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Corporate
Governance Corporate Governance, is a set of standards, which aims to
improve the Company’s image, efficiency, effectiveness and social
responsibilities. According to KUMAR MANGALAM BIRLA COMMITTEE ‘The fundamental
objective of Corporate Governance is the enhancement of the shareholders value,
keeping in view the interest of other stakeholders.’ In fact, Corporate
Governance is an Endeavour to become a model corporate citizen. Aristotle said:
"it is not the same thing to be a good man and a good citizen." One may be a
good man because he is nice to his near and dear ones. But unless one is nice to
the large body of the unseen people (i.e., Society), he is not a good citizen.
Thus, in essence, Corporate Governance translate into conducting the affairs of
a Company in a manner that ensures fairness to customers, employees,
shareholders, fund providers, suppliers, the regulators and the society as a
whole. The Companies (Amendment) Act, 2000 has introduced good
Corporate Governance leading to more transparent, ethical and fair business
practice to be adopted by Corporate at large. The following provisions may be
noted: Section 217(2AA) deals with Directors Responsibility
Statement to be included in the Directors Report. Section 292A provides for constitution of Audit Committee.
Section 274(1)(g) debars a person to act as a Director of a
public Company if default in filing Annual Return/Accounts for continuous three
financial years or repayment of deposits/ interest/debentures/dividend has taken
place, and such failure continues for a period of one year or more. Section 275 provides for appointment of a person as a
Director in a maximum of 15 companies. Clause 49 of the Listing Agreement of the Stock Exchanges
also provides for promoting and raising the standards of Corporate Governance in
respect of listed companies. DIRECTORS RESPONSIBILITY STATEMENT (DRS) (SECTION
217(2AA)) The Directors Report shall now include a DRS on the following
aspects: Applicable accounting standards
have been followed in preparation of financial statements along with proper
reasons/explanations for material departures. Accounting policies as
prescribed are consistently applied. Judgments and estimates are
made in a reasonable and prudent manner to ensure true and fair view of the
state of affairs and of the Profit & Loss Account. Adequate accounting records are
maintained in accordance with the provisions of the Companies Act, 1956 for
safeguarding the assets of the Company and for preventing and detecting frauds
and other irregularities. Financial statements have been
drawn up on a going concern basis. SALIENT FEATURES OF SECTION 292A Every listed Public Company and unlisted companies having a
paid-up capital of at least Rs. 5 crores shall constitute a Committee of the
Board to be known as Audit Committee. The provisions in respect of the same are
as follows: The Committee shall have at
least three (3) members. Two-thirds (2/3) of the members
shall be non-executive directors other than managing director or whole-time
director. The Board of Directors shall
prescribe the Committee’s terms of reference in writing. The members of Audit Committee
shall elect a Chairman from amongst themselves. The statutory auditor, the
internal auditor and director-in- charge of finance shall attend every meeting
of the Audit Committee but shall not have the right to vote. Half-yearly and Annual accounts
will be discussed by the Audit Committee with auditors before presenting the
same to the Board. The Audit Committee shall have
the right to investigate any matter covered by the terms of reference. The recommendations of the Audit
Committee on any matter relating to financial management will be binding on
the Board. Though the Board is a superior body, yet it cannot override the
recommendation of the Committee. In case the Board does not
accept the recommendations of the Audit Committee, it will have to record the
reasons and communicate the same to the shareholders. The Chairman of the Audit
Committee shall attend the annual general meeting to provide clarifications on
matters relating to audit. The composition of the Audit
Committee shall be disclosed in the annual report of the Company. The minutes of the Audit
Committee are required to be placed before the next Board Meeting. Provision regarding quorum of
the Audit Committee, needs to be laid down by the Board while constituting the
Committee, If not spelt out, the whole of the committee, it appears must meet.
[Liverpool Household Stores Association Ltd. (1890) 59 LJ Ch 616, ref.
Companies Act by A. Ramaiya page 2620 of 2001 edn.] Any default in complying the
said provisions may entail prosecution up to one year or fine up to Rs. 50,000
or both. The prosecution lies against the Company and every officer of the
Company who is in default. The offence is compoundable u/s 621A. The provisions in clause 49 of
the Listing Agreements as required by the Stock Exchanges are not identical
with the above provisions. It seems that all listed companies having a paid-up
capital of minimum Rs. 5 crores will have to follow two sets of requirements.
Detailed provisions of clause 49 are available on websites of Stock Exchanges. |