Adequacy of Legal and Regulatory Framework in India with regard to Corporate Governance in protecting the interest of Investors
Volume II – Issue I, 2020
The concept of corporate governance includes a set of principles which the company has to adhere to in every conduct of its affairs. The set of principles include transparency, accountability, mandatory disclosures, compliance with prevailing laws, protecting investor interests etc. The objective of corporate governance is to ensure a mechanism to gain confidence of the investors. As on account of corporate frauds, the investors interest are severely affected.
The legislative framework of Companies Act, 2013 along with the framework of Clause 49 of the Listing agreement has formulated the concept of investor protection. The recommendations by various committees have ensured enhanced investor protection.
However, the efficiency of corporate governance is not seen clearly as the unlisted companies have to follow the Corporate Governance Voluntary Guidelines, 2009 which are not mandatory in its enforcement. In the past, India has witnessed various corporate frauds, which has highlighted the lack of legislative framework and the lack of effective corporate governance. The Satyam scandal portrayed that a company’s inefficient corporate governance framework will be detrimental to interests of the investors. The Rebook Fraud Case brought the issue of the requirement of adequate corporate governance measures in the unlisted companies.
Apart from the Clause 49 of the Listing Agreement, the Companies Act and various regulations of the SEBI will depict the importance of disclosures to shareholders. The role of institutional investors in mandating the company to follow corporate governance practices has come to the fore in recent past. The institutional investors can play a significant role in influencing the company to follow good corporate governance practices. The concept of shareholder activism is also a significant issue in terms of corporate governance practices. Shareholder Activism entails that the shareholders shall take a proactive role in formulating a dialogue with the management of the company on a regular basis. The reforms in India which highlighted the aspect of shareholder activism have also been discussed. Corporate Governance in India is based on the maintenance of transparency in the company and the same leads to the protection of investors. The researcher would also bring out the need of shareholder activism in India in terms of corporate governance.
The essence of the research shall be examining the adequacy of the legal and regulatory framework in India with regard to corporate governance in protecting the interest of the investors.