INTRODUCTION-
The system and framework of the Indian Economy is quite different as compared with others. India is a country with mixed economy, both public sector and private sector plays a huge role in the overall economic growth of the country. If we will discuss about the private sector then private sector is completely a business oriented and was established with a motive of collecting huge profit. For this reason, they do not invest in a sector where those areas of economy which is concerned with the public interest. For investing in these sectors, a huge investment is required but the results which is achieved afterwards is not satisfying and not according to their norms.
In Public Sector Undertakings (PSUs) or Public Sector Enterprises, the Central Government or the State Government are the owners. In PSUs, the Corporate Governance is not only controlled by the Central or State Government but also is financed by the same. The governments mainly focus on the community benefit and tries for the balanced economic growth. As per the Company’s Act in PSUs a government is a major stakeholder. PSUs in India are different compared with the Private Sector. The things like governmental interference, Ministerial command, delay on the appointment of independent director etc. are more precisely noticed in the case of PSUs. In PSUs the minority shareholders have the privileges like participating in general shareholders meeting, receiving notes, receiving dividends and transferring of shares etc. If any inconsistency is noticed they can take the matter and apply to the Ministry of Corporate affairs or SEBI.
In spite of the major decisions which were taken by the government without taking the permission of minority shareholders who hold 51% share of the Company. During the regime of the UPA government a scam which was famous had taken place, it was called Colgate scam where the interest of the minority shareholders was neglected for the beneficial use of the ministry and industries. The Corporate Governance is quite successful in playing an important role in contribution of economy of the nation. The PSUs play a huge role in contribution of economic growth of the nation. The main aim of the Corporate Governance is to ensure and investigate the management of Corporation and ensure the working of the organization.
CORPORATE GOVERNANCE IN PSU
During the time when India was independent, it was left with very high-income disparities, poor infrastructure and less advanced technological resources. There was a strong need and requirement of development in the sectors like Power, steel, telecommunications etc. and improvement in the infrastructure of the nation.
For private sectors entering into these fields are not encouraged as there is a requirement of huge investment with delayed and low returns. If we will discuss about the efficiency of the Government in PSUs then the government is inefficient in managing the public sectors like it should. In fields like de-licensing and deregulation, the government proved to be in efficient in managing these sectors. And this was eventually followed.
The public sector has proved and transformed itself into an emerging and less affected sector during the credit crisis phase. From last years the market capitalisation of the listed PSUs has doubled drastically and also signified the disinvestment process.
The concept of Corporate Governance is growing day by day and it is the tool that helps the operation of business around the world with higher rate of transparency. It mainly ensures the use of funds by the individuals and institutional shareholders; the funds must be used in a transparent way and should not be misused in the business operations. PSUs has the social responsibilities which a company should be concerned apart from making profits. It should fulfil the social responsibilities as they are making profits from the money of the tax payers of the nation. It mainly aims for the transparency of the shareholders, Partners and the employees of the Company as well.
The Shareholders of the Company are basically the owners of the company but their work is quite different, they play the role and conduct the work of the investors and a investor of the company is always eager and interested in the profit of the company and works on the fairness and Capability. The Board of Directors is considered as a essential part of the corporate governance.
The main role of the Board is to inspect and monitor the management on behalf of the Shareholders. Governing a company (whether government company or private) is relied on the Board of Directors. The functions of the Board are-
1. To manage the control and monitor there should be a regular meeting between executive management of the company.
2. There should be a proper discussion between the Board of Directors of the Company regarding the Company affairs.
3. The Board of Directors are also responsible for the employment and dismissal of the CEO of the Company.
4. The Board of Directors has to supervise and provide guidance of the senior management of the Company, regarding the evaluation and selection of the same.
5. The Board of Directors has to evaluate and monitor the performance and fulfilment of the targets, plans and strategies of the Company. They should also monitor the proper functioning of the Company.
6. The Board also examines and ensures the rules, laws, regulations etc. The PSUs has to follow and comply with the rules of the corporate governance which were made and enlisted under the Ministry of Heavy Industries and Public Enterprises, New Delhi.
Why there is a need for good Corporate Governance
– Corporate Governance in an effective way minimizes the scandals which were created in corporate world.
– Corporate Governance promotes powerful financial system if it is done in effective way and it helps in economic growth.
– Corporate Governance helps in the accessibility of external sources of finance which leads to great investment growth thereby increasing the opportunities of employment.
– The growth of new companies gets affected if the Corporate Governance is poor.
– The Cost of Capital gets reduced with the effective Corporate Governance and it enhances the company’s value.
– The distrust between the various stakeholders gets reduced with the proper Corporate Governance.
CORPORATE GOVERNANCE FRAMEWORK
The framework of the Corporate Governance is quite complex. As per the Companies Act 2013; it provides the provisions regarding the same. SEBI also provided the guidelines on Corporate Governance and the DPE provides the guidelines on Corporate Governance framework for the Central Public-Sector Enterprise and also provides the Corporate Governance framework for the PSUs which were listed in India. The SEBI guidelines are not applicable for the non-listed PSUs.
- Provisions as per the Companies Act, 2013
In 29th August 2013, the Companies Act, 2013 was enacted and it replaced the previous Companies Act, 1956. The companies Rules, 2014 was notified by the Ministry of Corporate Affairs regarding the Company’s Management and Administration, also Appointment of Directors as well their qualification, Board Meetings and Accounts. Along with the Companies Rules, the Companies Act provides a framework for Corporate Governance. Under this PSUs were also included which were registered as per Companies Act. Certain requirements which were laid down are-
1. The Qualifications of the Independent Directors along with the guidelines and the duties for the guidelines for the Professional conduct (Section 149(8) and Schedule IV.
2. Compulsory appointment of one-woman director on the board of listed companies [Section 149(1)].
3. Establishment of committees like Corporate Social Responsibility (CSR) Committee [Section (135)], Audit Committee [Section 177(1)], Nomination and Remuneration Committee [Section 178(1)], and Stakeholders Relationship Committee [Section 178(5)].
4. There should be minimum of four meetings of Board of Directors which should be held in every year in such a way that more than 120 days shouldn’t intervene between two consecutive Board meetings. [Section173(1)].
- SEBI Guidelines on Corporate Governance
- SEBI is a body which regulates the Capital market in India. SEBI amended and introduced Clause 49 of the listing agreement in 2014 for getting along with the Companies Act, 2013 regarding Corporate Governance provisions.
- This Clause is applicable for every company including the PSUs. As PSUs are also listed in the stock exchange, they are also included in this list. There are also certain exceptions under this and the Clause-49 is discussed in Paragraph 18.3
- DPE has made certain guidelines for Corporate Governance for the Central Public-Sector Enterprises
1. In November 1992, the Department of Public Enterprises (DPE) issued the first ever guideline on Corporate Governance for the PSUs. These guidelines were voluntary in nature.
2. These guidelines have been revised from period to period and recently the DPE guideline was in May,2010.
3. The guidelines provided under this are mandatory for all PSUs, whether they are listed or not listed. They are also applicable for the same.
4. The guidelines which have been issued by DPE covers the areas like the Composition of Board of Directors, Functions of Board Committees like Audit Committee, Remuneration Committee, Details on subsidiary companies, disclosures etc.
5. In the MoUs of all the PSUs, the DPE has incorporated Corporate Governance as a performance parameter.
6. DPE has made attempts to encourage compliance along with the guidelines, and it made clear regarding the deviation from the guidelines of Corporate Governance which would make the negative marking in the evaluation of PSUs under MoUs process for the Fiscal year 2015-16.
LEGAL PROVISIONS-
- The Companies Act, 2013
- Section-182 of the Companies Act,2013 deals with the contributions to a political party. This section governs the contributions which are made to a political party.
- This also discuss about a company which is not a government company and is in existence for at least three financial years can contribute the amount directly or indirectly to any political party which is registered as per the Representation of Peoples Act,1951.
- There is a procedure in which the contribution should be made. It should be made only through cheque, bank draft, electronic means or any other mode which is prescribed by the government.
- As per the Finance Act, 2017, it amended Section 182 of the Companies Act, 2013 and for the amount which has to be contributed to the political parties has no limits. If we discuss about the requirement of disclosing the names for the account for reviewing profit and loss of political parties on the donations which are made to political parties have been parted away with.
- The Income-tax Act,1961
- Section-80GGB of the Income-tax Act,1961 discuss about the deduction and the taxable amount which has to be made for any kind of contribution for the Indian Companies either in the mode of cash to any kind of political parties or an electoral trust.
ISSUES OF CORPORATE GOVERNNANCE OF PSUs
The introduction of new Industrial Policy in India has given an immerse growth to the economy of India. The growth of the PSUs has done pretty well in domestic as well as Globally. There has been a growth in PSUs as well. For the increase in their standards and improve the confidence of the investors it is necessary for them to accept the Corporate Governance norms and standards which will make sure their further growth in a proper and transparent manner. There are certain issues which create hinderance for the PSUs while accepting those goals, they are-
1. Autonomy of the Board –For running a successful corporate entity there is a requirement of autonomous board which would be competent. The ministerial issues in case of the PSUs are very much common and sometimes it influences the agenda of the boards over strategic and commercial considerations. There is no role of PSU in appointment and selection the independent directors. It is difficult to manage and enhance the evaluation of board members and employees without proper financial autonomy and operational structure.
2. Ownership policy – In case of the PSUs, there is no ownership policy. The minority stakeholders are taken care by the government and they lay down the roles and responsibilities towards them. The employees, vendors, customers and communities are also taken care of by the government. According to The Organisation for Economic Cooperation and Development (OECD), the government has to develop and issue an ownership policy and guideline which would lay down the objectives and role of a state ownership. The corporate governance should be taken care in that case and the policy should be implemented properly. The ownership policy should be strictly disclosed and for fixing the accountability, it should communicate.
3. Appointment of directors on PSU board– The legal provisions and guidelines which has been laid down by SEBI and DPE issued the minimum requirements of the PSUs and they also ensure about the independence and the gender diversity of the organization. If we will discuss about the figure and facts then out of top 27 PSUs, 25 percent of them do not meet the minimum criteria for the independent board and 25 percent do not have a woman director.
4. Non-compliance with legal requirements and SEBI and DPE Guidelines – The PSUs are lagging behind in complying with the minimum guidelines provided by SEBI and the requirements mentioned under Clause 49 and DPE guidelines. The audit which has been conducted by the Comptroller and Auditor General of India has also pointed out this issue and highlighted it.
5. Excessive regulation – There are many rules and regulations in case of the PSUs. PSUs are also accountable to the authorities like Comptroller & Auditor General of India, (CAG); Central Vigilance Commission, (CVC); Competition Commission of India, (CCI); and Right to Information Act, (RTI) etc. These regulations and rules have impacted a lot in case of Corporate Governance of PSUs.
The governance issues of PSUs should be addressed properly and the PSUs need to put their impact on the world map, for this they need to look themselves as an entity taking major decisions and not as a government entity and should be entrusted with.
It is not wrong if we will say that PSUs are one of the most important national assets. And the government is trying rigorously to improve the conditions of PSUs and improve its Corporate Governance. But in case of day-to-day management of PSUs regarding its ownership rights on proper corporate governance principles is still needed to be improved by the government.
CORPORATE FUNDING OF POLITICAL PARTIES
1 Introduction
There is a need of money for everything in this modern world. Similarly, in order to fight the election, the political parties across the world need money. They raise money with the help of either state funding or they use corporate funding. As the name suggests, in case of State Funding of elections the money which is given to the political parties is given by the government. They also provide money to individual candidates who contest for elections. In case of the Corporate Funding, the corporate houses fund the political parties for contesting in the election. Although the election commission has provided the commitment regarding state funding of political parties in election, they have been no advancement regarding that. So, Corporate Funding remains the major funding of political parties which is used as donations in political parties.
In the year 2003, Narayan Murthy Committee suggested certain recommendations and revisions which were made by SEBI in Clause 49. There were certain changes in the categories like Whistle Blower Policy, Independence of directors, Analysis of performance and training of the non-executive directors, Composition of board, Compliance report and the certification of CEO/CFO. The delinquency by the part of PSUs in complying the minimum requirements and its impact overall are a subject of discussion.
2. Corporate funding Issues
There are certain issues which were created after the corporate funding of political parties. These issues are related with the governance. Some of them are-
1. Brings in corruption in the system – While the politics is involved in India, the business nexus cannot be denied. Even after the economic liberalization from past two decades, the business still remains vulnerable to the action taken by the government. There are unreported donations which are given for the return of governmental favours for buying the party goodwill.
2. Lack of transparency – The lack of transparency is clearly noticed in the case of corporate funding. It also brings certain governance issues with the present system. Sometimes these contributions which are made by company are made by the form of unaccounted wealth. This is mainly done for the protection of the identity of the donor.
3. Shell companies –
This problem is one of the biggest problems which we have noticed in this sector. This problem is directly linked with the Corporate Funding where we notice that the creation of Shell or fake companies are done for the accomplishment of the unaccounted money which can be used as political contributions.
3. Challenges Faced by PSUs-
The challenges faced by PSUs are-
a. Actual Standards of PSUs Vis-A-Vis Private Sector
In case of private sectors, they align with the rules and regulations which were set by the government regarding the corporate governance. They also are complied with the rules and regulations of the international business. Their prime aim is to increase the market share in the international market. So, they follow proper corporate governance but in case of PSUs it is quite opposite, they do not try to increase their market share and are less interested. They follow their own regulations and norms.
b. PSUs Have the Issue of Ownership Concentration and Control
In case of PSUs the maximum ownership is with the Government and they acquire almost full control on every major decision and are least bothered about the minority shareholders. Complete independence is not granted in PSUs and there are many unnecessary interferences from various sectors of working ministries.
c. Lack of Respect for Shareholders and Low Financial Disclosure
The financial disclosure of the company is not up to date and the outside shareholders don’t get the respect what they deserve.
d. Balancing Commercial and Managerial Autonomy
According to the current norms, the things should be delinked between the Managerial Composition and the board composition. The interference of the Government is somehow making the task of the PSUs difficult for choosing their non-executive directors. It also affects their daily performance.
e. Confirming Compliance with the SEBI Listing Agreement.
As per Clause-49 of SEBI, the PSUs are covered and the minimum requirements as per the same were stated. The listing agreement and registration of several Navratna and Miniratna were noticed here as per the rule. The Ministry of Corporate Affairs is working and trying strongly to implement the corporate governance rules and this delays the future forecasts of India.
For making proper disclosure with corporate governance and within the director as well necessary and proper steps are required to be taken which will ensure the accountability and the corrective actions taken.
f. Shortage of Real Independent Directors
There is a huge role of directors in the board of public sector undertakings. is highly important in view of the Government’s interfering in their functioning. The Independent Directors act as an important person who counter balance with the interest of a company. But sadly, in case of according to official data it was revealed that almost all the PSU’s, including the Navratnas and Maharatnas which have succeeded in their business despite being constrained by Government interference and influence in case of decision-making, are facing the shortage of Independent Directors. If the independent directors will be appointed, they can help in promoting the management and future of the respective companies.
g. Government as the Promoter
In certain cases, the functioning of Board of directors in the company where they act as a prime promoter and a majority shareholder of the PSU is needed to be monitored thoroughly by the Government. It should entertain the strategic layout for dealing with issues related with it and deal accordingly without changing the board of directors.
h. Appointment of Audit Committee
There are certain flaws which we can notice clearly in PSU. The Central Public Sector Units generally recruit retired staffs from the public sectors in order to conduct audits and other such committee. This needed to be changed as their suggestions can not help towards the same.
CONCLUSION
In modern days the globally economic scenario noticed the institutional failures which arises from inappropriate corporate governance and poor models and policies which was put into roll.
In India we notice a continuous conflict between the stakeholders for value maximisation and increasing transparency and accountability. In most of the public sector enterprise there is a unique and strategically defined goals which is proposed by the companies only and proper mode of functioning was noticed. So, the demand for a unique set of governance policies is really necessary and there is a requirement as well for its implementation as well. But in some cases, certain corporate governance which are guided by principles and are categorical in nature which are applicable for some of public companies which provide a common performance evaluation parameter.
Today, in many industrialized nations, policy makers, economists, corporate executives and academicians are discussing about the issues related with the corporate governance. The discussion mainly focuses on the policy which is needed to be formed and the corporate structure by the major members like board of directors to improve the management of the company.
For dealing with the corporate governance norms and conditions, SEBI introduced Clause 49 of the listing agreement for public enterprises. It was introduced in the financial year 2000-01. It was recognized after the literature review that, there are certain issues and challenges which are faced by Indian companies related with the issues of Corporate Governance. After the liberalization there has been major development which was seen in case of corporate governance. Corporate governance is playing a key role in the Public-Sector Enterprises (PSEs). In case of Private as well as public sector, there was an enactment of Clause 49 of Company Act 2013.
There are certain issues which are related with factors like independence, salary of the non- executive directors and deliberate engagement in case of low productive exercises as well as intervening ministerial agenda over the board agenda. It also discusses about the goodness of the audit committee; the main function of audit committee is to get the extended support and compromising the minority shareholder’s interest.
BIBLIOGRAPGY
PRIMARY SOURCES-
1. https://www.taxmann.com/post/blog/5607/corporate-governance-in-public-sector-units-and-corporate-funding-of-political-parties/
2. https://www.researchgate.net/publication/277256842_A_note_on_Corporate_Governance_in_Public_Sector_Undertakings_in_India
SECONDARY SOURCES
1. The Companies Act, 2013 by Avtar Singh
2. Taxation Laws by Dr. Jyoti Rattan
Author: Nitish Pattanaik, BBA LL. B(H), 5 TH YEAR, Amity Law School, Kolkata
