.
Relevance:
Guides governance standards in unlisted public companies.
3. Life Insurance Corporation of India v. Escorts Ltd.
Principle:
Public companies owe transparency to shareholders.
Relevance:
Unlisted status does not dilute disclosure obligations.
4. Shanti Prasad Jain v. Kalinga Tubes Ltd.
Principle:
Oppression requires lack of probity and fair dealing.
Relevance:
Sets governance standards for board conduct.
5. V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd.
Principle:
Corporate governance failures can justify NCLT intervention.
Relevance:
Used in unlisted company governance disputes.
6. Rajahmundry Electric Supply Corporation Ltd. v. A. Nageshwara Rao
Principle:
Courts can interfere where management acts against public interest.
Relevance:
Public interest dimension in unlisted public companies.
7. Ebrahimi v. Westbourne Galleries Ltd.
Principle:
Equitable considerations apply in corporate governance.
Relevance:
Applied by Indian courts to governance disputes.
8. Consequences of Governance Failures
NCLT intervention
Removal of directors
Regulation of company affairs
Financial penalties
Criminal liability in case of fraud
Loss of stakeholder confidence
9. Best Practices for Governance in Unlisted Public Companies
Adoption of voluntary governance codes
Strong independent director participation
Transparent RPT processes
Regular internal audits
Clear succession and risk management policies
10. Conclusion
Corporate governance in unlisted public companies in India is substance-oriented and fiduciary-driven. While not subject to SEBI listing norms, such companies are held to high standards of fairness, transparency, and accountability due to public shareholding and economic impact. Indian courts and tribunals consistently enforce governance norms to protect minority shareholders and uphold corporate probity.
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