Professional Documents
Culture Documents
Consultative
Paper
on
Review
of
Corporate
Governance
Norms
in
India,
available
at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf
2 Colin Mayer, Corporate Governance, Competition, and Performance, Journal of Law and Society
Volume 24, Issue 1, March 1997 available at http://onlinelibrary.wiley.com/doi/10.1111/1467-6478.00041
3 Simon Deakin, Alan Hughes, Comparative Corporate Governance: An Interdisciplinary Agenda,
Journal of Law and Society Volume 24, Issue 1, March 1997, available at
http://heinonline.org/HOL/Page?handle=hein.journals/jlsocty24&div=2&g_sent=1&collection=journals
4 ibid
Corporate Governance DissertationPage 4
Develop
Corporate
Culture
in
the
asia.org/public/files/IndiaReddyreport2000.doc.
14 ibid
15 http://finmin.nic.in/reports/chandra.pdf
Corporate Governance DissertationPage 7
Country,
available
at
http://www.acga-
the basis of an
should lead to
rule of law and
regulatory and
16 ibid
17
Consultative
Paper
on
Review
of
Corporate
Governance
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf
Norms
in
India,
available
at
CHAPTER III
ROLE OF CORPORATE GOVERNANCE IN PROTECTION OF INVESTORS
THE INTERRELATION BETWEEN CORPORATE GOVERNANCE AND INVESTOR
PROTECTION
A strong investor protection is associated with effective corporate governance. According to
Fernando AC when an investor invests his hard earned money in the securities of a corporate
entity, he has certain expectations of it performance of the organization and the corporate
benefits that would accrue to him and the prospects of capital growth of securities he holds in the
organization.26 Recent research has reflected that an essential feature of good corporate
25 http://articles.economictimes.indiatimes.com/2013-02-01/news/36684552_1_independent-directorscorporate-governance-shareholders
26 AC Fernando, Corporate Governance: Principles, Policies and Practices, available at
http://books.google.co.in/books?
id=al6zP7foCSEC&pg=PT172&lpg=PT172&dq=fernando+ac+investor+protection&source=bl&ots=6A
Ht2RJZkP&sig=vCRHNZp8CqhXvfpJ5FbkgFJB4c8&hl=en&sa=X&ei=O8zUqbvG4uzrgeu0YH4Aw&ved=0CFIQ6AEwCQ#v=onepage&q=fernando%20ac%20investor
Corporate Governance DissertationPage 12
Governance,
Journal
of
Financial
Economics
58
(2000)
http://leedsfaculty.colorado.edu/bhagat/InvestorProtectionCorporateGovernance.pdf
29 Pratip Kar, Corporate Governance and the Empowerment of the Investors ADB/OECD/WORLD
BANK 2nd ASIAN CORPORATE GOVERNANCE ROUND TABLE,
http://www.oecd.org/daf/ca/corporategovernanceprinciples/1930766.pdf
30 ibid
31 Recommendations on Capital Markets Governance & Investor Protection, available at
http://www.icsi.edu/WebModules/LinksOfWeeks/CAPITAL%20MARKETS%20WEEK
%20SUGGESTIONS.pdf
Corporate Governance DissertationPage 13
When the period, if any fixed for the duration of the company by the articles of
association has expired, or in the event, if any, has occurred, on the occurrence of which
the articles provide that the company is to be dissolved, and the shareholders in general
meeting pass a general resolution requiring the company to be wound up voluntarily.
If the shareholder passes a special resolution that the company be wound up voluntarily.
INVESTOR PROTECTION
GUIDELINES, 2009: THE
UNLISTED COMPANIES
The Corporate Governance framework in India has been derived from its Anglo-American
counterpart. However, in Anglo-American regime, the focus is disciplining the management,
while in India; the focus of the corporate governance framework is protection of minority
shareholders.43
Good corporate governance practices are a sine qua non for sustainable business that aims at
generating long term value to all its shareholders and other stakeholders. 44 Sound and efficient
corporate governance practices are the basis for stimulating the performance of companies,
maximizing their operational efficiency, achieving sustained productivity as well as ensuring
protection of shareholders interests.45 Good Corporate Governance practices enhance
companies value and stakeholders trust resulting into robust development of capital market, the
economy and also help in the evolution of a vibrant and constructive shareholders activism. 46
The Corporate Governance Voluntary Guidelines 2009 apply to Companies in India and may also
be interpreted as being applicable to unlisted companies.
As per the Corporate Governance Voluntary Guidelines, the Companies shall disclose the reasons
for not adopting the Corporate Governance Voluntary Guidelines, 2009 either wholly or partially.
43 Corporate Governance Voluntary Guidelines: A New Beginning, February 3, 2011 available at
http://www.business-standard.com/article/companies/corporate-governance-voluntary-guidelines-a-new-beginning111020300106_1.html
Significant Related Party Transactions that may be in potential conflict with the interests
of the company at large and the basis of the related party transaction shall be disclosed50.
47 ibid
48 Consultative Paper on Review of Corporate Governance Norms in India, available at
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf
49
Consultative
Paper
on
Review
of
Corporate
Governance
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf
Norms
in
India,
available
at
67 Varottil, Umakant.,A Cautionary Tale of the Transplant Effect on Indian Corporate Governance,
National Law School of India Review, Vol. 21, No. 1, 2010, referred in Kumar Naveen and Singh JP,
Corporate Governance in India: Case for Safeguarding Minority Shareholders Rights, International
Journal of Management & Business Studies Vol. 2, Issue, June 2012, available at
http://www.ijmbs.com/22/naveen.pdf
68 Varma, J.R.,Corporate Governance in India: Disciplining the Dominant Shareholder, IIMB
Management Review, Vol. 9, No. 4, 1997 referred in Kumar Naveen and Singh JP, Corporate Governance
in India: Case for Safeguarding Minority Shareholders Rights, International Journal of Management &
Business Studies Vol. 2, Issue, June 2012, available at http://www.ijmbs.com/22/naveen.pdf
Corporate Governance DissertationPage 24
69 World Bank, Report on the Observance of Standards and Codes (ROSC), Corporate Governance
Country Assessment: India, World Bank-IMF, Washington, DC, USA, 2004.
70 Supra, footnote number 44
71 Sharma, J.P, Corporate Governance, Business Ethics and Corporate Social Responsibility, Ane
Books, New Delhi, India, 2011
72 Bernard S. Black, Shareholder Passivity Reexamined, 89 Mich. L. Rev. 520, 575-91 (1990) referred in
lawreview.law.ucdavis.edu/issues/41/2/.../DavisVol41No2_Velasco.pdf
The institutional investors should enter into a dialogue with the companies based on mutual
understanding of objectives. In course of evaluating the corporate governance performance of the
company, the institutional investors shall give due weightage to the aspects such as composition
of Board Structures and other such aspects. The institutional investors are expected to make
considerable use of their voting rights.
The ICSI Recommendation 22 is that it should be made mandatory for the equity based mutual
funds to make disclosure with respect to the corporate governance and voting policies and such
disclosures shall be made in the websites of the mutual funds. They shall also disclose the
procedure in deciding the voting rights. The records of their voting shall also be disclosed in the
websites.75 The ICSI recommendation 24 is that a directive shall be issued to clarify the nature of
the information that is can be exchanged at meetings between the institutional investors and
companies in compliance with the Insider Trading Regulations of 1992 and its amendment in
2002. The directives shall specify that it does not condone the selective disclosure of information
by companies to institutions and clearly set the principles of equality of treatment of all
shareholders by corporations76.
73 Report of the Kumar Mangalam Birla Committee on Corporate Governance,
http://www.sebi.gov.in/commreport/corpgov.html
74 ibid
75 ICSI Recommendations to Strengthen Corporate Governance Framework,
http://www.icsi.edu/docs/webmodules/LinksOfWeeks/Recommendations%20Book-MCA.pdf
76 ibid
Corporate Governance DissertationPage 26
78 Highlights of the Companies Bill (as passed by the Lok Sabha on 18.12.12 and by the Rajya Sabha on
08.08.13), available at http://www.icsi.edu/WebModules/Linksofweeks/Cos%20bill%20highlights.pdf
79 ibid
80 Investor protection will get a big boost under new company law, December 19, 2012,
http://www.business-standard.com/article/companies/investor-protection-will-get-a-big-boost-under-newcompany-law-112121900046_1.html
81 The Impact Areas of the new Companies Bill: A Primer, 10 August, 2013, http://www.livelaw.in/theimpact-areas-of-the-new-companies-bill-a-primer/
Corporate Governance DissertationPage 28
CHAPTER IV
ANALYSIS OF CORPORATE FRAUDS AND UNFAIR PRACTICES IN INDIA:
FROM THE PERSPECTIVE OF CORPORATE GOVERNANCE
REEBOK INDIA FRAUD CASE: INDICATION OF THE NEED OF CORPORATE
GOVERNANCE IN UNLISTED COMPANIES
In India, the unlisted companies are prone to corporate frauds and malpractices; further leading
to exploitation of the investors. Reebok Fraud case is a glaring example of corporate fraud in
India. The Reebok Fraud came to the fore in course of merger between Adidas India and Reebok
India. Under Section 234 of the Companies Act, investigation was conducted by the Registrar of
Companies and alleged irregularities were observed in the books of accounts of Reebok. An
approximate of more that Rs 870 crores is estimated to have been involved in the scam. On
account of the irregularities in the books of accounts, the Managing Director Subhinder Singh
Prem and the Chief Operating Officer Vishnu Bhagat had been arrested and the matter was taken
up by the Serious Fraud Investigation Officer. This corporate fraud would affect the shareholders
of the Adidas India, the parent company of Reebok.82
It was alleged that the Company was indulged in over invoicing to the tune of Rs 147 Crore, it
maintained four secret warehouses, to which the company's goods were diverted. It raised fake
invoices to the tune of Rs 98 Crores83.
The authorities probing into the Reebok India Fraud case have observed that a systematic
mismanagement paved way for the corporate fraud. There was mismanagement of the
governance and operations of the company. The bills were not recorded correctly and were
inflated; the Company falsified sales receipts, faked storage facilities, and circular trading. The
guidelines laid down in the companies act were not followed properly and this also led to tax
82 Sahil Arora and Utkarsh Soni, Investor Protection In The Aftermath of The Reebok Fraud Case: An Appraisal of
the need for corporate governance in Non-Listed Companies, XI Capital Markets Conference (December 21 - 22,
2012), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263081
83 An Update of Adidas India Euro 125 Million Fraud Story, 28 May, 2012,
http://soniajaspal.wordpress.com/2012/05/28/an-update-of-adidas-india-euro-125-million-fraud-story/
84 Reebok India case: Corporate mismanagement led to Scam, September 23, 2012, The Economic Times,
http://articles.economictimes.indiatimes.com/2012-09-23/news/34040662_1_conspiracy-and-fraudulent-practisesreebok-india-gurgaon-police
85 SFIO report finds Reebok guilty of fudging A/Cs: Sources, June 10, 2013
http://www.moneycontrol.com/news/cnbc-tv18-comments/sfio-report-finds-reebok-guiltyfudging-acssources_895198.html?utm_source=ref_article
86 Sahil Arora and Utkarsh Soni Investor Protection In The Aftermath of The Reebok Fraud Case: An Appraisal
of the need for corporate governance in Non-Listed Companies, XI Capital Markets Conference (December 21 22, 2012), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2263081
93 Lessons from Satyam fiasco that can help improve corporate governance in India, Jan 02 2009,
http://www.livemint.com/Companies/OqLofvAsyiwHkEBlLJaoOL/Lessons-from-Satyam-fiasco-thatcan-help-improve-corporate-g.html
Corporate Governance DissertationPage 32
98 www.sebi.gov.in/acts/insideregu.pdf
99 ibid
100 http://www.sebi.gov.in/acts/futpfinal.html
Corporate Governance DissertationPage 34
106 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1351500106870.pdf
Corporate Governance DissertationPage 36
107 India Seeks to Overhaul a Corporate World Rife With Fraud, AUGUST 15,
2013http://dealbook.nytimes.com/2013/08/15/india-seeks-to-overhaul-a-corporate-world-rife-withfraud/?_r=0
108 Section 132 of the Companies Act, 2013
109 Section 211 and 212 of the Companies Act, 2013
110 Section 245 of Companies Act, 2013
111 Section 195 of Companies Act, 2013
112 Section 245 of the Companies Act, 2013
Corporate Governance DissertationPage 37
CHAPTER V:
SHAREHOLDER ACTIVISM AND CORPORATE GOVERNANCE
THE CONCEPT OF SHAREHOLDER ACTIVISM
Shareholder Activism can be traced back to eighty years when Henry Ford chose to cancel a
special dividend and instead spend the money on advancing social objectives. The court
ultimately sided with the dissented shareholders, reinstated the dividend, sparking a new
paradigm in shareholder activism. In 1990s shareholder activism found mainstream pension
fund managers like CalPERS pushing for the repeal of staggered boards and the poison pills.
These players used a form of quiet activism favoring abstentions and withholding votes for
important proxy issues as a way to influence Board and Management decisions. The purpose of
shareholder activism is to provide the company with an insight into the manner in which the
shareholders may influence the companys behavior. Shareholder activism is also basis for the
shareholders to stipulate the options that are available with the shareholders wishing to pursue an
activist agenda. In UK, Shareholder activism was exercised through proxy battles, publicity
campaigns, shareholder resolutions, litigation and negotiations with management. Shareholder
activism may be defined as a mode of establishing a dialogue with the management on issues
that concern the shareholders. It aims at improving the corporate culture. Shareholder activism
aims at utilizing the corporate democracy provided by law. The effectiveness of large
shareholders in corporate governance is reflected generally is a few countries such as UK, US,
Germany and Japan.113 The role of large shareholdings in influencing the corporate governance
of enterprises is a significant issue. 114
The emergence of shareholder activism is a new facet of corporate governance in India. The key
drivers which facilitate shareholder activism are the regulatory reforms which give scope for
shareholder participation and market forces which create an activist stance in the investors.
113 Jayati Sarkar and Subrata Sarkar, Large Shareholder Activism in Corporate Governance in Developing
Countries: Evidence from India, available at http://www1.fee.uva.nl/fm/Conference/cifra2000/Sarkar.pdf
114 Rafael La Porta, Florencio Lopez-de Silanes, Andrei Shleifer and Robert Vishny Investor protection and
corporate
governance,
Journal
of
Financial
Economics
http://leedsfaculty.colorado.edu/bhagat/InvestorProtectionCorporateGovernance.pdf
58
(2000)
117 Umakanth Varottil, A Cautionary Tale of the Transplant Effect on Indian Corporate Governance, 21(1) NAT.
L. SCH. IND. REV.1 (2009).
118 id
Corporate Governance DissertationPage 39
121 Lee Harris, Missing in Activism: Retail Investor Abstinence in Corporate Elections, 2010 COLUM. BUS. L.
REV. 104, 166, available in www.memphis.edu/law/facultystaff/bio/harriscv3142012.pdf
122 Stuart Gillan & Laura T. Starks, The Evolution of Shareholder Activism in the United States (2007), available
at http://ssrn.com/abstract=959670
123 Bernard Black, Shareholder Activism and Corporate Governance in the United States, in PETER NEWMAN
(ED.), available at http://ssrn.com/abstract=45100
124 Financial Reporting Council, The UK Stewardship Code (September 2012), available at
http://www.frc.org.uk/Our-Work/Codes-Standards/Corporate -governance/UK-Stewardship-Code.aspx.
Corporate Governance DissertationPage 40
130 Securities and Exchange Board of India, Amendment to the Equity Listing Agreement Platform for
E-Voting by Shareholders of Listed Companies, Circular CIR/CFD/DIL/6/2012 (Jul. 13, 2012).
131 Tania Kishore, E-voting will make life easier for investors, BUSINESS STANDARD, July 4, 2012,
available at www.business-standard.com/search?type=news&q=E-voting
Corporate Governance DissertationPage 42
134 Cambridge Gas Transportation Corporation v. Official Committee of Unsecured Creditors of Navigator
Holdings [2006] UKPC 26, [2007]
135 Circular for Mutual Funds, SEBI/IMD/CIR No 18 / 198647/2010 (Mar. 15, 2010)
Corporate Governance DissertationPage 43
143 Coal India faces a surprising case of shareholder activism in India, available at
http://www.policymic.com/articles/6356/coal-india-faces-a-surprising-case-of-shareholder-activism-inindia
144 Umakanth Varottil, EMERGENCE OF SHAREHOLDER ACTIVISM IN INDIA, NSE Quarterly
Briefing, April 2013, available at http://www.nse-india.com/research/content/res_QB1.pdf
145 TCI plea to raise prices has no legal basis: Coal India, The Economic Times
http://articles.economictimes.indiatimes.com/2013-01-28/news/36596302_1_cil-directors-coal-pricescoal-india
Corporate Governance DissertationPage 46
147 Bhuma Srivastava, Proxy advisory firms give a boost to shareholder activism, THE MINT, June 29,
2012, available at http://www.livemint.com/Companies/HeuG8SPSw3zXE4sUYhecqN/Proxy-advisoryfirms-give-a-boost-to-shareholder-activism.html
148 Sucheta Dalal, Proxy advice: Check on Misgovernance, MONEYLIFE, August 11, 2011 available at
http://suchetadalal.com/?id=22ef29a5-277b-916c-4e548f747d82&base=sections&f
Corporate Governance DissertationPage 47
CHAPTER IV:
CONCLUSIONS AND SUGGESTIONS
In light of the discussion on Investor Protection and Corporate Governance, it may be reflected
that the Indian legal and regulatory framework of corporate governance is elaborative enough to
encompass the aspect of investor protection in listed companies. The Listing Agreement provides
an extensive set of disclosures that shall be mandatorily be made to the shareholders of the
Company. The Companies Act, 1956, Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations, 2009; SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 and SEBI (Prohibition of Insider Trading Regulations) 1992 which
was amended in 2002 also provide for various aspects that shall be disclosed to the shareholders
by the companies. The mandatory requirement of the Shareholders Grievance Committee has an
extremely significant role in safeguarding the shareholders and redressing their grievances on a
timely basis. Although the efficacy of the Shareholders Grievance Committee depends on the
members of the Committee and the perspective of the company with regard to corporate
governance, the mandatory provision of setting up of a Shareholder Grievance Committee has far
reaching implications in terms of safeguarding the interests of the investors.
The corporate governance framework in India is very extensive and makes every attempt to
protect the investors interests. In fact investor protection can be termed as a manifestation of
good corporate governance practices in India. Tracing out the history and evolution of corporate
159 Shareholder Activism: Greenmail to Governance , http://www.advantageindia.in/GreenmailtoGovernance.pdf
Corporate Governance DissertationPage 51
REFERENCES
BOOKS REFERRED
1. Renu Jatana and David Crowther, Corporate Social Responsibility-Theory and Practice
with Case Studies, Deep and Deep Publications Private Limited, New Delhi, 2007
2. AC Fernando, Corporate Governance: Principles, Policies and Practices, available at
http://books.google.co.in/books?
id=al6zP7foCSEC&pg=PT172&lpg=PT172&dq=fernando+ac+investor+protection&sour
ce=bl&ots=6AHt2RJZkP&sig=vCRHNZp8CqhXvfpJ5FbkgFJB4c8&hl=en&sa=X&ei=O8zUqbvG4uzrgeu0YH4Aw&ved=0CFIQ6AEwCQ#v=onepage&q=fernando%20ac
%20investor%20protection&f=false
3. Sharma, J.P, Corporate Governance, Business Ethics and Corporate Social
Responsibility, Ane Books, New Delhi, India, 2011
ARTICLES REFERRED
1. Rafael La Porta, Florencio Lopez-de Silanes, Andrei Shleifer and Robert Vishny, Investor
protection and corporate governance, Journal of Financial Economics 58 (2000)
http://leedsfaculty.colorado.edu/bhagat/InvestorProtectionCorporateGovernance.pdf
2. Pratip Kar, Corporate Governance and the Empowerment of the Investors
ADB/OECD/WORLD BANK 2nd ASIAN CORPORATE GOVERNANCE ROUND
TABLE, http://www.oecd.org/daf/ca/corporategovernanceprinciples/1930766.pdf
3. Prabhash Dalei, Paridhi Tulsyan and Shikhar Maravi, Corporate Governance in India: A
Legal Analysis, International Conference on Humanities, Economics and Geography
(ICHEG'2012)
March
17-18,
2012
Bangkok,
available
at
http://psrcentre.org/images/extraimages/312018.pdf
4. Santosh Pande and Kshama V Kaushik, Study on the State of Corporate Governance in
India, http://www.iica.in/images/Evolution_of_Corporate_Governance_in_India.pdf
5. Shareholder
Activism-Healthy
trend
for
Corporate
Governance
http://www.lawyersclubindia.com/articles/print_this_page.asp?article_id=1517
Corporate Governance DissertationPage 54
http://finmin.nic.in/reports/chandra.pdf
http://www.sebi.gov.in/cms/sebi_data/pdffiles/21168_t.pdf
http://www.takeovercode.com/uploads/regulations/New%20Takeovercode_23092011.pdf
http://www.sebi.gov.in/acts/insideregu.pdf
http://www.indianexpress.com/news/companies-bill-2013-receives-presidentsassent/1162742/
6. http://articles.economictimes.indiatimes.com/2013-0201/news/36684552_1_independent-directors-corporate-governance-shareholders
7. http://www.mca.gov.in/Ministry/latestnews/CG_Voluntary_Guidelines_2009_24dec2009.
pdf
8. http://www.sebi.gov.in/cms/sebi_data/attachdocs/1357290354602.pdf
9. http://www.nseindia.com/getting_listed/content/clause_49.pdf
10. www.cbr.cam.ac.uk/pdf/wp277.pdf
11. www.sebi.gov.in/acts/insideregu.pdf
12. http://www.sebi.gov.in/acts/futpfinal.html
13. http://www.watchoutinvestors.in/Press_Release/sebi/1998050.asp
14. http://corporateinsiderstrading.wordpress.com/2012/02/02/case-of-insider-tradinghindustan-lever-limited-hll-brooke-bond-lipton-india-limitedbblil/
15. http://indiacorplaw.blogspot.in/2009/06/shareholder-activism-and-class-action.html
Section 245
16. http://www.openthemagazine.com/article/business/thumbs-up-for-shareholder-activism