Chapter 8 Corporate Governance and Shareholders Rights – CS Professional Governance, Risk Management, Compliances and Ethics Notes is designed strictly as per the latest syllabus and exam pattern.
Corporate Governance and Shareholders Rights – Governance, Risk Management, Compliances and Ethics Study Material
Question 1.
Write short note on the following:
Related party transactions. (Dec 2013, 3 marks)
Answer:
Related Party Transactions [Section 2(76)]
“Related Party”, with reference to a company, means-
(i) a director or his relative;
(ii) a key managerial personnel or his relative;
(iii) a firm, in which a director, manager or his relative is a partner;
(iv) a private company in which a director or manager or his relative is a member or director;
(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital;
(vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;
(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:
Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any body corporate which is
(a) a holding, subsidiary or an associate company of such company;
(b) a subsidiary of a holding company to which it is also a subsidiary; or.
(c) an investing company or the venturer of the company;
Explanation: For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate.]
(ix) such other person as may be prescribed.
Note: For the purposes of sub-clause (ix) of clause (76) of section 2 of the Act, a director other than an independent director or key managerial personnel of the holding company or his relative with reference to a company, shall be deemed to be a related party.
Question 2.
Write short note on the following:
Institutional investors [Old Syllabus] (June 2014, 3 marks)
Answer:
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others. In India, there are broadly the following types of institutional investors:
- Development oriented financial institutions such as IFCI, IDBI and state financial corporations.
- Insurance Companies- LIC, GIC and other subsidiaries.
- Banks.
- All mutual funds and including UTI.
- Pension Funds.
Question 3.
Write short note on the following:
Insider trading. (Dec 2014, 3 marks)
Answer:
Insider Trading
Rafael La Porta et al (1999) points out the insiders may steal the fund or siphon off investor’s funds in the following ways,
(a) Insider may simply steal the earnings
(b) Sell the output or assets of the firm they control which the outside investors have financed, to another entity at below market price. Such transfer pricing is equivalent to stealing,
(c) Employing under qualified family members on excessive pay in managerial positions,
(d) Selling the securities to other firm i.e. the insider control at a lower price.
The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, say, “Insider” is any person, who is or was connected with the company and who is reasonably expected to have access to unpublished price sensitive information about the stock of that particular company or who has access to such unpublished price sensitive information.
Information that could be price sensitive includes:
- Periodical financial results of a company, .’
- Intended declaration of dividend,
- Issue or, buyback of securities,
- any major expansion plans or execution of new projects, amalgamation, merger, takeovers, disposal of the whole or substantial part of the undertaking and any other significant changes in policies, plans or operations of the company.
Question 4.
Discuss briefly the following:
Sarbanes-Oxley Act, 2002 (June 2012, 3 marks)
Answer:
Sarbanes – Oxley Act, 2002
The SOX Act was signed into law by the US President on 30th July, 2002. The Sarbanes Oxley Act is also known as the “Public Company Accounting Reform and Investor Protection Act of 2002” This legislation brought with it fundamental changes in virtually every area of corporate governance and particularly in auditor independence, conflict of interest, corporate responsibility, enhanced financial disclosures and several penalties both fines and imprisonment for wilful default by managers and auditors.
Question 5.
Highlight the role of institutional investors in promoting good Corporate Governance. (June 2013, 5 marks)
Answer:
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others. In India, there are broadly the following types of institutional investors:
Development oriented financial institutions such as IFCI, IDBI and state financial corporations Insurance Companies- LIC, GIC and other subsidiaries Banks all mutual funds including UTI Pension Funds.
The Combined Code (2008) had also stated the following principles of good governance for the Institutional Shareholders.
(a) Dialogue with companies:
Institutional shareholders should enter into a dialogue with companies based on the mutual understanding of objectives.
(b) Evaluation of governance disclosures:
When evaluating companies’ governance arrangements, particularly those relating to board structure and composition, institutional Investors should give due weight to all relevant factors drawn to their attention.
(c) Shareholder voting:
Institutional shareholders have a responsibility to make considered use of their votes.
Question 6.
The Board of directors of your company intends to formulate corporate communication policy. As a Company Secretary, you are required to prepare a qualitative note highlighting the areas on which communication policy may specifically focus. (June 2013, marks)
Answer:
To
The Board of Directors
ABCD Limited
Corporate Communication Policy defines the role and responsibilities of the employees in the communication structure of the company.
Corporate Communication Policy may specifically focus on:
(a) Information to Employees-internal Communications:
All the relevant information should be communicated to the employees through internal channels.
(b) Media Relations:
This involves building and maintaining a positive relationship with the media.
(c) External Event:
Could involve vendor/supplier/distributor meets, channel partner meetings, event related to product launches, important initiatives etc.
(d) Investor Communication:
Investor relation cell can held responsible for coordinating communications with investors.
(e) Brand Management:
Major responsibility of corporate communication is image or brand building.
(f) Legal Communication:
Regulators are the external players having considered role in communication by the company. At various points communication are to be made to the stock exchange, government and judicial authorities. Secretarial and legal department may be held responsible for timely and accurate communication. .
Question 7.
“Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, ethical business conduct and making a distinction between personal and corporate funds in the management of a company.”
Discuss the scope of corporate governance in the backdrop of this statement. (Dec 2013, 10 marks)
Answer:
“Corporate governance is the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment* to values, about ethical business conduct and about a distinction between personal and corporate funds in the management of a company.” This statement holds good in the context of what could be good governance all about and has been extracted from the Narayana Murthy Committee Report on Corporate Governance (SEBI 2003). The statement explains what corporate governance is, how it can be ensured and what investors can expect from it. We can make the following assertions from this statement:
- Shareholders are the true owner of the corporation.
- Management should accept their rights as much.
- Management (board) role is that of the trustees of shareholders.
- Good governance demand – commitment to values, ethical business conduct.
- While managing the affairs management ought to distinguish between personal funds and corporate funds.
The need for good governance emanates from the fact that corporations pool capital from a large investor base. This could be from domestic as well as global markets. In this context, investment is ultimately an act of faith in the ability of a corporation’s management. When investors or a shareholder invests money in a corporation, they expect the board and the management to act as trustee and ensure the safety of the capital (keeping the capital irtact) and also earn a rate of return which is higher than the cost of capital (i.e. earning profits). As such, shareholders expect the company management to act in their best interests at all times and adopt good corporate governance practices. The legal position of the company board is that their relationship with the company is fiduciary. They should act in the manner which is not inclined to personal interest of any one at the cost of the company. The company’s interest should be furthered and welfare of all shareholders and stakeholders should be kept in mind. This could be achieved by reporting to good governance practices in management, transparency in business dealings, adequate disclosure to all stakeholders, ethical conduct of business, following best accounting and above all contribution to social development in the society where in such company operates.
Question 8.
“UK Corporate Governance Code, 2010 is the re-fragmentation of the earlier one with several structural changes.” Discuss the Board composition in compliance with the new code in the light of this statement. (Dec 2013, 4 marks)
Answer:
The UK Corporate Governance Code 2010 is the re-fragmentation of the earlier UK combined code on Corporate Governance with several structural changes including new provisions relating to board evaluation and annual elections. It is subject to the existing ‘comply or explain’ approach. Following is the relevant development in the code in Board Composition.
The board should include an appropriate combination of executive and non-executive directors (and in particular, independent non-executive directors) such that no individual or small group of individuals can dom’nate the board’s decision taking.
Question 9.
Discuss briefly the following:
(Shareholder activism (Dec 2013, 3 marks)
Answer:
Shareholder Activism: The shareholder activism means:
(a) Establishing dialogue with the management on issues that concern.
(b) Influencing the corporate culture.
(c) Using the corporate democracy provided by law.
(d) Increasing general awareness on social and human rights issues concerning the organization.
Question 10.
Briefly comment on the following:
Corporate governance framework should protect and facilitate the exercise of shareholders’ rights. (June 2014, 3 marks)
Answer:
The corporate governance framework should protect and facilitate the
exercise of shareholders’ rights.
A. Basic shareholder rights should include the right to:
- secure methods of ownership registration;
- convey or transfer shares;
- obtain relevant and material information on the corporation on a timely and regular basis;
- participate and vote in general shareholder meetings;
- elect and remove members of the board; and
- share in the profits of the corporation.
B. Shareholders should have the right to participate in and to be sufficiently informed on, decisions concerning fundamental corporate changes such as:
- amendments to the statutes, or articles of incorporation or similar governing documents of the company;
- the authorisation of additional shares; and
- extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company.
C. Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings:
1. Shareholders should be furnished with sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be decided at the meeting.
2. Shareholders should have the opportunity to ask questions to the board, including questions relating to the annual external audit, to place items on the agenda of general meetings and to propose resolutions, subject to reasonable limitations.
3. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of board members, should be facilitated. Shareholders should be able to make their views known on the remuneration policy for board members and key executives. The equity component of compensation schemes for board members and employees should be subject to shareholder approval.
4. Shareholders should be able to vote in person or in absentia, and equal effect should be given to votes whether cast in person or in absentia.
D. Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.
E. Markets for corporate control should be allowed to function in an efficient and transparent manner.
(i) The rules and procedures governing the acquisition of corporate control in the capital markets and extraordinary transactions such as mergers and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class.
(ii) Anti-take-over devices should not be used to shield management and the board from accountability.
F. The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.
(i) Institutional investors acting in a fiduciary capacity should disclose their overall corporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of their voting rights.
(ii) Institutional investors acting in a fiduciary capacity should disclose how they manage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.
G. Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.
Question 11.
Briefly explain the following terms and their relevance to good corporate governance practices:
Related party transactions [Old Syllabus] (June 2014, 2 marks)
Answer:
Related Party Transactions: Related party transactions are the transactions done with related parties, i.e. parties in which directors etc. are interested. If done, such transactions should be done at arm’s length pricing and with full transparency. Audit committee is required to scrutinise related party transactions. Related party transactions may be abusive and should be controlled either by way of board approach or by means of adequate disclosure. Accounting Standard (AS-18) should also be followed.
Question 12.
Briefly explain the following terms and their relevance to good corporate governance practices:
Shareholder activism. [Old Syllabus] (June 2014, 2 marks)
Question 13.
What is meant by investor protection? Discuss the investor protection measures taken by Securities and Exchange Board of India (SEBI). [Old Syllabus] (June 2014, 6 marks)
Answer:
Investor Protection in India: Securities and Exchange Board of India (SEBI) is tne capital market regulator and nodal agency in India who regulates the security market. One of the objectives of the SEBI is to provide a degree of protection to the investors and to safeguard their rights, steady flow of savings into market and to promote the development of and regulate the securities market.
Investors should be safeguarded not only against frauds and cheating but also against the losses arising out of unfair practices. Such practices may include:
- Deliberate misstatement in offer statements to investors.
- Price manipulations.
- Insider trading.
SEBI has issued many guidelines and regulations to regulate the capital market and to protect the investors.
SEBI has set up a separate cell to address the grievances of investors. To support further, the Government of India has also enacted Right To Information (RTI) Act 2005 to provide right to information to citizen to secure access to information under the control of public authority in order to promote transparency and accountability.
Question 14.
Briefly comment on the following:
(i) Protection of ‘shareholders’ rights is sacrosanct for good Corporate Governance.
(ii) Investors’ relations can be referred to as ‘financial public relations’ or ‘financial communications’. (Dec 2014, 2 marks each)
Answer:
(i) Protection of shareholder rights is sacrosanct for good corporate governance. It is one of the pillars of corporate governance. For the efficient functioning of the capital market, the fundamental requirement is that the investor rights are well protected. The Preamble to Securities and Exchange Board of India Act, 1992 reads as under: “An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market and for matters connected there with or incidental thereto.”
The central element in corporate governance is the challenges arising out of separation of ownership and control. The shareholders are the true owners of a corporate and the governance function controls the operations of the corporate. There is a strong likelihood that there is a mismatch between the expectations of the shareholders and the actions of the management. Therefore there is a need to lay down clearly the rights of the shareholders and that of the management.
In the Indian context, the SEBI Act, 1992, the various SEBI Regulations and Guidelines and the Companies Act, 2013 enables the empowerment of shareholder rights.
In the international context, the OECD Principles on Corporate Governance which serves as an international benchmark for policy makers, investors, corporations and other stakeholders worldwide also has made extensive recommendations as to the shareholder rights.
(ii) Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.
‘Typically, investor relation is a department or person reporting to the Chief Financial Officer. In some companies, investor relation is managed by the public relations or corporate communications departments, and can also be referred to as “financial public relations” or “financial communications”.
Question 15.
“Related party transactions have always been viewed with concern.” In this context, briefly narrate the changes made under the Companies Act, 2013. [Old Syllabus] (Dec 2014, 6 marks)
Answer:
Question 16.
Discuss and elaborate the following: .
(i) Corporate communication. [Old Syllabus] (Dec 2014, 3 marks)
(ii) Redressal mechanism for investor grievances. [Old Syllabus] (Dec 2014, 3 marks)
Answer:
(i) Corporate communication means the corporation’s voice and the images it projects of itself to the various stakeholders.
“Corporate Communication is all about managing perceptions and ensuring effective and timely dissemination of information, positive corporate image, smooth and affirmative relationship with all stakeholders”.
(ii) When an investor has a grievance and has a complaint, he has to approach the company concerned, Mutual Fund (MF) or Depository Participant (DP) as the case may be. If he is not satisfied, he can approach SEBI’s Investor Grievance and guidance division for redressal of following complaints:
(a) Issues related to non-receipt of refund order, allotment advice;
(b) Issues related to non-receipt of share certificates;
(c) Issues related to non-receipt of dividends;
(d) Debenture related complaints etc;
(e) Mutual fund related complaints;
(f) Complaints related to Dematerialization or DP;
(g) Disclosures in Prospectus; and
(h) Misleading advertisements etc.
A committee under the Chairmanship of a non-executive director and such other members as may be decided by the Board of the company shall be formed to specifically look into the redressal of grievances of shareholders, debenture holders and other security holders. This Committee shall be designated as ‘Stakeholders Relationship Committee’ and shall consider and resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends. The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. The SRC shall consider and resolve the grievances of security holders of the company [Section 178(5)].
Question 17.
“The institutional investors use different tools to assess the health of a company before investing resources in it.” Elaborate. (Dec 2014, 4 marks)
Answer:
Institutional investors remain alert while investing in a company; they assess the health of company before investing resources in it. Following are the tools used by institutional investors:
1. One-to-one meetings: The meetings between institutional investors and companies are extremely important as a means of communication between the two parties.
2. Voting: The right to vote which is attached to voting shares is a basic prerogative of share ownership and is particularly important given the division of ownership (shareholders) and control (directors) in the modem corporation. The right to vote can be seen as fundamental tools for some element of control by shareholders.
3. Focus Lists: A number of institutional investors have established “Focus lists” whereby they target underperforming companies and include them on a list of companies which have underperformed a main index, such as Standard and Poor’s.
4. Corporate Governance rating systems: A number of corporate governance rating systems come up with the development of corporate governance. Example of such firms which have developed corporate governance rating systems are de-minor, Standard and Poor’s and Governance Metrics International (GMI).
Question 18.
Elucidate the following:
(a) Corporate governance rating systems
(b) Shareholder activism (Dec 2015, 5 marks each)
Answer:
(a) Corporate governance rating system:
Corporate governance rating systems with the increasing emphasis on corporate governance across the globe, it is perhaps not surprising that a number of corporate governance rating systems have been developed.
Examples of such firms which have developed corporate governance rating systems are Deminor, Standard and Poor’s, and Governance Metrics International (GMI). The rating system cover several markets, for example, Deminor has tended to concentrate on European companies whilst Standard and Poor’s have used their corporate governance rating system in quite different markets, for example, Russia. GMI ratings cover a range of countries including the US, various countries in the Asia-Pacific region and Europe. These corporate governance rating systems should be of benefit to investors, both potential and those presently invested, and to the companies themselves.
(b) Shareholder activism:
Shareholder activism refers to the active involvement of stockholders in their organization. Active participation in company meetings is a healthy practice. They can resolve issues laid down in the annual and other general meetings and can raise concerns over financial matters or even social causes such as protection of the environment. Shareholder activists include public pension funds, mutual funds, unions, religious institutions, universities, foundations, environmental activists and human rights groups.
Question 19.
Why Shann Turnbull, an Australian expert in corporate governance recommended ‘Corporate Senate’? (Dec 2015, 5 marks)Answer:
Australian expert in corporate governance recommended ‘corporate senate’ to oversee the regular board functioning (senate means a council). The corporate senate will determine accounting policies, direct audit activities, arbitrate on board conflicts, advise AGM on directors benefits. The senate will also nominate directors on the Board and will act as trustees for any Employees Stock Option Scheme (ESOS). The corporate senate will have maximum of 3 (three) members who will be elected on the basis of ‘one vote per shareholder’ instead of ‘one vote per share’ principle. The corporate senate should have no proactive power of any kind. However, it will have the ‘veto’ power over any activity in which the board has a conflict of interests, and even that can be overridden by a vote of 75% of the shares.
Question 20.
Briefly comment on the following statement:
Institutional investors have a crucial role to play in ensuring good corporate governance. (June 2016, 2 marks)
Answer:
There are difference of opinion among the writers on the role of institutional investors in promoting good corporate governance. Wharton, Lorsch and Hanson (1991) argue that institutional investors need not take active interest in the corporate governance of a company because the institutional investors have their primary fiduciary responsibility to their own investors and beneficiaries, which can lead to a conflict of interest with their acting as owners. Admati, Pfleiderer and Zechner (1994), Black (1990), Coffee (1991), and Monks(1995) have argued that absence of appropriate incentives and free rider problems hinder institutional activism efforts.
The free rider problem comes because even when one institutional investor interferes, the other investors get the benefits. Hence, the costs associated with active monitoring are borne by only one investor and this discourages active intervention. Charkham (1994) divides the institutional investors into two categories, which he calls Type A and Type B. Type A institutions have a portfolio of a very small number of companies. Their stake in each individual company is very large. These institutions also keep a close relationship with the companies. Type B institutions, on the other hand, manage a widely diversified portfolio. These companies treat the shares as commodities with no intrinsic qualities other than that of being tradable commodities.
Question 21.
What do you mean by ‘related party transaction’? What are the provisions of listing agreement related to monitoring of related party transactions? (June 2016, 5 marks)
Answer:
Definition of Related Party Transaction:
Regulation 2(1) (zc) defines that “related party transaction” means a transaction involving a transfer of resources, services or obligations between:
1. a listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or
2. a listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023; regardless of whether a price is charged and a “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a contract:
Provided that the following shall not be a related party transaction:
(the issue of specified securities on a preferential basis, subject to compliance of the requirements under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018;
(b) the following corporate actions by the listed entity which are uniformly applicable/offered to all shareholders in proportion to their shareholding:
- payment of dividend;
- subdivision or consolidation of securities;
- issuance of securities by way of a rights issue or a bonus issue; and
- buy-back of securities.
(c) acceptance of fixed deposits by banks/Non-Banking Finance Companies at the terms uniformly applicable/offered to all shareholders/public, subject to disclosure of the same along with the disclosure of related party transactions every six months to the stock exchange(s), in the format as specified by the Board:
Provided further that this definition shall not be applicable for the units issued by mutual funds which are listed on a recognised stock exehange(s).
Related Party Transactions [Regulation 23]
1. The listed entity shall formulate a policy on materiality of related . party transactions and on dealing with related party transactions including clear threshold limits duly approved by the board of directors and such policy shall be reviewed by the board of directors at least once every three years and updated accordingly. However, a transaction with a related party shall be considered material, if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceeds rupees one
thousand crore or ten per cent of the annua! consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower.
1 A. Notwithstanding the above, with effect from July 01, 2019 a transaction involving payments made to a related party with respect to brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year, exceed five percent of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity.
2. All related party transactions and subsequent material modifications shall require prior approval of the audit committee of the listed entity. However, only those members of the audit committee, who are independent directors, shall approve related party transactions.
“Provjded further that:
(a) the audit committee of a listed entity shall define “material modifications” and disclose it as part of the policy on materiality of related party transactions and on dealing with related party transactions;
(b) a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year exceeds ten per cent of the annual consolidated turnover, as per the last audited financial statements of the listed entity;
(c) with effect from April 1,2023, a related party transaction to which the subsidiary of a listed entity is a party but the listed entity is not a party, shall require prior approval of the audit committee of the listed entity if the value of such transaction whether entered into individually or taken together with previous transactions during a financial year, exceeds ten per cent of the annual standalone turnover, as per the last audited financial statements of the subsidiary;
(d) prior approval of the audit committee of the listed entity shall not be required for. a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.
Explanation: For related party transactions of unlisted subsidiaries of a listed subsidiary as referred to in (d) above, the prior approval of the audit committee of the listed subsidiary shall suffice.”
3. Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity subject to the following conditions, namely-
(a) the audit committee shall lay down the criteria for granting the omnibus approval in line with the policy on related party transactions of the listed entity and such approval shall be applicable in respect of transactions which are repetitive in nature;
(b) the audit committee shall satisfy itself regarding the need for such omnibus approval and that such approval is in the interest of the listed entity;
(c) the omnibus approval shall specify:
(i) the name(s) of the related party, nature of transaction, period of transaction, maximum amount of transactions that shall be entered into,
(ii) the indicative base price / current contracted price and the formula for variation in the price if any; and
(iii) such other conditions as the audit committee may deem fit: Provided that where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may grant omnibus approval for such transactions subject to their value not exceeding rupees one crore per transaction.
(d) the audit committee shall review, at least on a quarterly basis, the details of related party transactions entered into by the listed entity pursuant to each of the omnibus approvals given.
(e) Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh approvals after the expiry of one year:
(4) All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2) shall require prior 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:
Provided that prior approval of the shareholders of a listed entity shall not be required for a related party transaction to which the listed subsidiary is a party but the listed entity is not a party, if regulation 23 and sub-regulation (2) of regulation 15 of these regulations are applicable to such listed subsidiary.
Explanation: For related party transactions of unlisted subsidiaries of a listed subsidiary as referred above, the prior approval of the shareholders of the listed subsidiary shall suffice.
Provided further that the requirements specified under this sub-regulation 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.
(5) The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases:
(a) transactions entered into between two government companies;
(b) transactions entered into between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
(c) transactions entered into between two wholly-owned subsidiaries of the listed holding company, whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval.
Explanation: For the purpose of clause (a), “government company(ies)” means Government company as defined in sub-section (45) of section 2 of the Companies Act, 2013.
(6) The provisions of this regulation shall be applicable to all prospective transactions.
(7) All existing material related party contracts or arrangements entered into prior to the date of notification of these regulations and which may continue beyond such date shall be placed for approval of the shareholders in the first General Meeting subsequent to notification of these regulations.
(8) The listed entity shall submit to the stock exchanges disclosures of related party transactions in the format as specified by the Board from time to time, and publish the same on its website: Provided that a ‘high value debt listed entity’ shall submit such disclosures along with its standalone financial results for the half year: Provided further that the listed entity shall make such disclosures every six months within fifteen days from the date of publication of its standalone and consolidated financial results: Provided further that the listed entity shall make such disclosures every six months on the date of publication of its standalone and consolidated financial results with effect from April 1, 2023.
Question 22.
(a) Discuss the salient features of CalPERS. What are the main drivers of their corporate engagement programme? (June 2016, 5 marks)
(b) What are the areas in which a company may face ethical issues? Explain with the help of case study as to how investors can force ethical issues on company’s agenda. (June 2016, 5 marks)
Answer:
(a) California Public Employees’ Retirement System (CalPERS) manages retirement benefits for more than 1.6 million California public employees, retirees, and their families. The corporate governance team at CalPERS challenges companies and the status quo; vote proxies; work closely with regulatory agencies to strengthen financial markets; and invest with partners that use corporate governance strategies to add value to the fund by turning around ailing companies. As a strategy CalPERS invest in sick and ailing companies where it employs good governance practices to improvise company’s overall performance.
CalPERS corporate engagement process has the overarching objective of improving alignment of interest between providers of capital and company management. It is CalPERS view that improved alignment of interest will enable the fund to fulfil its fiduciary duty to achieve sustainable risk adjusted returns. The main drivers in the corporate engagement program are:
- Financial Performance: company engagement to address persistent, relative value destruction, through the Focus List Program
- Value Related Risk: material environmental, social and governance factors, such as reputational risk, climate change, board diversity and key accountability measures such as majority voting
- Compliance: in response to State of Federal legislation.
(b) The areas in which a company can face ethical issues includes: Ethics in Finance ‘
The ethical issues in finance that companies and employees are confronted with include:
- In accounting- window dressing, misleading financial analysis.
- Insider trading, securities fraud leading to manipulation of the financial markets.
- Bribery, kickbacks, over billing of expenses and facilitation payments.
- Fake reimbursements.
Ethics in Human Resources:
The ethical issues faced by HRM include:
- Discrimination issues
- Sexual harassment
- Affirmative Action
- Issues affecting the privacy of the employee: workplace surveillance, drug testing, etc.
- Discrimination of whistle-blowers
- Issues relating to the fairness of the employment contract
- Occupational safety and health issues.
Ethics in Marketing:
The ethical issues confronted in this area include:
- Pricing: price fixing, price discrimination and price skimming
- Anti-competitive practices
- Misleading advertisements
- Decisionmaking
- Surrogate advertising
- Black markets and grey markets.
Ethics in Production:
The ethical issues confronted in this area include:
- Defective, addictive and inherently dangerous products.
- Ethical problems arising out of new technologies, for example, genetically modified food.
- Product testing ethics.
Case Study to explain how investors can enforce ethical issues on company’s agenda:
Tesco a UK based Supermarket Chain Company faced an unprecedented revolt over the meagre wages it pays to workers in the developing world to supply its supermarkets with everything from cheap clothing to fruit. Shareholders at the company’s annual meeting in London also voiced their anger at a controversial pay scheme for chief executive Sir Terry Leahy, which could see him pocket over £ 11 million if Tesco’s expansion into the US market succeeded. 8.75% of shareholders refused to back the company’s remuneration policy while 17.71% refused to back Sir Terry’s special US bonus.
Question 23.
(a) Investors must be safeguarded not only against frauds and cheating but also against the losses arising out of unfair practices. What are the SEBI’s regulations for investors’ protection in India? (5 marks)
(b) “Shareholders can ensure that the company follows good corporate governance practices and implements beneficial policies.” Discuss shareholder’s activism. (Dec 2016, 5 marks)
(c) What are the expectations from institutional shareholders? What are the principles of good governance for the institutional investors? (Dec 2016, 5 marks)
Answer:
(a) Securities and Exchange Board of India (SEBI) is the capital market regulator and nodal agency in India who regulates the security market. One of the objectives of the SEBI is to provide a degree of protection to
the investors and to safeguard their rights, steady flow of savings into market and to promote the development of and regulate the securities market.
SEBI has issued many guidelines and regulations to regulate the capital market and to protect the investors. Some of the guidelines are:
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
- SEBI (Ombudsman) Regulation, 2003.
- SEBI (Prohibition of fraudulent and unfair Trade Practices relating to securities market) Regulations, 2003.
- SEBI (Prohibition of Insider Trading ) Regulations, 2015.
The Securities and Exchange Board of India (SEBI) also notified SEBI (Investor Protection and Education Fund) Regulations, 2018 according to which SEBI will establish an Investor Protection and Education Fund which will be used inter-alia, for “aiding investors’ associations recognized by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed”.
(b) Shareholders Activism:
Shareholder activism refers to the active involvement of stockholders in their organization. Active participation in company meetings is a healthy practice. They can resolve issues laid down in the annual and other general meetings and can raise concerns over financial matters or even social causes such as protection of the environment. Shareholder activists include public pension funds, mutual funds, unions, religious institutions, universities, foundations, environmental activists and human rights groups.
A share in a company is not only a share in profits but also a share in ownership. Shareholders must realize that their active participation in the company’s operations ensures:
- better management,
- less frauds and
- better governance.
(c) Institutional shareholders should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.
The institutional shareholders should:
- Take active interest in the composition of the Board of Directors
- Be vigilant
- Maintain regular and systematic contact at senior level for exchange of views on management, strategy, performance and the quality of management.
- Ensure that voting intentions are translated into practice.
- Evaluate the corporate governance performance of the company.
Question 24.
“The central element in corporate governance is the challenges arising out of separation of ownership and control. The shareholders are the true owners of a corporate and the governance function controls the operations of the corporate. There is a strong likelihood that there is mismatch between the expectations of the shareholders and the actions of management”. In the light of above statement, enumerate the core principles of accountable corporate governance. (Dec 2016, 5 marks)
Answer:
Principles of accountable corporate governance:
These core principles of accountable corporate governance are:
(i) Transparency: Operating, financial, and governance information about the companies must be readily transparent to permit accurate market comparisons.
(ii) One-share/One-vote: All investors must be treated equitably and upon the principle of one – share/one vote.
(iii) Sustainability: Companies and external managers are expected to optimize operating performance, profitability and investment returns in a risk -aware manner and with a responsible conduct.
(iv) Political Stability: Progress toward the development of basic dehocratic institutions and principles, including such things as; a strong and impartial legal system; and respect and enforcement of property and shareowner rights.
(v) Code of Best Practices: Code of Best Practices should be followed to promote transparency of information, prevention of harmful labor practices, investor protection and corporate social responsibility.
(vi) Director Accountability: Directors should be accountable to shareowners, and management accountable to directors.
(vii) Long-term Vision: Corporate directors and management should have 1 a long-term strategic vision that, at its core, emphasizes sustained
shareowner value and effective management of both risk and opportunities in the oversight of financial, physical and human capital,
(viii) Proxy Materials: Proxy materials should be written in a manner designed to provide shareowners with the information necessary to make informed voting decisions.
(ix) Access to Director Nominations: Shareowners should have effective access to the director nomination process.
Question 25.
Answer the following in brief:
Discuss the activities for which financial sanctions can be provided under Investor’s Education and Protection Fund. (June 2017, 2 marks)
Answer:
Schedule II to the Investor Education and Protection Fund Authority (Appointment of Chairperson and Members, holding of Meetings and provisions for Offices and Officers) Rules, 2016 stipulate the broad functional divisions of the Authority including sanctioning grants to the registered entities for seminars, programmes, projects or activities in the field of Corporate Governance, Investors’ Education and Protection fund including research activities.
Question 26.
Answer the following:
Discuss Steward Theory of Corporate Governance. (Dec 2017, 2 marks)
Answer:
The word ‘Steward’ means a person who manages another’s property or estate. Here, the word is used in the sense of guardian in relation to a corporation, this theory is value based. The managers and employees are to safeguard the resources of corporation and its property and interest when the owner is absent. They are like a caretaker. They have to take utmost care of the corporation. They should not use the property for their selfish ends. This theory thus, makes use of the social approach to human nature. – Space to write important points for revision
Question 27.
How the institutional investors assess the health of a company before making the investment decision? (Dec 2017, 5 marks)
Answer:
The Institutional Investors use different tools to assess the health of Company before investing resources in it. Some of the important tools are discussed as under:
- One-to-one meetings
- Voting
- Focus lists
- Corporate governance rating systems.
Question 28.
Discuss the rights of shareholder under SEBI Listing Obligations and Disclosure Requirement (LODR) Regulations, 2015. (June 2018, 5 marks)
Answer:
Rights of Shareholders under SEBI (LODR) Regulations, 2015
The listed entity shall seek to protect and facilitate the exercise of the following rights of shareholders:
- right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes.
- opportunity to participate effectively and vote in general shareholder meetings.
- being informed of the rules, including voting procedures that govern general shareholder meetings.
- opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations.
- Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors.
- exercise of ownership rights by all shareholders, including institutional investors.
- adequate mechanism to address the grievances of the shareholders.
- protection of minority shareholders from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and effective means of redress.
Question 29.
“Investor relations (IR) is a strategic management responsibility that integrates finance, communication, marketing & securities law compliance to enable the most effective two-way communication between a company, financial community and other constituencies”. Elucidate the role and responsibilities of Investor Relations Officer (IRO) in the light of the above statement. (Dec 2018, 5 marks)
Answer:
Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a Company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.
Typically, investor relation is a department or person reporting to the Chief Financial Officer. In some companies, investor relation is managed by the public relations or corporate communications departments, and can also be referred to as “financial public relations” or “financial communications”. Many large publicly-traded companies now have dedicated IR officers (IROs) who oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as “one-on-one” briefings), investor relations sections of company websites, and company annual reports. They have the following roles and responsibilities:
- To oversee most aspects of shareholder meetings, press conferences, private meetings with investors, (known as “one-on-one” briefings), investor relations sections of company websites, and company annual reports.
- Responsible for transmission of information relating to intangible values such as the company’s policy on corporate governance or corporate social responsibility.
- Managing the interactive data and the management of company filings through streaming – data solutions such as XBRL or other forms of electronic disclosure.
- To be aware of current and upcoming issues that an organization may face, particularly those that relate to fiduciary duty and have an organizational impact.
- Must be able to assess the various patterns of stock-trading that a public company may experience as the result of a public disclosure (or any research reports issued by financial analysis).
- Must work closely with the Company Secretary on legal and regulatory matters that affect shareholders.
- IRO’s have access to the Chief Executive Officer (CEO) and Chairman or President of the corporation. This means that being able to understand and communicate the company’s financiaLstrategy, they are also able to communicate the broader strategic direction of the corporation and ensure that the image of the corporation is maintained in a cohesive fashion.
- Due to the potential impact of legal liability claims awarded by courts, and the consequential impact on the company’s share price, IRO often has a role in crisis management, for example, corporate downsizing, changes in management or internal structure, product liability issues and industrial disasters.
Question 30.
“Institutional Investors play an important role in promoting good governance, however, this notion has its own pros and cons”. What are these pros and cons? Explain. (Dec 2018, 5 marks)
Answer:
Institutional investors are financial institutions that accept funds from third parties for investment in their own name but on such parties’ behalf. They include pension funds, mutual funds and insurance companies.
Institutional investors are organizations which pool large sums of money and invest those sums in companies. Their role in the economy is to act as highly specialized investors on behalf of others.
The Pros and Cons on the role of the institutional investors in promoting the good corporate governance may be listed as under:
| Pros | Cons |
| The institutional investors have significant stakes in the companies and so of the voting power. | Mutual Fund Investors have the short term vision hence their performance measurement may not be a significant evaluation in assessing the corporate governance while making the investment decision. |
| They are in better position to have the access of the information about the company. | The investment objectives are also a deciding factor while making the investment decision. |
| The stock market performance can visualised with the adoption of the better corporate governance.
They may influence in attracting the Foreign Direct Investment in India. |
Institutional investors may off load the holding if there is mis-matching in their asset-liability/liquidity position.
A common man’s investment portfolio is affected with the decision of the investment by the institutional investors. |
Question 31.
2019 – June [2] (a) The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises. Elucidate the statement. (June 2019, 5 marks)
Answer:
OECD has defined corporate governance to mean “A system by which business corporations are directed>and controlled”. Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders and spells out the rules and procedures for corporate decision making.
The corporate governance framework should recognise the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises – this statement is the fourth principle of OECD Principles of Governance. This principle recognizes the interest of stakeholders and their contribution to the long term success of the company. The corporate governance framework should consider interest of all stakeholders and include following:
- The rights of stakeholders that are established by law or through mutual agreements are to be respected.
- Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.
- Mechanisms for employee participation should be permitted to develop.
- Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.
- Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and to the competent public authorities and their rights should not be compromised for doing this.
- The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.
Question 32.
Highlight the OECD Principles of Corporate Governance with respect to Disclosures and Transparency. (June 2019, 3 marks)
Answer:
OECD has defined corporate governance to mean “A system by which business corporations are directed and controlled”. Corporate governance structure specifies the distribution of rights and responsibilities among different participants in the company such as board, management, shareholders and other stakeholders; and spells out the rules and procedures for corporate decision making.
The OECD principles of Corporate Governance with respect to Disclosures and transparency are given here under-
The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company:
Disclosure should include, but not be limited to, material information on:
- The financial and operating results of the company.
- Company objectives and non-financial information.
- Major share ownership, including beneficial owners, and voting rights.
- Remuneration of members of the board and key executives.
- Information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board.
- Related party transactions.
- Foreseeable risk factors.
- Issues regarding employees and other stakeholders.
- Governance structures and policies, including the content of any corporate governance code or policy and the process by which it is implemented.
- Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial reporting.
- An annual audit should be conducted by an independent, competent and qualified, auditor in accordance with high-quality auditing standards in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.
- External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.
- Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by users.
Question 33.
The big investors, Fils etc. engages the Proxy Advisory Firms to get the important information and recommendations which lead the protection of their interest and safeguard of their fund. Prepare a brief note on reasons for engaging the Proxy Advisory Firms. (Dec 2019, 5 marks)
Answer:
Proxy advisory firms are independent research outfits that evaluate the pros and cons of corporate matters such as mergers, acquisitions, top appointments and CEO pay, which shareholders are expected to vote on in AGMs, EGMs or court-convened meetings.
Institutional investors contract with these firms to carry out comprehensive reviews of voting proposals that the investors themselves have neither the time nor the resources to undertake.
Following are few reasons why institutional investors engage proxy advisors:
1. Proxy advisors generally offer variety of services consisting of both, analyzing the proposals at general meetings and recommending voting decisions.
2. The recommendations of proxy advisors help the investors to obtain a more considered understanding of different agenda items and to. arrive at an informed voting decision, allowing them to optimise their own limited resources and cast their votes in a timely and informed manner.
3. Considering that institutional investors invest in multiple companies in different industry range and across the globe, it may not be feasible for those investors to have informed knowledge of the corporate governance specifications of that country and hence there may be an inability to understand the need and impact of a particular agenda item. Proxy advisors help to combat this issue as well through their informed consultancy. Due to cross border voting investors may face issues in terms of language of a country. The proxy advisors can assist in mitigating the language issues as well. Further, they may also enable the investors to have a voting platform in cases where electronic voting is a pre-requisite at general meetings.
4. Apart from the above, general meetings across the globe may be concentrated during a certain period of the year and therefore the investors may not be in a position to gather information and knowledge about all the companies and hence, may not be in a position to take informed decision while voting. Proxy services industry emerged and expanded with the growth of institutional investors and shareholder activism. Proxy services firms play an important role in the proxy voting system. Such firms offer valuable services which includes analysing of the proposals for general meetings and providing voting recommendations, either based on the their own voting policy or on the investor’s customised voting policy.
Proxy advisers also influence boards’ decision making. They do a good job of policing the boards and governance records of the firms they track, and nudging institutional investors to take a stand on governance issues.
Question 34.
Discuss in brief the actions the institutional investors in g listed company may take under the UK Stewardship Code if they are dissatisfied with the board’s response to their concerns on the performance of the company during the previous financial year. (Dec 2021, 5 marks)
Answer:
The UK Stewardship Code sets out the principles of effective stewardship by investors. Stewardship responsibilities of institutional investors may include monitoring and engaging with companies on matters such as strategy, performance, risk, capital structure and corporate governance, including culture and remuneration. <
The Stewardship Code also states that institutional shareholders should:
- Publicly disclose their policy on how they will discharge their Stewardship responsibilities.
- Have a robust policy on managing conflicts of interest in relation to stewardship which should be publicly disclosed.
- Monitor their investee companies.
- Establish clear guidelines on when and how they will escalate their stewardship activities.
- Be willing to act collectively with other investors where appropriate.
- Have a clear policy on voting and disclosure of voting activity.
- Report periodically on their stewardship and voting activities.
Institutional investors should have clear guidelines about the circumstances when they will intervene actively. Compliance with the code does not constitute an invitation to manage the affairs of a company. If the company’s board does not respond constructively, the institutional investor should have guidelines for deciding whether and how to escalate their action. For example, an institutional investor may ask for a meeting with the company chairman, or find out whether other institutional shareholders share the same concernsso that joint action can be considered. Institutional investors should endeavour to identify at an early stage issues that may result in a significant loss in investment value. If they have concerns, they should seek to ensure that the appropriate members of the investee company’s board or management are made aware.
Question 35.
“Company law’s central dilemma has been the separation of ownership and control in companies.” Comment. (Dec 2021, 5 marks)
Answer:
Company law’s central dilemma has been the separation of ownership and control in companies. Shareholders, being owners of the company, should ideally play a crucial role in governing the company. However, it is not -practically possible for each shareholder to participate in the decision making process on a day to day basis. Further, the shareholders generally lack the knowledge and professional skills that are required to manage a company. Hence, they elect a board of directors to govern the company and take strategic decisions.
The shareholders vest control of the business in the board of directors, who in turn, appoint management specialists to run the business and return the profits of the business back to the owner shareholders. The directors have a fiduciary responsibility to the shareholders (principal) of their organisation. Companies allow for the separation in the roles of ownership and management. It is not necessary that owners need to be managers and vice versa. Owners and managers may have differing views on various issues in the company. For instance, managers may pursue growth rather than maximize share value, whereas shareholders may prefer high leverage because it increases share values.
Question 36.
Why do institutional investors rely on proxy advisors? (June 2022, 3 marks)
Question 37.
“Corporations pool capital from a large number of investors both in domestic as well as international market. In this context, involvement is ultimately an act of faith in the ability of a corporation’s management to mobilise capital. Investors expect management to act in their interests at all times and adopt good corporate governance.”
Evaluate this statement keeping in mind the investors’ faith, interest of investors and corporate governance practices to be followed by the management. [Old Syllabus] (June 2014, 10 marks)
Answer:
Every Investor likes to invest his money in such companies which are going to improve their business with earning profits and to avoid complexities like hurdles from Government department by following good governance practices.
In this connection company’s goal may be to do the business whose future is bright and earn profit with the growth of GDP of country also.
Each companies, firms are well trained in earning profit but they avoid to follow the governance thinking it useless or curtailing their profit, but to protect the interest of investor. Government has compelled to the companies to follow the guidelines through their agencies like Registrar of Companies, SEBI, RBI, CCI etc.
To protect the interest of investor Government initiated the role of the Company Secretaries. The Company Secretary acts as a bridge between Company and Investors, who acts as a referee to compel the companies to follow the governance and also acts as a Grievance Officer for investors.
We, therefore can conclude that Corporate Governance brings about an equilibrium between the expectations of the owners, employees, customers and all other stakeholders. It builds continuing bonds with shareholders, employees, investors, depositors, borrowers, suppliers, customers and business constituents.
Corporate governance extends beyond corporate law. Its fundamental objective is not mere fulfilment of the requirements of law but in ensuring commitment of the Board in managing the company in a transparent manner for maximizing stakeholder value. The real onus of achieving desired levels of corporate governance lies with corporates themselves and not in external measures.
Question 38.
ECHO Enterprises Ltd., a listed company has following subsidiaries. The details of income of ECHO Enterprises Ltd. and its subsidiaries are as under:
| Holding Company | ₹ in Crore |
| ECHO Enterprises Ltd. | 1,000.00 |
| Subsidiaries | ₹ in Crore |
| ANCHOR Batteries Ltd. | 200.00 |
| EAZY Chemicals Ltd. | 250.00 |
| REAL Power Ltd. | 400.00 |
Examine the above in terms of Regulation 24 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with respect to compliance relating to subsidiaries and advise the Boards of all companies regarding various compliances. (June 2022, 10 marks)
Corporate Governance and Shareholders Rights Notes
Investor Relations (IR):
Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation.
Class Action Suits:
Such number of member or members, depositor or depositors or any class of them, as the case may be, as are indicated in sub-section (2) may, if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors for seeking all or any of the following orders.
Minority Shareholders:
Shareholders who do not exert control over the board of directors of the companies, even if together they own the majority of shares.
Scores:
SEBI has set up a separate cell to address the grievances of investors – SEBI Complaints Redressal System.
Sustainability:
Sustainability is the ability to continue a defined behavior indefinitely.