Meaning of corporate governance

The modern companies, due to their size, use vast societal resources. It is therefore imperative that these
resources are used by the Board of Directors for the best interest of not only to the shareholders but other
stakeholders as well. Therefore must have the freedom to take executive decisions but such freedom Must
be exercised within the framework of accountability. The organisation for economic co-operation and
development(OPEC) states that ' corporate governance involves a set of relationship in a company's
management, Its board, Its shareholders and other stakeholders. Corporate governance also provides the
structure through which the objectives of the company are set, On the means of attaining objectives and
monitoring performance are determind. Governance provides proper incentives for the board and
management 1st you objectives that are in the interest of the company and its shareholders and should
facilitate affective monitoring. Presence of an effective governance system, Within an individual
company and across an economy as a whole helps to provide a degree of confidence that is necessary for
the proper functioning of a market economy. As a result, the cost of capital is lower and firms are
encouraged to use more efficiently, hereby underpinning growth.'

Good Corporate Governance is essentially ensuring that the management meets its obligation to words-
The owners, Creditors, Employees, Customers, Government and society at large.

*Need for corporate governance

The need for corporate governance arise because of:-

1. the separation of management from the ownership;

2. The anonymity Between the producer and ultimate consumers;
3. realisation that business being part Off the society owes certain responsibilities Towards the
society.

The management of any corporation should begin with the fundamental reality that their company
necessarily produces two products:

1 The economic goods and services of the firms; and

2 The social effect on the people involved in the production, distribution and consumption of those goods
and services inside the company as well as in the community in which the company operates.

A responsible management has to, Therefore Ensure that the business subserves various groups
effectively and efficiently.
Management is responsible toward the shareholders 1 by way of ensuring the fair return on their
investments.

2 Treating them as business partners.

3. ensuring showing capital appreciation of their stocks.

4. Redressal of their grievances with respect to matter such as Delay in transfer of shares, Delay dispatch
of share certificates and Dividend warrants and non recipe of dividend warrants.

Responsibility toward employees:- Include payment of fair wages and salaries, Sympathetic treatment
by the supervisor, Since all favouritism, Provision for Leave, Communication network between
management and employees, Setting up of norms, And dispute resolution mechanism, Concern for
Safety and provision for healthy and satisfactory working conditions.

Responsibility towards consumers :- Include offering variety Of dependable quality goods and
services at reasonable prices , Creation off Good distribution network.

Responsibility towards the community:- Include not to corrupt public servants, To sell goods and
services without adulteration, to follow fair trade practices.

Responsibility towards government:- Require the management to be law abiding, Pay the taxes And
other dues fully and honestly, not to purchase political support by unfavourable means, to contribute to
stable and balanced development of the economy.

The concern for the good corporate governance the world or seems to be the result of the appointment of
cadbury's committee in UK to look into The various aspects of corporate governance

The basic reason for creation of cadbury committee by the London stock exchange, The financial
reporting council and accountancy profession was the growing concern at the lack of confidence in
reports and accounts and audit statement and attached to them, Following the collapse all some prominent
UK companies. Because of anxiety of the London stock exchange, Vas not so much that these companies
had failed as that the reports and accounts,, Just prior to their failure, Appear to give no forewarning Of
the true state of their financial affairs.

Recommendation of the cadbury committee resulted in creation of the court of best practices. The court of
best practices is divided to 4 sections
The 1st section is concerned with the role of the board of directors and cover such matters as the duty of a
board, Composition esSpecially The balance between executed and non executive directors And the
separation of the post of the chairman and chief executive.

The 2nd section deals with the role of the outside nonexecutive directors on which the committee placed
considerable emphasis. The committee recommended That the majority of them should be independent
And find independence as being " free from any business or other relationship which could materially
interfere with the exercise Of their independent judgement."

The committee also recommended that nonexecutive directors should be appointed for specific terms,
With the possibility of reappointment, Depending on the contribution which the director concerned was
making to the work of the board. It for the recommended that no nexecutive directors should be selected
through a formal process which should involve the board As a whole. This was to avoid directors
considering that they owed their place on the board to the chairman's patronage.

3rd section covered executive directors and was mainly concerned with their Renumeration. It
recommended that there should be full and clear disclosure of directors emoluments and that The player
executed directors should be said by a renumeration committee made up wholly or mainly of
nonexecutive directors.

Final section addressed important questions of Financial controls. Amended properly constituted or did
committees of the board and director should report on the effectiveness of their system of internal
financial control.

The said code of best practice is non prescriptive.It sets out the principle or guidelines with the committee
believes board should follow in directing and controlling their companies. It is up to each individual
board to implement these principles in ways which best meets their particular circumstances and which
carry the approval of their shareholders.

Corporate governance in India

There has been much talk on corporate governance in India in the recent past particularly with the
appointment of Kumar mongol Bella committee on corporate governance on May 7, 1999

Does not for the 1st time that part was given to good corporate governance with the Constitution of the
aforesaid committee. During the chairmanship of ramkrishnan Bajaj, FICCI had Evolved a code of fair
business practices. Again in 1960s Various study groups discussed and formulated the code of Indian
business. Sachhar committee in 1978 Also went into the question of corporate governance and stressed
upon proper and educated disclosures requirements on the part of the companies. The committee failed
that openness in corporate affairs is the first principle in securing responsible behaviour.

The sachhar committee also suggested That every company along with the director's report must also
Make The report which will indicate and qualified the various activities relating to the social
responsibility aspects which have been carried out by the company in the previous year.

Again, various provisions of the companies act provide for certain disclosures by way of maintaining
Certain registers, Filing of reports, reporting in director's report, Disclosure of interest by directors,
statutory audit and duties of the auditors in reporting on certain matters

Further, with the Constitution of SEBI, a large number of guidelines/regulations have been issued by
SEBI since 1992 in the interest of investors' protection. These guidelines contain requirements with
respect to initial public offers, declaration of quarterly results, timely disclosure of material and price
sensitive information, the Guidelines for preferential allotment at market related prices, Fighting for fair
and transparent framework for takeovers and substantial acquisitions, Dispatch of one copy of complete
balance sheet to every household and an abridge balance sheet to all share holders.

Again, confederation of Indian Industries evolved a code of corporate governance in late 90s

Kumar mangalam Birla committee Report

A full scale the date on corporate governance dominated the Indians scene since the submission of its
report by the kumar Mangalam Birla committee constituted by SEBI on may 7, 1999. Most of its
recommendation were notified by SEBI on February 21, 2000 as guidelines for good corporate
governance and primarily sought to be enforced through listing agreement.

voluntary guidelines on corporate governance and social responsibilities.

The ministry of corporate affairs issues corporate governance voluntary guidelines and Corporate social
responsibility voluntary guidelines in 2009 enumerating key principles of corporate governance and
social responsibility respectively. In 2011 the MCA issued national voluntary guidelines on social
environment and economic responsibilities of business as a refinement of 2009 guidelines. The listing
agreement was amended in 2012 to require the top 100 listed and titties to submit as part of their annual
reports business responsibility reports, describing the initiatives taken by them from an environmental,
social and governance perspective, in the format suggested in clause 55 of the listing agreement.
*Evolution of Legal Framework of Corporate Governance in India

1. Prior to Independence and Four Decades into Independence

Indian associations/corporate entities were bound by colonial guidelines and a large portion of
the principles and guidelines took into account the impulses and likes of the British employers.
The Companies Act was enacted in 1866 and was amended in 1882, 1913 and 1932.  Partnership
Act was enacted in 1932. These enactments had a managing organisation model as a focus as
people/business firms went into a legitimate contract with business entities to manage the latter.
This period was an era of misuse/abuse of resources and shunning of obligations by managing
specialists because of scattered and unprofessional proprietorship.
Soon after independence, there was interest among industrialists for production of a lot of
essential items for which the Government directed and dictated fair prices. This was the point at
which the Tariff Commission and the Bureau of Industrial Costs and Prices were set up by the
Government. Industries (Development and Regulation) Act and Companies Act were introduced
into the legal system in 1950s. 1960s was a time of setting up of heavy industries in addition to
the routine affairs. The period between 1970s to mid-1980s was a time of cost, volume and profit
examination, as a vital piece of the cost accounting activities.

Coming of Age

India has been distinctly looked upon by the associations/organisations worldwide with the
objective of making inroads into untapped new markets. Dynamic firms in India made an
endeavour to put the frameworks of good corporate administration in place from the word go,
whether or not any regulations were in place. However, the scenario was not too encouraging,
being too promoter-centric and good governance norms given a go by for the sake of
convenience or comfort of the promoters.
Realising the need for governing the corporates more effectively and professionally to make
them globally competitive, there have been a number of discourses and occasions prompting the
advancement of corporate governance. The fundamental code for corporate administration was
proposed by the Chamber of Indian Industries (CII) in 1998. The definition proposed by CII was
—corporate governance manages laws, methods, practices and understood principles that decide
an organisation’s capacity to take administrative choices—specifically its investors, banks,
clients, the State and the representatives.
Reformation in Corporate Governance

The First Phase of India’s Corporate Governance Reforms: 1996-2008

The primary or the first phase of India’s corporate governance reforms were focussed at making
Audit Committees and Boards more independent, focussed and powerful supervisor of
management and also of aiding shareholders, including institutional and foreign
shareholders/investors, in supervising management. These reform efforts were channelled
through a number of different paths with both the Ministry of Corporate Affairs (MCA) and the
Securities and Exchange Board of India (SEBI) playing important roles.
(a) CII—1996
In 1996, CII taking up the first institutional initiative in the Indian industry took a special step on
corporate governance. The aim was to promote and develop a code for companies, be in the
public sectors or private sectors, financial institutions or banks, all the corporate entities. The
steps taken by CII addressed public concerns regarding the security of the interest and concern of
investors, especially the small investors; the promotion and encouragement of transparency
within industry and business, the necessity to proceed towards international standards of
disclosure of information by corporate bodies, and through all of this to build a high level of
people’s confidence in business and industry. The final draft of this Code was introduced in
April 1998[2]
(b) Report of the Committee (Kumar Mangalam Birla) on Corporate Governance
Noted industrialist, Mr Kumar Mangalam Birla was appointed by SEBI—as Chairman to provide
a comprehensive vista of the concern related to insider trading to secure the rights of several
investors. The suggestions insisted on the listed companies for initial and continuing disclosures
in a phased manner within specified dates, through the listing agreement. The companies were
made to disclose separately in their annual reports, a report on corporate governance delineating
the steps they have taken to comply with the recommendations of the Committee. The objective
was to enable the shareholders to know, where the companies, in which they have invested, stand
with respect to specific initiatives taken to ensure robust corporate governance.
(c) Clause 49
The Committee also realised the importance of auditing body and made many specific
suggestions related to the constitution and function of Board Audit Committees. At that time,
SEBI reviewed it’s listing contract to include the recommendations. These rules and regulations
were listed in Clause 49, a new section of the listing agreement which came into force in phases
of 2000 and 2003.
(d) Report of the Advisory Group on Corporate Governance: Standing Committee on
International Financial Standards and Code—March 2001
The advisory group tried to compare the potion of corporate governance in India vis-à-vis the
international best standards and advised to improve corporate governance standards in India.
(e) Report of the Consultative Group of Directors of Banks—April 2001
The corporate governance of directors of banks and financial institutions was constituted by
Reserve Bank to review the supervisory role of boards of banks and financial institutions and to
get feedback on the activities of the boards vis-à-vis compliance, transparency, disclosures, audit
committees, etc. and provide suggestions for making the role of Board of Directors more
effective with a perspective to mitigate or reduce the risks.
(f) Report of the Committee (Naresh Chandra) on Corporate Audit and Governance
Committee—December 2002
The Committee took the charge of the task to analyse, and suggest changes in different areas like
—the statutory auditor and company relationship, procedure for appointment of Auditors and
determination of audit fee, restrictions if required on non-auditory fee, measures to ensure that
management and companies put forth a true and fair statement of financial affairs of the
company.
(g) SEBI Report on Corporate Governance (N.R. Narayan Murthy)—February 2003
So as to improve the governance standards, SEBI constituted a committee to study the role of
independent directors, related parties, risk management, directorship and director compensation,
codes of conduct and financial disclosures.
(h) (Naresh Chandra Committee II) Report of the Committee on Regulation of Private
Companies and Partnerships
As large number of private sector companies were coming into the picture there was a need to
revisit the law again. In order to build upon this framework, the Government constituted a
committee in January 2003, to ensure a scientific and rational regulatory environment. The main
focus of this report was on (a) the Companies Act, 1956; and (b) the Partnership Act, 1932. The
final report was submitted on 23-7-2003.
(i) Clause 49 Amendment—Murthy Committee
In 2004, SEBI further brought about changes in Clause 49 in accordance with the Murthy
Committee’s recommendations. However, implementation of these changes was postponed till 1-
1-2006 because of lack of preparedness and industry resistance to accept such wide-ranging
reforms. While there were many changes to Clause 49 as a result of the Murthy Report,
governance requirements with respect to corporate boards, audit committees, shareholder
disclosure, and CEO/CFO certification of internal controls constituted the largest transformation
of the governance and disclosure standards of Indian companies.

Second Stage of Corporate Governance—After Satyam Scam

India’s corporate community experienced a significant shock in January 2009 with damaging
revelations about board failure and colossal fraud in the financials of Satyam. The Satyam
scandal also served as a catalyst for the Indian Government to rethink the corporate governance,
disclosure, accountability and enforcement mechanisms in place. Industry response shortly after
news of the scandal broke, the CII began examining the corporate governance issues arising out
of the Satyam scandal. Other industry groups also formed corporate governance and Ethics
Committees to study the impact and lessons of the scandal. In late 2009, a CII task force put
forth corporate governance reform recommendations.
In its report the CII emphasised the unique nature of the Satyam scandal, noting that—Satyam is
a one-off incident. The overwhelming majority of corporate India is well run, well regulated and
does business in a sound and legal manner. In addition to the CII, the National Association of
Software and Services Companies (Nasscom, self-described as—the premier trade body and the
Chamber of Commerce of the IT-BPO industries in India) also formed a Corporate Governance
and Ethics Committee, chaired by N.R. Narayana Murthy, one of the founders of Infosys and a
leading figure in Indian corporate governance reforms. The Committee issued its
recommendations in mid-2010.
Scope of corporate governance
To Create and adopt code of conduct with whole hearted commitment and improve the model
and ethical standards of performance to the utmost level
To have a right balance, knowledge and competence to set strategies and lead the organisation
To use the resources entrusted to the management in the most economic, productive and
effective ways for the benefit of shareholders as well as for the society at large.
To set the highest and lots of business ethics based upon humanity, honesty and handwork.
To enhance the long term value and economic efficiency of the company. It compasses all the
shareholders and integrates all the participants involved in the process.
To elevate the reputation of the corporation and esteem of  Its management.
To attract emplay and retain talent and motivate employees to give their best. A more open and
participative style of management ensures free exchange of ideas and frank appreciation at all
levels.
To improve the standard of living and life of the society, industry, commerce and professional
services.
To generate accurate and reliable information.
To make the decision making process transparent.
To make the decision making process transparent.
To prepare a small enterprise for growth and help secure new business opportunities when they
arise.
To improve the economic efficiency of the firm.
To increase the market confidence of the firm.

*RELEVANCE OF CORPORATE GOVERNANCE

Corporate Governance is intended to increase the accountability of your company and avoid
massive disasters before they occur. Failed energy giant Enron, and its bankrupt employees and
shareholders, is a prime argument for the importance of solid Corporate Governance. Well-
executed Corporate Governance should be similar to a police department’s internal affairs unit,
weeding out and eliminating problems with extreme prejudice. The Need, Significance or
Importance of Corporate Governance is listed below.
Changing Ownership Structure:-
In recent years, the ownership structure of companies has changed a lot. Public financial
institutions, mutual funds, etc. are the single largest shareholder in most of the large companies.
So, they have effective control on the management of the companies. They force the
management to use corporate governance. That is, they put pressure on the management to
become more efficient, transparent, accountable, etc. They also ask the management to make
consumer-friendly policies, to protect all social groups and to protect the environment. So, the
changing ownership structure has resulted in corporate governance.
Importance of Social Responsibility
Today, social responsibility is given a lot of importance. The Board of Directors has to protect
the rights of the customers, employees, shareholders, suppliers, local communities, etc. This is
possible only if they use corporate governance
Growing Number of Scams
In recent years, many scams, frauds and corrupt practices have taken place. Misuse and
misappropriation of public money are happening everyday in India and worldwide. It is
happening in the stock market, banks, financial institutions, companies and government offices.
In order to avoid these scams and financial irregularities, many companies have started corporate
governance.

Indifference on the part of Shareholders

In general, shareholders are inactive in the management of their companies. They only attend the
Annual general meeting. Postal ballot is still absent in India. Proxies are not allowed to speak in
the meetings. Shareholders associations are not strong. Therefore, directors misuse their power
for their own benefits. So, there is a need for corporate governance to protect all the stakeholders
of the company.

Globalization
Today most big companies are selling their goods in the global market. So, they have to attract
foreign investor and foreign customers. They also have to follow foreign rules and regulations.
All this requires corporate governance. Without Corporate governance, it is impossible to enter,
survive and succeed the global market.

Takeovers and Mergers

Today, there are many takeovers and mergers in the business world. Corporate governance is
required to protect the interest of all the parties during takeovers and mergers.
SEBI
SEBI has made corporate governance compulsory for certain companies. This is done to protect
the interest of the investors and other stakeholders.

*CORPORATE GOVERNANCE PRINCIPLES

Corporate governance refers to all laws, regulations, codes and practices, which defines how
institution is administrated and inspected, determines rights and responsibilities of different
partners, attracts human and financial capital, makes institution work efficiently, provides
economic value to stack holders in the long turn while respecting the values of the community it
belong. For corporate governance, the management approach should be in accordance with the
following principles.
Principal 1 : Governance structure:
All Organizations should be headed by an effective Board. responsibilities and accountabilities
within the organization should be clearly identified.
Principal2 : The structure of the board and its committees :
The board should comprise independent minded directors. It should include an appropriate
combination of executive directors, independent directors and non-independent non-executive
directors to prevent one individual or a small group of individuals from dominating the board’s
decision taking. The board should be of a size and level of diversity commensurate with the
sophistication and scale of the organization. Appropriate board committees may be formed to
assist the board in the effective performance of its duties.

Principal 3 : Director appointment procedure:

There should be a formal, rigorous and transparent process for the appointment, election,
induction and re-election of directors. The search for board candidates should be conducted, and
appointments made, on merit, against objective criteria (to include skills, knowledge, experience,
and independence and with due regard for the benefits of diversity on the board, including
gender). The board should ensure that a formal, rigorous and transparent procedure be in place
for planning the succession of all key officeholders.

Principal 4 : Directors duties, remuneration and performance:

Directors should be aware of their legal duties. Directors should observe and foster high ethical
standards and a strong ethical culture in their organization. Each director must be able to allocate
sufficient time to discharge his or her duties effectively. Conflicts of interest should be disclosed
and managed. The board is responsible for the governance of the organization’s information,
information technology and information security. The board, committees and individual directors
should be supplied with information in a timely manner and in an appropriate form and quality in
order to perform to required standards. The board, committees and individual directors should
have their performance evaluated and be held accountable to appropriate stakeholders. The board
should be transparent, fair and consistent in determining the remuneration policy for directors
and senior executives.

Principal5 : Risk governance and internal control:

The board should be responsible for risk governance and should ensure that the organization
develops and executes a comprehensive and robust system of risk management. The board
should ensure the maintenance of a sound internal control system

Principal6 : Reporting and integrity:

The board should present a fair, balanced and understandable assessment of the organization’s
financial, environmental, social and governance position, performance and outlook in its annual
report and on its website.

Principal 7 : Audit:
Organizations should consider having an effective and independent internal audit function that
has the respect, confidence and cooperation of both the board and the management. The board
should establish formal and transparent arrangements to appoint and maintain an appropriate
relationship with the organization’s auditors.
Principal8 : Relations with share holders and other key shareholder:
The board should be responsible for ensuring that an appropriate dialogue takes place among the
organization, its shareholders and other key stakeholders. The board should respect the interests
of its shareholders and other key stakeholders within the context of its fundamental purpose.

*TOP 5 CORPORATE GOVERNANCE BEST PRACTICES

Right-sized governance practices will positively impact long-term corporate performance – but
companies must design and implement those that both comply with legal requirements and meet
their particular needs. Here are the top 5 corporate governance best practices that every Board of
Directors can engage – and that will benefit every company.

Build a strong, qualified board of directors and evaluate performance. Boards should be

comprised of directors who are knowledgeable and have expertise relevant to the business and
are qualified and competent, and have strong ethics and integrity, diverse backgrounds and skill
sets, and sufficient time to commit to their duties. How do you build – and keep – such a Board?

1. Identify gaps in the current director complement and the ideal qualities and characteristics, and
keep an “ever-green” list of suitable candidates to fill Board vacancies.

2. The majority of directors should be independent: not a member of management and without
any direct or indirect material relationship that could interfere with their judgment.

3. Develop an engaged Board where directors ask questions and challenge management and
don’t just “rubber-stamp” management’s recommendations.

4. Educate them. Give new directors an orientation to familiarize them with the business, their
duties and the Board’s expectations; reserve time in Board meetings for on-going education
about the business and governance matters.
5. Regularly review Board mandates to assess whether Directors are fulfilling their duties, and
undertake meaningful evaluations of their performance. 
 

Define roles and responsibilities. Establish clear lines of accountability among the Board,
Chair, CEO, Executive Officers and management: 

1. Create written mandates for the Board and each committee setting out their duties and
accountabilities.

2. Delegate certain responsibilities to a sub-group of directors. Typical committees include:

audit, nominating, compensation and corporate governance committees and “special
committees” formed to evaluate proposed transactions or opportunities.

3. Develop written position descriptions for the Board Chair, Board committees, the CEO and
executive officers.

4. Separate the roles of the Board Chair and the CEO: the Chair leads the Board and ensures it’s
acting in the company’s long-term best interests; the CEO leads management, develops and
implements business strategy and reports to the Board.
  

Emphasize integrity and ethical dealing. Not only must directors declare conflicts of interest
and refrain from voting on matters in which they have an interest, but a general culture of
integrity in business dealing and of respect and compliance with laws and policies without fear
of recrimination is critical.  To create and cultivate this culture:

1.  Adopt a conflict of interest policy, a code of business conduct setting out the company’s
requirements and process to report and deal with non-compliance, and a Whistleblower policy.
2. Make someone responsible for oversight and management of these policies and procedures.
  

Evaluate performance and make principled compensation decisions. The Board should:

1. Set directors’ fees that will attract suitable candidates, but won’t create an appearance of
conflict in a director’s independence or discharge of her duties.

2. Establish measurable performance targets for executive officers (including the CEO),
regularly assess and evaluate their performance against them and tie compensation to
performance.

3. Establish a Compensation Committee comprised of independent directors to develop and

oversee executive compensation plans (including equity-based ones like stock option plans).
  

Engage in effective risk management. Companies should regularly identify and assess the risks
they face, including financial, operational, reputational, environmental, industry-related, and
legal risks:

1. The Board is responsible for strategic leadership in establishing the company’s risk tolerance
and developing a framework and clear accountabilities for managing risk. It should regularly
review the adequacy of the systems and controls management puts in place to identify, assess,
mitigate and monitor risk and the sufficiency of its reporting.

2. Directors are responsible to understand the current and emerging short and long-term risks the
company faces and the performance implications. They should challenge management’s
assumptions and the adequacy of the company’s risk management processes and procedures.

 Certain provisions of Companies Act 2013 vis a vis corporate governance.

1. Sec 110 : passing of resolutions through postal ballot
In order to encourage wider participation of shareholders section 110 allows members to vote on
a particular resolution through postal ballot.

2. Section 139: compulsory audit rotation

Listed companies and other specified companies are required to rotate their auditor after 5 years
in case of individual auditor and after 10 years in case of of a firm of auditors.

3. Section 144: auditors not to perform specified services

The statuary auditors of a company are prohibited from performing certain specified services to
the same company under this provision

4. Section 134(5) : directors' responsibility statement

The provision requires directors report to include a responsibility statement in regard to matters
related to accounting, financial statements and other internal controls including compliance with
applicable laws.

5. Section 138: internal audit

Certain class or classes of companies are required to appoint an internal auditor. The internal
audit shall be conducted by a chartered accountant for cost accountant or other professional.

6. Section 204: secretarial audit

Every listed company and other companies need to annex with the boards' report a secretarial
audit report from a company secretary in practice.

7. Section 177: audit committee

Every listed company and other specified companies must constituted an audit committee
consisting of at least three directors with independent directors forming majority.
8. Section 177(9) : vigil mechanism
This is to be adopted to enable the directors and employees to raise genuine concerns and the
person shall be protected from victimization and must be provided Direct Access to the
chairperson of audit committee.

9. Section 149: board composition

One third of total directors of every listed company shall be independent directors who shall be
appointed for a term of five years at a time and shall not hold office for more than two
consecutive terms.

10. Schedule IV: code of conduct for independent directors

Under section 149(8),the independent directors are required to follow code of conduct given in
schedule IV.

11. Section 184: disclosure of interest

Every director must make disclosure in the first meeting after his appointment regarding concern
or interest in company.

12. Section 188: related party transactions

A company shall not enter into any contract with a related party without a board resolution.
However such a transaction shall require a members resolution in respect of companies or size of
transactions as may be specified.

13. Section 194 & 195: forward dealing and insider trading
Section 194 prohibits a director or other key managerial Personnel from forward dealing in
securities of the company or its holding subsidiary or associate company.

14. Section 245: class action:

 Section 245 permit a specified number of members or depositors or class of them to file an
application to the tribunal on behalf of members ordepositors or class of them if the affairs of the
company are being conducted in a manner prejudicial to the interest of the members , depositors
or the company.
.

15. Section 135: corporate social responsibility

Companies with net worth exceeding rupees 500 Crore for turnover exceeding rupees 1000 crore
or net profit exceeding 5 crore are required to form a CSR committee of the board and formulate
a CSR policy.