Corporate Governance — Evolution and Challenges in the New Companies Act

23 Pages Posted: 16 Jul 2018

See all articles by Rajesh Chakrabarti

Rajesh Chakrabarti

O. P. Jindal Global University

Mandar Kagade

Indian School of Business (ISB), Hyderabad - Bharti Institute of Public Policy

Date Written: June 21, 2018

Abstract

The proposed paper discusses the evolution of corporate governance norms in India since the liberalization of the Indian economy, touching upon the Kumar Mangalam Committee Report, the Narayana Murthy Committee on Corporate Governance and clause 49 of the Listing Agreement. In particular, it identifies and critically analyzes the corporate governance changes brought in the new Companies Act enacted in 2013. Saliently, the Act has amended the definition of independent directors and made it stricter; it is submitted that a “principles-based” approach to defining independence may be better suited as the categories creating conflict of interest cannot be exhaustively enumerated. Similarly, the scope of limitation of liability for directors under this Act should have been extended to exempt outside directors from liability under all acts/laws as it has been observed anecdotally that outside directors face charges under other statutes like the Negotiable Instruments Act, 1881, the various environmental laws et al. In other respects, the recognition of short form mergers is a welcome reform to the M&A regime; the stipulation of prescribed shareholding (and debt holding) thresholds to challenge M&A transactions will mitigate the perverse incentive to create bottlenecks for a deal without adequate “skin in the game”. Finally, the enactment of class action remedy promises to be empowering for shareholders; however, the expression, “prejudicial to the company or members” as interpreted by Supreme Court earlier appears to prescribe a high onus of proof on the class action plaintiffs.

Keywords: Corporate Governance, Companies Act, Corporate Law, Agency Costs, Clause 49

Suggested Citation

Chakrabarti, Rajesh and Kagade, Mandar, Corporate Governance — Evolution and Challenges in the New Companies Act (June 21, 2018). Available at SSRN: https://ssrn.com/abstract=3200708 or http://dx.doi.org/10.2139/ssrn.3200708

Rajesh Chakrabarti (Contact Author)

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Mandar Kagade

Indian School of Business (ISB), Hyderabad - Bharti Institute of Public Policy ( email )

Knowledge City, Sector 81
Mohali, 140306
India

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