Mechanism of Corporate Governance

By | April 12, 2020

In our country, there are various mechanisms to ensure corporate governance. They are

Companies Act, 2013:

Companies in our country are regulated by the Companies Act, 2013, as amended up-to-date. The Companies Act is one of the biggest legislations with 658 sections and 14 schedules. The arms of the Act are quite long and touch every aspect of a company’s insistence. But to ensure corporate governance, the Act confers legal rights to shareholders to

  • Vote on every resolution placed before an annual general meeting.
  • Elect directors who are responsible for specifying objectives and laying down policies.
  • Determine the remuneration of the directors and the CEO.
  • Remove directors.
  • Take an active part in the annual general meetings.
  • Deals with procedure or regulation of incorporation.
  • Deal with the allotment of shares and debentures.
  • Issue prospectus.
  • Maintain accounts for audit.
  • Prevent from the oppression of minority shareholders.

Securities Contracts (Regulation) Act, 1956 (SCRA):

It deals with the governance of tradable debentures, bonds, stocks, shares and government papers and any other marketable assets and securities. It defines the code of conduct for stock exchange along with their duties and powers. It also defines the penalty for non-violation, e.g. rupee 25 crores find the imprisonment up to 10 years (2004) Any violation will lead to the delisting of the company.

Securities Exchange Board of India (SEBI) Act, 1992:

SEBI is an independent institution to regulate the capital market function. The key objective of this act is to promote the welfare and of the investors. Formation of SEBI made Indian capital markets fairly transparent, which attracted foreign investors.

Depositories Act, 1996:

This was enacted to promote digitisation and transparency in stock trading. The securities were dematerialised and created a revolution in trading markets. This act established a securities and share depositories while and creating a legal framework for securities dematerialisation.