PROJECT REPORT

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 Prepared By:-
Nishtha Jain
Registration No: 250492205/05/2013

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C orporate governance is the framework of rules, relationships, systems, and
processes within and by which authority is exercised and controlled in corporations. It
encompasses the mechanisms by which companies, and those in control, are held to
account. It involves balancing the interests of a company's many stakeholders, such as
shareholders, management, customers, suppliers, financiers, government, and the
community. It provides the structure through which the objectives of the company are set,
and the means of attaining those objectives and monitoring performance are determined.

Governance structures and principles identify the distribution of rights and

responsibilities among different participants in the corporation (such as the board of
directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders)
and include the rules and procedures for making decisions in corporate affairs. Corporate
governance includes the processes through which corporations' objectives are set and
pursued in the context of the social, regulatory and market environment. Governance
mechanisms include monitoring the actions, policies, practices, and decisions of
corporations, their agents, and affected stakeholders. Corporate governance practices are
affected by attempts to align the interests of stakeholders.

Corporate governance concept emerged in India after the second half of 1996 due to
economic liberalization and deregulation of industry and business. With the changing
times, there was also need for greater accountability of companies to their shareholders
and customers. The report of Cadbury Committee on the financial aspects of corporate
Governance in the U.K. has given rise to the debate of Corporate Governance in India.

Need for corporate governance arises due to separation of management from the
ownership. For a firm success, it needs to concentrate on both economic and social aspect.
It needs to be fair with producers, shareholders, customers etc. It has various
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responsibilities towards employees, customers, communities and at last towards
governance and it needs to serve its responsibilities at the best at all aspects.

The “corporate governance concept” dwells in India from the Arthashastra time instead of
CEO at that time there were kings and subjects. Today, corporate and shareholders
replace them but the principles still remain same, unchanged i.e. good governance.

20th century witnessed the glossy of Indian Economy due to liberalization, globalization,
and privatization. Indian economy for the 1st time here was together with world economy
for product, capital and lab our market and which resulted into world of capitalization,
corporate culture, business ethics which was found important for the existence of
corporation in the world market place.

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 Corporate Governance is concerned with the way
corporate entities are governed, as distinct from the way
By Robert business within those companies is managed. Corporate
Ian (Bob) governance addresses the issues facing Board of
Tricker Directors, such as the interaction with top management
and relationships with the owners and others interested
in the affairs of the company

Confederati Corporate governance deals with laws, procedures,

on of Indian practices and implicit rules that determine a
company’s ability to take informed managerial
Industry decisions vis-à-vis its claimants - in particular, its
(CII) – shareholders, creditors, customers, the State and
employees. There is a global consensus about the
objective of ‘good’ corporate governance: maximizing
long-term shareholder value.

Kumar Strong corporate governance is indispensable to

Mangalam resilient and vibrant capital markets and is an
important instrument of investor protection. It is
Birla the blood that fills the veins of transparent
Committee - corporate disclosure and high quality accounting
constituted practices. It is the muscle that moves a viable and
by SEBI accessible financial reporting structure.
(1999)

Corporate Governance is a system of structuring,

operating and controlling a company with the
following specific aims:
Cadbury
Committee, ● Fulfilling long-term strategic goals of
owners;
U.K ● Taking care of the interests of employees;
● A consideration for the environment and
local community;
● Maintaining excellent relations with
customers and suppliers;
● Proper compliance with all the applicable
legal and regulatory requirements.

Institute of Corporate Governance is the application of best

management practices, compliance of law in true letter
Company and spirit and adherence to ethical standards for
Secretaries of effective management and distribution of wealth and
India discharge of social responsibility for sustainable
development of all stakeholders.

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Satyam Computer
Services Limited
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Satyam Computer Services Limited: A Case Study of
India’s Enron
⮚ Ironically, Satyam means “truth” in the ancient Indian language “Sanskrit”;

⮚ Satyam won the “Golden Pea- cock Award” for the best governed company in 2007
and in 2009;

⮚ From being India’s IT “crown jewel” and the country’s “fourth largest” company
with high-profile customers, the outsourcing firm Satyam Computers has become
embroiled in the nation’s biggest corporate scam in living memory;

⮚ Mr. Ramalinga Raju (Chairman and Founder of Satyam; henceforth called “Raju”),
who has been arrested and has confessed to a $1.47 billion (or Rs. 7800 crore)
fraud, admitted that he had made up profits for years;

⮚ According to reports, Raju and his brother, B. Rama Raju, who was the Managing
Director, “hid the deception from the company’s board, senior managers, and
auditors”;

⮚ The case of Satyam’s accounting fraud has been dubbed as “India’s Enron”;

⮚ In order to evaluate and understand the severity of Satyam’s fraud, it is important

to understand factors that contributed to the “unethical” decisions made by the
company’s executives;

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Mr. Ramalinga Raju and the Satyam Scandal

On January 7, 2009, Mr. Raju disclosed in a letter to Satyam Computers Limited

Board of Directors that “he had been manipulating the company’s accounting numbers for
years”. Mr. Raju claimed that he overstated assets on Satyam’s balance sheet
by $1.47 billion. Nearly $1.04 billion in bank loans and cash that the company claimed
to own was non-existent. Satyam also underreported liabilities on its balance sheet.
Satyam overstated income nearly every quarter over the course of several years in order to
meet analyst expectations. For example, the results announced on October 17, 2009
overstated quarterly revenues by 75 percent and profits by 97 percent. Mr. Raju and the
company’s global head of internal audit used a number of different techniques to
perpetrate the fraud. “Using his personal computer, Mr. Raju created numerous bank
statements to advance the fraud. Mr. Raju falsified the bank accounts to inflate the
balance sheet with balances that did not exist. He inflated the income statement by
claiming interest income from the fake bank accounts. Mr. Raju also revealed that he
created 6000 fake salary accounts over the past few years and appropriated the money
after the company deposited it. The company’s global head of internal audit created fake
customer identities and generated fake invoices against their names to inflate revenue.
The global head of internal audit also forged board resolutions and illegally obtained loans
for the company”. It also appeared that the cash that the company raised through
American Depository Receipts in the United States never made it to the balance sheets.

Greed for money, power, competition, success and prestige compelled Mr. Raju to “ride
the tiger”, which led to violation of all duties imposed on them as fiduciaries—the duty of
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care, the duty of negligence, the duty of loyalty, the duty of disclosure towards the
stakeholders. “The Satyam scandal is a classic case of negligence of fiduciary duties, total
collapse of ethical standards, and a lack of corporate social responsibility. It is human
greed and desire that led to fraud. This type of behavior can be traced to: greed
overshadowing the responsibility to meet fiduciary duties; fierce competition and the need
to impress stakeholders especially investors, analysts, share- holders, and the stock
market; low ethical and moral standards by top management; and, greater emphasis on
short‐term performance”. According to CBI, the Indian crime investigation agency, the
fraud activity dates back from April 1999, when the company embarked on a road to
double-digit annual growth. As of December 2008, Satyam had a total market
capitalization of $3.2 billion dollars.

Satyam planned to acquire a 51% stake in Maytas Infrastructure Limited, a leading

infrastructure development, construction and project management company, for $300
million. Here, the Rajus’s had a 37% stake. The total turnover was $350 million and a net
profit of $20 million. Raju’s also had a 35% share in Maytas Properties, another real-
estate investment firm. Satyam revenues exceeded $1 billion in 2006. In April, 2008
Satyam became the first Indian company to publish IFRS audited financials. On
December 16, 2008, the Satyam board, including its five independent directors had
approved the founder’s proposal to buy the stake in Maytas Infrastructure and all of
Maytas Properties, which were owned by family members of Satyam’s Chairman,
Ramalinga Raju, as fully owned subsidiary for $1.6 billion. Without shareholder approval,
the directors went ahead with the management’s decision. The decision of acquisition
was, however, reversed twelve hours after investors sold Sat- yam’s stock and threatened
action against the management. This was followed by the law-suits filed in the US
contesting Maytas deal. The World Bank banned Satyam from conducting business for 8
years due to inappropriate payments to staff and inability to provide information sought
on invoices. Four independent directors quit the Satyam board and SEBI ordered
promoters to disclose pledged shares to stock exchange.

Investment bank DSP Merrill Lynch, which was appointed by Satyam to look for a partner
or buyer for the company, ultimately blew the whistle and terminated its engagement with
the company soon after it found financial irregularities. On 7 January 2009, Saytam’s
Chairman, Ramalinga Raju, resigned after notifying board members and the Securities
and Exchange Board of India (SEBI) that Satyam’s accounts had been falsified. Raju
confessed that Satyam’s balance sheet of September 30, 2008, contained the following
irregularies: “He faked figures to the extent of Rs. 5040 crore of non-existent cash and
bank balances as against Rs. 5361 crore in the books, accrued interest of Rs. 376 crore
(non-existent), understated liability of Rs. 1230 crore on account of funds raised by Raju,
and an overstated debtor’s position of Rs. 490 crore. He accepted that Satyam had
reported revenue of Rs. 2700 crore and an operating margin of Rs. 649 crore, while the
actual revenue was Rs. 2112 crore and the margin was Rs. 61 crore”.

In other words, Raju:

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1) Inflated figures for cash and bank balances of US $1.04 billion vs. US
$1.1 billion reflected in the books;

2) An accrued interest of US $77.46 million which was non-existent;

3) An understated liability of US $253.38 million on account of funds was

arranged by himself; and

4) An overstated debtors' position of US $100.94 million vs. US $546.11

million in the books.

Raju claimed in the same letter that “neither he nor the managing director had
benefited financially from the inflated revenues, and none of the board members had
any knowledge of the situation in which the company was placed”. The fraud took
place to divert company funds into real-estate investment, keep high earnings per
share, raise executive compensation, and make huge profits by selling stake at inflated
price. The gap in the balance sheet had arisen purely on account of inflated profits over
a period that lasted several years starting in April 1999. “What accounted as a marginal
gap between actual operating profit and the one reflected in the books of accounts
continued to grow over the years. This gap reached unmanageable proportions as
company operations grew significantly”, Ragu explained in his letter to the board and
shareholders. He went on to explain, “Every attempt to eliminate the gap failed, and
the aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with
real ones. But the investors thought it was a brazen attempt to siphon cash out of
Satyam, in which the Raju family held a small stake, into firms the family held tightly”.
Table 1 depicts some parts of the Satyam’s fabricated ‘Balance Sheet and Income
Statement’ and shows the “difference” between “actual” and “reported” finances.

Table 1. Fabricated balance sheet and income statement of Satyam: as of

September 30, 2008.

Items Rs. in Actual Reported Difference

crore
Cash and Bank
321 5361 5040
Balances
Accrued Interest
on Bank Fixed Nil 376.5 376
Deposits
Understated
1230 None 1230
Liability
Overstated
2161 2651 490
Debtors

Total Nil Nil 7136

Revenues (Q2 FY
2112 2700 588
2009)
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Operating Profits 61 649 588

Fortunately, the Satyam deal with Matyas was “salvageable”. It could have been saved
only if “the deal had been allowed to go through, as Satyam would have been able to
use Maytas’ assets to shore up its own books”. Raju, who showed “artificial” cash on his
books, had planned to use this “non-existent” cash to acquire the two Maytas
companies. As part of their “tunneling” strategy, the Satyam promoters had
substantially reduced their holdings in company from 25.6% in March 2001 to 8.74%
in March 2008. Furthermore, as the promoters held a very small percentage of equity
(mere 2.18%) on December 2008, the concern was that poor performance would result
in a takeover bid, thereby exposing the gap. It was like “riding a tiger, not knowing how
to get off without being eaten”. The aborted Maytas acquisition deal was the final,
desperate effort to cover up the accounting fraud by bringing some real assets into the
business. When that failed, Raju confessed the fraud. Given the stake the Rajus held in
Matyas, pursuing the deal would not have been terribly dif- ficult from the perspective
of the Raju family. Unlike Enron, which sank due to agency problem, Satyam was
brought to its knee due to tunneling. The company with a huge cash pile, with
promoters still controlling it with a small per cent of shares (less than 3%), and trying
to absorb a real-estate company in which they have a majority stake is a deadly
combination pointing prima facie to tunneling. The reason why Ramalinga Raju claims
that he did it was because every year he was fudging revenue figures and since
expenditure figures could not be fudged so easily, the gap between “actual” profit and
“book” profit got widened every year. In order to close this gap, he had to buy Maytas
Infrastructure and Maytas Properties. In this way, “fictitious” profits could be ab-
sorbed through a “self-dealing” process. The auditors, bankers, and SEBI, the market
watchdog, were all blamed for their role in the accounting fraud.

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Corporate Governance Issues at
Satyam
● On a quarterly basis, Satyam earnings grew;

● Mr. Raju admitted that the fraud which he committed amounted to nearly $276
million;

● In the process, Satyam grossly violated all rules of corporate governance;

● The Satyam scam had been the example for following “poor” Corporate
Governance practices;

● It had failed to show good relation with the shareholders and employees;

● Corporate Governance issue at Satyam arose because of non-fulfillment of

obligation of the company towards the various stakeholders;

● Of specific interest are the following: distinguishing the roles of board and
management; separation of the roles of the CEO and chairman; appointment to
the board; directors and executive compensation; protection of shareholders
rights and their executives.

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 Need For
Corporate
Governance

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Corporate Governance is needed to create a corporate culture of Transparency,
accountability and disclosure. It refers to compliance with all the moral & ethical values,
legal framework and voluntarily adopted practices. Here are some key needs for corporate
governance:

1. Accountability

Corporate governance ensures that there are clear processes in place for accountability.
The board of directors, management, and shareholders have distinct roles and
responsibilities, and governance mechanisms hold them accountable for their actions and
decisions. The company is hence obliged to make timely disclosures on regular basis to all
its shareholders in order to maintain good investors’ relation. Good Corporate
Governance practices create the environment where Boards cannot ignore their
accountability to these stakeholders.

2. Transparency

Good corporate governance promotes transparency in the organization’s operations and

decision-making processes. Transparent reporting of financial and non-financial
information helps build trust with investors, stakeholders, and the public. A principle of
good governance is that stakeholders should be informed about the company’s activities
what it plans to do in the future and any risks involved in its business strategies

3. Investor Confidence

Effective corporate governance practices build investor confidence. Investors are more
likely to invest in companies that demonstrate responsible governance practices, ensuring
their investments are managed well and risks are minimized. The consulting firm
McKinsey surveyed and determined that global institutional investors are prepared to pay
a premium of up to 40 percent for shares in companies with superior corporate
governance practices.

4. Risk Management

Corporate governance frameworks include risk management practices that help identify,
assess, and mitigate risks. This proactive approach to risk management protects the
company from potential threats and uncertainties.

5. Sustainable Growth

Good governance supports sustainable business practices, ensuring that the company’s
growth and operations do not compromise long-term success. It balances short-term
objectives with long-term sustainability.

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6. Ethical Conduct

Corporate governance promotes ethical behavior and decision-making within the

organization. It establishes a culture of integrity and ethical conduct, which is crucial for
maintaining the company’s reputation and legal standing.

7. Regulatory Compliance

Corporate governance helps ensure that the company complies with all relevant laws,
regulations, and standards. Non-compliance can lead to legal penalties, financial losses,
and reputational damage.

8. Protection of Shareholders' Interests

Governance practices safeguard the interests of shareholders, especially minority and

foreign shareholders. It ensures that they are treated fairly and that their rights are
protected.

9. Board Effectiveness

Effective governance structures enhance the functioning of the board of directors. It

ensures that the board has the right composition, skills, and independence to make
objective decisions in the best interests of the company.

10. Stakeholder Relationships

Corporate governance fosters better relationships with stakeholders, including employees,

customers, suppliers, and the community. By considering stakeholders' interests, the
company can enhance its social license to operate and build long-term value.

11. Crisis Management

In times of crisis, strong governance structures enable quicker and more effective
decision-making. It ensures that there are clear procedures and responsibilities for
managing and responding to crises.

12. Enhancing Corporate Performance

Good governance practices can lead to better corporate performance. By implementing

best practices in governance, companies can improve operational efficiency, strategic
planning, and resource management.

13. Better Access To Global Market

Good corporate governance systems attract investment from global investors, which
subsequently leads to greater efficiencies in the financial sector.

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14. Combating Corruption

Companies that are transparent, and have sound system that provide full disclosure of
accounting and auditing procedures, allow transparency in all business transactions,
provide environment where corruption will certainly fade out. Corporate Governance
enables a corporation to compete more efficiently and prevent fraud and malpractices
within the organization.

Conclusion

Corporate governance is vital for the integrity, efficiency, and sustainability of any
organization. It provides the framework for balancing the interests of various
stakeholders, ensuring ethical conduct, and fostering transparency and accountability. In
essence, good corporate governance is the foundation for a company's long-term success
and resilience.

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Arthashastra
&
Corporate
governance

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⮚ Kautilya’s Arthashastra maintains that for good governance, all administrators,
including the king were considered servants of the people. Good governance and
stability were completely linked. If rulers are responsive, accountable, removable,
recallable, there is stability. If not there is instability. These tenets hold good even
today.

⮚ The substitution of the state with the corporation, the king with the CEO or the
board of a corporation, and the subjects with the shareholders, bring out the
quintessence of corporate governance, because central to the concept of corporate
governance is the belief that public good should be ahead of private good and that
the corporation’s resources cannot be used for personal benefit.

⮚ Arthashastra talks self-discipline for a king and the six enemies which a king should
overcome – lust, anger, greed, conceit, arrogance and foolhardiness. In the present
day context, this addresses the ethics aspect of businesses and the personal ethics of
the corporate leaders.

⮚ Kautilya’s fourfold duty of a king:-

Raksha: literally means protection, in the

corporate scenario it can be equated with the risk
management aspect.

Vriddhi: literally means growth, in the

present day context can be equated to
stakeholder value enhancement

Palana: literally means

maintenance/compliance, in the present day
context it can be equated to compliance to the
law in letter and spirit.

Yogakshema: literally means well being and in

Kautilya’s Arthashastra it is used in context of a
social security system. In the present day contextPage
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can be equated to corporate social responsibility.
Corporate
Governance
Developments In
India
✔ Corporate Governance in India gained prominence in the wake of liberalization
during the 1990s and was introduced, by the industry association Confederation of
Indian Industry (CII), as a voluntary measure to be adopted by Indian Companies;

✔ It soon acquired a mandatory status in early 2000s through the introduction of

Clause 49 of the Listing Agreement, as all companies (of a certain size) listed on
stock exchanges were required to comply with these norms.

✔ In late 2009, the Ministry of Corporate Affairs has released a set of voluntary
guidelines for corporate governance, which address a myriad corporate governance
issues;

✔ These voluntary guidelines mark a reversal of the earlier approach, signifying the
preference to revert to a voluntary approach as opposed to the more mandatory
approach prevalent in the form of Clause 49;

✔ However in a parallel process, key corporate governance norms are currently being
consolidated into an amendment to the Companies Act, 1956 and once the
Companies Bill, 2011 is approved the Corporate governance reforms in India would
completed two full cycles – moving from voluntary to the mandatory and then to
the voluntary and now back to the mandatory approach;
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✔ The Anglo – saxon model of governance, on which the Corporate framework
introduced in India is primarily based on, has certain limitations interms of its
applicability in the Indian environment;

✔ For instance, the central governance issue in the US or UK is essentially that of

disciplining management that has ceased to be effectively accountable to the owner
who are dispersed shareholders;

✔ However, in contrast to these countries, the main issue of corporate governance in

India is that of disciplining the dominant shareholder, who is the principal block –
holder, and of protecting the interests of the minority shareholders and other
stakeholders;

✔ This issue and the complexity arising from the application of alien corporate
governance model in the Indian corporate and business environment is further
compounded by the weak enforcement of corporate governance regulations through
the Indian Legal system.

✔ Furthermore, given that corporate governance is essentially a soft issue, whose

essence cannot be captured by quantitative and structural factors alone, one of the
challenges of making corporate governance norms mandatory is the need to
differentiate between from and content; for instance, how do we determine whether
companies actually internalize the desired governance norms whether they look at
governance as a check – the – box exercise to be observed more in letter than in
spirit;

✔ Currently, corporate governance reforms in India are at a crossroads; while

corporate governance codes have been drafted with a deep understanding of the
governance standards around the world, there is still a need to focus on developing
more appropriate solutions that would evolve from within and therefore address the
India – specific challenges more efficiently;

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⮚ Evolution of Corporate Governance in India

● Corporate governance is perhaps one of the most important differentiators of a

business that has impact on the profitability, growth and even sustainability of
business.

● It is a multi – level and multi – tiered process that is distilled from an organization’s
culture, its policies, values and ethics, especially of the people running the business
and the way it deals with various stakeholders;

● Creating value that is not only profitable to the business but sustainable in the long
– term interests of all stakeholders necessarily means that business have to run –
and be seen to be run – with a high degree of ethical conduct and good governance
where compliance is not only in letter but also in spirit.

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Corporate Governance under the New
Companies Act 2013
Corporate Governance under the new Companies Act 2013 has broadened its meaning.
They are a complete module for fixing a liability on the corporate entity. It is a landmark
piece of legislation and likely to have far reaching consequences on all companies
incorporated in India. The repealed act Companies Act, 1956 was in existence for well over
fifty years and was lately seeming quite ineffective at handling present day challenges of a
growing industry and the complexities related with the growing stakeholders’ interests and
segregation of ownership from management.

Some of the Provisions of Companies Act, 2013 related to Corporate Governance are:

● Appointment of Woman Director

Proviso to section 149(1) read with Rule 3 of Companies (Appointment and

Qualification of Directors) Rules, 2014 provides that the following class of companies
shall appoint at least one woman director–
(i) Every listed company;
(ii) Every other public company having -
(a) Paid–up share capital of one hundred crore rupees or more; or
(b) Turnover of three hundred crore rupees or more

A Specified IFSC Public Company is exempted from appointment of woman director.

● Appointment of Independent Directors

Section 149(4) of the Act provides that every listed public company shall have at least
one-third of the total number of directors as independent directors.

Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014

provides that the following class or classes of companies shall have at least two
directors as independent directors –

(i) The Public Companies having paid up share capital of ten crore rupees or more; or
(ii) The Public Companies having turnover of one hundred crore rupees or more; or

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 (iii) The Public Companies which have, in aggregate, outstanding loans, debentures
and deposits, exceeding fifty crore rupees.

Ministry of Corporate Affairs vide its notification dated July 05, 2017, inserted Rule
4(2) of the Companies (Appointment and Qualification of Directors) Rules, 2014, as per
which the following classes of unlisted public company shall not require to appoint
Independent Directors as mentioned under Rule 4 (1) namely:-

a. a joint venture
b. a wholly owned subsidiary; and
c. a dormant company as defined under section 455 of the Act.

A Specified IFSC public company and Section 8 Companies are exempted from the
appointment of an Independent director.

● Appointment of Whole time Key Managerial Personnel

Section 203 of the Act read with Rule 8 of the Companies (Appointment And
Remuneration of Managerial Personnel) Rules,2014 provides that every Listed
company and every other public company having a paid up share capital of ten crore
rupees or more shall have whole-time key managerial personnel comprising of :

– Managing director, or (Chief executive officer (CEO) or manager and in their

absence , a whole time director)
– Company secretary ;and
– Chief financial officer (CFO).

However, every Private Company which has a paid up share capital of ten crore rupees
or more are required to have a whole- time company secretary. In such a case, the
company secretary will not be termed as KMP (Refer Rule 8A).

● Corporate Social Responsibility

The concept of CSR rests on the good corporate citizenship where corporate
contributions to the societal growth as a part of their corporate responsibility for
utilizing the resources of the society for their productive use.

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Section 135 of the Companies Act provides the threshold limit for applicability of the
CSR to a Company:

● Net worth of the company to be Rs 500 crore or more;

● Turnover of the company to be Rs 1000 crore or more;
● Net profit of the company to be Rs 5 crore or more.

During the immediately preceding financial year shall constitute a Corporate Social
Responsibility Committee of the Board consisting of three or more directors, out of
which at least one director shall be an independent director.
Provided that where a company is not required to appoint an independent director under
sub-section (4) of section 149, it shall have in its Corporate Social Responsibility
Committee two or more directors.
Every company as prescribed in Section 135 and Company (Corporate Responsibility)
Rules, 2014 within the threshold limit requires spending of at least 2% of its average
net profits made during the immediately preceding three financial years as per its
CSR policy. If the company has not completed three financial years since its
incorporation, it must spend 2% of its average net profits made during the immediately
preceding financial years as per its CSR policy.

● Secretarial Audit

According to Sub-Section (1) of Section 204 of the Act, every listed company and a
company belonging to other class of companies as may be prescribed shall annex with its
Board’s report made in terms of sub-section (3) of section 134, a secretarial audit report,
given by a company secretary in practice, in such form as may be prescribed.

Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules,

2014 prescribes the other class of companies as under:

(a) every public company having a paid-up share capital of rupees fifty crore or more; or

(b) every public company having a turnover of rupees two hundred fifty crore or more.

The format of Secretarial Audit Report shall be in Form MR.3.

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 SEBI (Listing Obligation And Disclosure Requirements)
Regulations, 2015

SEBI vide its Notification dated 02nd September, 2015 had notified SEBI (Listing
Obligations and Disclosure Requirements) Regulations, 2015, which became effective for
all listed entities w.e.f. 01st December, 2015. Further SEBI inserted SEBI (Listing
Obligations and Disclosure Requirements) (Amendment) Regulations, 2018.
The LODR Regulations serve to consolidate the provisions of the various listing agreements
in operation for different segments of the capital markets, such as equity listings (Main
Platform & SME), listing of debt instruments, preference shares, Indian depository receipts,
securitized debt instruments, units of mutual fund and any other securities specified by
SEBI time to time. Further, the Regulations have been structured to align the provision of
Companies Act, 2013 with the provision of Listing Agreement.

Some Important Aspects of SEBI (Listing Obligation And Disclosure Requirements)

Regulations, 2015

● A listed entity shall appoint a qualified company secretary as the compliance officer.

● “Compliance Certificate” to be provided to Stock Exchanges by Compliance Officer

and Share Transfer Agent duly signed by both the compliance officer of the listed
entity and the authorized representative of the share transfer agent, wherever
applicable, within one month of end of each half of the financial year.

● The listed entity shall file with the recognized stock exchange(s) on a quarterly basis,
within twenty one days from the end of each quarter, a statement giving the number of
investor complaints pending at the beginning of the quarter, those received during the
quarter, disposed of during the quarter and those remaining unresolved at the end of the
quarter.

● All material related party transactions shall require approval of the shareholders
through resolution and no related party shall vote to approve such resolutions whether
the entity is a related party to the particular transaction or not:

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 Provided that the requirements shall not apply in respect of a resolution plan approved
under section 31 of the Insolvency Code, subject to the event being disclosed to the
recognized stock exchanges within one day of the resolution plan being approved.

● The Financial Results shall be approved by the Board of Directors which was not
specifically provided under Listing Agreement earlier.

● Disclosures of any events or information which, in the opinion of the board of directors
of the listed company, is material.

Quarterly Compliances

Regulation Subject Time Limit Compliance / Intimation

No. to Stock Exchange about

13(3) Investor Within 21 days from A statement giving the

complaints end of Quarter number of investor
complaints pending at the
beginning of the quarter,
those received during the
quarter, disposed of
during the quarter and
those remaining
unresolved at the end of
the quarter

27(2) compliance Within 15 days from Submit quarterly

report on close of quarter compliance report on
corporate corporate governance in
governance the format as specified by
the Board from time to
time to the recognised
stock exchange(s)

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31(1) Holding of Within 21 days from Submit a statement
securities and end of each quarter; showing holding of
shareholding 1 day prior to listing securities and
pattern of its securities on shareholding pattern
the stock separately for each class
exchange(s); of securities
within 10 days of
any capital
restructuring of the
listed entity resulting
in a change
exceeding two per
cent of the total paid-
up share capital

Provided that in case

of listed entities
which have listed
their specified
securities on SME
Exchange, the above
statements shall be
submitted on a half
yearly basis within
twenty one days
from the end of each
half year.

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32(1) Statement of Statement of Statement(s) on a
deviation(s) or deviation(s) or quarterly basis for public
variation(s) variation(s) on issue, rights issue,
quarterly Basis preferential
issue etc. ,-
(a) indicating deviations,
if any, in the use of
proceeds from the objects
stated in the offer
document or explanatory
statement to the notice for
the general meeting, as
applicable;
(b) indicating category
wise variation (capital
expenditure, sales and
marketing, working
capital etc.) between
projected utilisation of
funds made by it in its
offer document or
explanatory statement to
the notice for the general
meeting, as applicable and
the actual utilisation of
funds.

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 33(3) Standalone Within 45 days from a) Submit quarterly and
financial results end of quarter year-to-date standalone
financial results to the
stock exchange within
forty-five days of end of
each quarter, other than
the last quarter.

b) In case the listed entity

has subsidiaries, in
addition to the
requirement at clause (a)
of sub-regulation (3), the
listed entity shall may also
submit quarterly/year-to-
date consolidated
financial results.

Annual / Yearly Compliances

Regulation Time Limit Compliance / Intimation to

No. Stock Exchange about

33(3) Audited Within 60 days from Submit audited standalone

Standalone end of Financial Year financial results for the
financial financial year, along with the
results audit report and either Form
A) (for audit report with
unmodified opinion) or Form
B) (for audit report with
modified opinion)

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 34(1) Annual A copy of the annual A listed entity shall submit
Report to report sent to the the annual report to the stock
the stock shareholders along exchange and publish on its
exchange with the notice of the website
annual general meeting
not later than the day
of commencement of
dispatch to its
shareholders;

In the event of any

changes to the annual
report, the revised
copy along with the
details of and
explanation for the
changes shall be sent
not later than 48 hours
after the annual general
meeting.

36(2) Annual Not less than 21 days A listed entity shall send
Report to before the Annual annual report to the holders
the holders General Meeting. of securities
of
securities

CONCLUSION AND SUGGESTIONS

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“Corporate governance is the application of best management practices, compliance of law in true letter
and spirit and adherence to ethical standards for effective management and distribution of wealth and
discharge of social responsibility for sustainable development of all stakeholders”.

CONCLUSION:
o Banking sector plays a significant role in India to transform economy towards self
sufficiency hence the corporate governance of the banking sector is significantly
important. There is a need for the development of new policy framework on
corporate governance as well as the proper implementation of existing laws,
regulations and guidelines with the equal participation of all relevant stakeholders.

o Corporate governance has become a topic of increasing interest among the policy
makers since it looks at the relationship between the board of directors,
shareholders and management. The first chapter is an introduction about the thesis
subject highlighting the research design and various definitions of the corporate
governance enabling to understand the role of governance in the bank. The second
chapter gives a clear review of literature framework. It helps to find the research
gap in the area of research. Based on the literature review there are research gaps
related to the present study as not many studies are in accordance with public
sector banks though these banks are found to dominate the major part of the
financial system. The third chapter gives conceptual framework related to the
present study. Based on the conceptual framework there are no uniform models
available to be followed by the organization and Banks in particular. No doubt it is
an upcoming concept in various countries and hence studies have been conducted
but in India a need to add it in the present literature will be helpful to explore
opportunities in the global markets.

o Governance in the banking sector is of immense importance and strict adherence to

the changing norms will make the bank competent to meet the challenges ahead.
With good governance bank ensures that it will maintain the long term value of the
shareholders by maintaining its integrity, reputation and thus performance.

o The compliance of corporate governance ensures growth and stability reducing

perceived risks and builds confidence thus promoting good stakeholder’s
relationship. The evaluation of CG with the help of disclosure level provides ratings
for the stakeholders and the regulators in turn helps in healthy functioning of
capital market. Banks need to strengthen the disclosure norms. Along with the
compliance shareholders opinion in determining corporate governance standards is
also helpful. Hence the evaluation of the corporate governance in banks is necessary
to check the frauds and scams and protecting the interest of the stakeholders
becomes an essential element.
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 o Corporate governance is now recognized as a paradigm for improving
competitiveness, enhancing efficiency and improving shareholders confidence. The
research finding shows that the corporate governance has a significantly positive
impact on the bank performance. It also indicated that the non executive director’s
proportion has also major impact on the bank performance.

o Board meeting enhances the corporate governance disclosure level but the board
committee does not have major impact on the corporate governance disclosure
level.

o Practice of good governance is important for the better performance of the banks as
can be seen from the analysis of shareholder’s perspectives which shows that high
disclosure and stronger enforcement is required for better governance in the bank.

o From the bank’s policy makers perspectives corporate governance has the potential
to enhance the efficiency of the bank. In the nationalized banks government has the
dominance of controlling shareholding which dampens the spirit of the minority
shareholders. Though there is an increase in the voting rights from one percent to
ten percent for the nationalized banks their right to participate in corporate
decision making through the exercise of voting power is far from reality.
Nevertheless shareholders cannot be compelled to exercise their voting rights but
the shareholders need to take up the mantle of influencing corporate governance in
the banks which they have invested. The greater empirical research on the impact of
the shareholders voting rights on banks is needed thus there is a need to enhance
the power of minority shareholders who are compelled to act in the shadow of
controlling shareholders which helps in overall enhancement of corporate
governance norms in the listed banks in which they have invested and thus increase
the governance standards.

o It can be inferred that though SEBI keeps issuing guidelines to improve the
corporate governance norms in India, the onus to follow the same lies with the
individual banks in order to compete in the global market. The study concludes that
there is a substantial scope for improvement in the corporate governance
disclosures in all the banks.

SUGGESTIONS:
o The study provides a useful framework for banks to improve and implement good
corporate governance structure and processes. The system of corporate governance
needs a change too with increasing competition, changes in business environment
and speeding up of technology and communication.

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o There is need to raise the standard of the corporate governance and make the
nationalized banks attractive for investments. There are suggestions made for
individual banks, shareholder’s bank’s supervisors or regulators. Following
suggestions are made in relation to the present study.

 Banks Corporate governance disclosure of the nationalized banks is

good but in relation to the mandatory disclosures banks need to
adhere to the compliance since it leads to violation of the SEBI
guidelines leading to stringent measures by the regulatory body. Bank
should ideally give reason for non-compliance. Though the non-
mandatory and other corporate governance requirement disclosures
are desirable but for effective and better governance it is necessary
that the banks comply the requirements.

 Disclosure in relation to conducting postal ballot, nomination

committee and independent director needs to be enhanced. Banks
without nomination committee need to constitute since it helps in
appointment of skillful and efficient directors.

 CSR initiatives in banks are commendable however the disclosure

levels of Syndicate Bank and Vijaya Bank need to increase since it
plays major role in increasing its goodwill and reputation. Banks are
engaging themselves in various CSR activities which is indirectly
contributing to their increased market performance Rural
development is taken as a major initiatives by the Nationalized banks,
apart from education, employment and women empowerment. Banks
need to have proper disclosure and clear CSR strategy for its better
performance.

 Board committees are useful for better performance of the banks

activities. Canara bank needs to add up more number of committees
according to the requirement to enhance effective performance. Board
Committees should comprise of members with appropriate talent for
its tasks assigned and who have diverse skills, knowledge and
experience.

 The competence or expertise of the Directors should become the

principal criterion for committee memberships. Banks should initiate
more seminars and workshops in order to highlight the relevance of
corporate governance. Bank’s disclosure policy should be shared and
approved by the shareholders in AGM. Since board meeting is
showing positive correlation with that of corporate governance

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 disclosure level banks should make the meeting even more effective
for the betterment of the performance.

 Bank’s annual general meetings with specific venue and timings make
it expensive and inconvenient for many shareholders to attend. It
should not be just a formality of holding the meetings but should be of
productive purpose. Hence the shareholders who are not able to attend
the AGM should avail of the postal ballot to cast their vote. However
since the procedure is not properly highlighted it is required that
banks provide details of the postal ballot in their annual report.
Grievance of shareholders needs to be redressed.

 Their feedback, suggestions need to be given due consideration. Hence

it is advisable to have a help desk to shareholder’s which can provide
handbook to shareholder’s which highlights their rights and
responsibilities since they are one the major stakeholder’s of the bank.

o Corporate governance should not be practiced just because of regulations but to

ensure the betterment and good performance to match to the level of various
stakeholders whom they are responsible.

a. Shareholders: Shareholders must play active role as the market participant

and they should communicate with the bank in which they invest especially
with regard to the disclosure practices. Shareholders have suggested heavy
penalty, increase in the imprisonment and delisting of banks share as the way
to avoid unethical practices in banks. Shareholders should have good
communication with the banks to ensure that they meet mandatory
disclosure requirements and voluntary best practices. They should receive
sufficient information to judge the performance of the banks. The
shareholders participation in the management helps in optimum utilization
of resources and at the same time helps to improve the administrative
structure and the process. Minority shareholders are allowed to vote through
the postal ballot system, but rarely exercise their right as they may not be able
to take a view on the subject. Shareholders should exercise the option of
postal ballot system. The shareholders are dispersed all over the country and
they hardly communicate with each other. Even if they attend meetings they
do not have a unified voice which affects their voting rights and say in the
management. It is high time they would use it as an efficient tool to improve
corporate governance. Electronic voting by the shareholders and
shareholders getting united to have a common platform to raise their voice or
setting up of the organization to deal with the issue may help in this regard.

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b. Bank Regulator: Regulators (SEBI, RBI, and Government) should increase
the cost of non-compliance to encourage better compliance. The analysis of
the study reveals that there is no uniformity in the disclosure practices among
the chosen banks. Hence in the study it is recommended to policy makers to
develop a comprehensive policy which will have uniformity in corporate
governance practice across all the banks. Banks should ensure that they
adhere to the uniform and best corporate governance practice. There is need
to increase the clarity of disclosure regulations. Banks policy makers should
be careful in seeing items of corporate governance that are not complied by
the banks. It is necessary that the bank supervisors provide guidance to
banks on corporate governance, making it clear that they will not only
evaluate the corporate governance policies and procedures, but also evaluate
banks‟ implementation of these policies and procedures. It is necessary that
the criteria for assessing the corporate governance of banks needs to be
announced publicly and also recognize the improvements that have been
made. There is a need for periodic checks which will send a message that
regulator will take the disclosure seriously. The bank supervisors need to
evaluate the expertise and integrity of the existing and proposed board of
directors and also evaluate whether the bank has in place effective
mechanism through which the board would execute its responsibilities.
There are separate Acts such as Bank nationalization Act, Banking regulation
Act RBI act and Companies Act which needs to be consolidated to be one
single act for corporate governance. The relevant provisions of the Bank
Nationalization Act which does not provide for voting and approving the
accounts by shareholders should be amended. There is urgent need to revisit
the provisions of the applicable Laws to make them relevant & contemporary.
Despite of multiplicity of the regulatory body there is a need for uniform code
of governance to be developed for better compliance which should be
applicable to all the listed banks. Stronger enforcement should be top
priority for the bank’s policymakers for effective governance. It is necessary
for the regulator to see that shareholders rights to be informed on decisions
concerning fundamental corporate changes is taken care of by the banks and
Shareholders are provided with adequate information on the agenda items of
the shareholders meeting. Thus the present study has the implications for
better governance in the banks. It gives a framework for the banks for better
governance for educational and research institutions to raise the concern on
the issues and encourage public discussions, for regulatory bodies to
strengthen the rules and laws and improvise on the existing system and to
shareholders to monitor the bank performance.

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SCOPE FOR FURTHER RESEARCH:
The research not only contributes to the academic knowledge field by answering some of
the academic gaps but also to the professional fields which help the bank policy makers
and regulators to take up the compliance of corporate governance as of serious concern.
There is further scope by expanding the size of the sample and also coverage of the issues
to explore the areas of improvements in terms of evaluating other stakeholders such as
Board of directors, employees, regulators, customers and depositors. The study can also
be undertaken by comparing the corporate governance in banks in other countries too.

***Thank You***

Name: Nishtha Jain

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