CS Saibal C.Pal, Advocate*
On 30th August,2013, the Companies Act, 2013 replaced the Companies Act,1956 in part after about 57 years. Part of the Act was made operative during the year 2013-14 and some during 2014-15. Other provisions are awaiting notification. Since the Act was passed in 1956 the Act was amended several times to make it suitable for the deal with the practical situation. Several acts were passed and existing ones amended. Prominent among such acts was the Securities Exchange Board of India Act, 1992 which came into force with effect from 30th January,1992. The act enabled the orderly capital market in India by developing the market and protecting the investors. Contribution of the Act to bring capital market at par with other international capital market is worth mentioning. It must be admitted that the Companies Act of 1956 had become torn and tattered with several surgeries brought by ordinances and amendments. After the Bill was introduced in the Parliament in 1998 and was re-introduced again twice and thereafter, the Companies Act, 2013 came into force.
The new Act announced the advent of stakeholders instead of the restricted word, `shareholder’ with respect to companies. Approach of the legislature through the Act proves that the country is moving towards stakeholder economy in which all members of the society feel that they have an interest in its success. The framing of the Act recognized the participation of various constituents of the society. Like a person cannot exist by himself so also companies cannot exist singly. Purpose of companies is to do business earn profit for the promoter after meeting human capital cost , establishment cost, operational and interest cost. A Company does not exist by itself, it includes shareholders who contribute fee capital to participate in the profit , Board of Directors who manage the affairs of the company, employees who keep the company operational, bankers who provide loan to the company to meet working capital and term finance gap, suppliers, consumers of products and/or services produced by the company. List of participants is unending. Government issues licenses, accepts returns, collects various direct and indirect taxes and cess. People where the company has its unit is equally important. The people either work in the company or are consumer of its products and services. It is important to see that the company keeps the environment clean for a healthy environment. Considering the various aspects several provisions in the new Act have been included. The Corporate Social Responsibility provisions and rules and regulations is in this direction.
The Companies Act,2013 distinguishes a public company from listed company. Listed companies are additionally required to comply with the comply with the various clauses of the listing agreement prescribed by the Securities Contracts (Regulation) Act,1956 (`SCRA’) and the Securities Contracts(Regulation) Rules,1957. SEBI regulates the Stock Exchanges. All provisions of law, regulations, rules, circulars are aimed at building a transparent capital market so that confidence in the stakeholders is built.
It is accepted world over that `Corporate Governance’ and its utility is widely accepted. India followed suit by adopting the concept initially for the listed companies through the listing agreement. Corporate Governance is also a part of the Companies Act,2013 and is also applicable to unlisted companies.
In India, Companies are regulated by the Ministry of Corporate Affairs the Registrar of Companies (`RoCs’) but the Companies Act,2013 has not defined the word, `corporate.’ under Section 2 of the Companies Act, 2013. SCRA also not defined `corporate’. Oxford defines, `corporation’ as a big business company and its short form is corporate. Strict corporate governance which aims at transparency is of utmost importance for survival and growth of the capital market. Observation of the Committee on Corporate Governance under the Chairmanship of Sri N.R.Narayan Murthy observed that ,` effectiveness of a system of Corporate Governance cannot be legislated by law, nor can any system of Corporate Governance be static. In a dynamic environment, system of Corporate Governance need to be continually evolved.
To evolve standards of Corporate Governance, SEBI, empowered by Section 11(1) read with Section 10 of the SCRA revised the then existing clause 49 of the Listing Agreement vide circular SEBI/MRD/SE/31/2003/26/08 dated August,26,2003. SEBI vide circular SEBI CFD/DIL/CG/1/2004/12/10 dated 29/10/2004 required the Stock Exchanges to replace the existing clause 49 and implement the revised clause 49 by 1/4/2005. Deadline to follow the revised Clause 49 was extended to 31/12/2005. . The Companies Act,2013 for the first time included provisions for corporate governance. Rules on corporate governance were laid down which were notified on 27/03/2014. The Act included provisions on corporate governance not only for both listed and unlisted companies. SEBI reviewed the provisions of the Companies Act, 2013 vis a vis the listing agreement and issued circular dated 17/4/2014 for revision of the existing clause clause 49 . Clause 49 was again amended vide SEBI circular dated 15/9/2014. The revised Clause 49 is applicable to all listed companies with paid up share capital of Rs 10 Crore or more or with net worth Rs 25 Crore or more. Mutual Funds are excluded. Companies listed under SME platform are also exempted.
Use of Website in Corporate Governance
Corporate Governance is statute. MCA and SEBI are jointly and severally responsible for upgrading the standard of management of companies. While the provisions of the Companies Act,2013 is only applicable to unlisted companies, listed companies are governed by the Act and the listing agreement. The listing agreement is aligned with the Act. Among the various provisions applicable under the Act and listing agreement, transparency is considered vital for proper corporate governance. Websites are required to be hoisted compulsorily by both listed and unlisted companies. Websites are regulated by the Information Technology Act,2000, amended in the year 2008. Contents of the websites are as per the requirement of the Companies Act,2013 read with the listing agreement governed by the SCRA (Regulation) Rules,1957.
Clause 54 of the listing agreement requires listed companies to maintain a functional website which is to be updated at any point of given time. The website shall include basic information of the company : (i) detail of business ;(ii) financial information; (iii) shareholding pattern;(iii) compliance with corporate governance; (iv) contact information of the designated officials of the company who are responsible for assisting and handling investor grievance; detail of agreement entered with the media companies and/or associates etc. [ `etc.’ has not been elaborated anywhere and covers everything concerning investors ].
Clause 41, sub-clauses under Clauses 49 and other clauses of the listing agreement contain requirement websites given as under :
A. 1. Clause 41( VI) (b) (iii) : Publication of Financial Results
The Company’s financial results shall published in an English daily in a newspaper circulating in the whole or substantially the whole of India and in one daily newspaper published in the language in the region, where the registered office of the company is situated. Clause 41 (VI) (b) (iii) shall give reference in the newspaper publication to the places, such as the company’s websites, where the stand alone results of the company are available.
B. 1. Clause 49 (I) (D) -Code of Conduct
(i) The Board shall lay down a Code of Conduct of its members and senior management of the company. Senior Management has been explained under Explanation to Clause 49 (I)(D)(ii) to mean personnel employed with the company and are members of the core committees and who are one level below the executive directors including functional heads. Clause 49 (I) (D) (i) requires the Code of Conduct to be posted on the website of the company.
(ii) Clause 49 (II) (B) (4) (b) –Terms of Appointment of Independent Director.
As per Clause 49 (II) (B) (4) (a) a formal letter of appointment is to be is to be issued to Independent Directors ( S 149(6) of the Companies Act,2013). The terms and conditions of appointment of the appointment of the independent director shall be disclosed on the website of the company.
Further as per Clause 49(II) (B)(7) detail of such familiarization programmed shall be disclosed on the company’s website and a web link thereto shall be also be given in the Annual Report.
(iii) Clause 49(II)(F) – Whistle Blower Policy
As per Clause 49(II)(F) states that the company shall establish a vigil mechanism for directors and employees to report concerns about enethical behavior,actual or suspected fraud or violation of the company’s code of conduct or ethics policy.
The mechanism should also provide for adequate safeguards against victimization of director(s)/employee(s) who avail of the mechanism and also provide for direct access to the Chairman of the Audit Committee in exceptional cases.
Detail of the establishment of the mechanism shall be disclosed by the company on its website and in the Board of Directors’ Report included in the Annual Report.
(iv) Clause 49(II) (B) (VII) (A) (2) :
The company shall disclose the policy on dealing with Related Party Transactions on its website and a web link thereto shall be provided in the Annual Report.
Clause 49(II) (VII) A. Related Party transaction is a transfer of resources, services or obligations between a company and a related party regardless of whether a price is charged.
Explanation : A “transaction” with a related party shall be construed to include simple transaction or a group of transactions in a contract.
Clause 49(II)(VII)B: For the purpose of Clause 49(VII), an entity shall be considered as a related party if,(i) such entity is a related party u/s 2 (76) of the Companies Act,2013 or (ii) such entity is a related party under the applicable accounting standards.
(v) Clause 49 (V)(D) :
The company shall formulate policy for determining `material’ subsidiaries and such policy shall be disclosed in the website of the company and web link shall be provided in the Annual Report.
Optional inclusion in Web site
(i) The company shall publish criteria of making payments to Non-executive Directors in its Annual Report. Alternatively, this may be put upon the company’s website and draw reference thereto in its Annual Report.
C. Inclusion in Website of the Company, applicable to both listed and unlisted companies.
1. Clause 4(3) of the Companies (Acceptance of Deposit) Rules,2014 require companies accepting deposits from public to publish a copy of circular issued in its website. Listed companies will have to include the circular as they are compulsorily required to maintain the website. For unlisted such inclusion is optional as the company is not compulsorily required to maintain website.
2. The Companies (Corporate Social Responsibility Policy) Rules 2014 vide R 9 require both listed and unlisted companies to publish CSR Policy of the company in its website after the CSR Committee recommends the Policy which is approved by the Board of Directors. So where CSR provisions are applicable, unlisted companies are required to maintain its website.
Websites have entered the arena corporate governance. Company must maintain its website properly and contract entered form the website will properly entered. Anything which is not proper in the site shall always be the responsibility of the company. Information with incorrect statements and figures is likely to create wrong impact.
This is just the beginning . Companies would have to create its website properly as it is going to be an important tool for all things in the days ahead. Practical situations will require the companies to disclose further to apprise the stakeholders as companies are important for the economy.
CERTIFICATION OF WEBSITE OF COMPANIES
Presently, the Companies Act, 2013 and listing agreement do not include the provision of certifying the Website. The websites of the companies need to certified by a professional i.e. CA,CS or ICWA that it contains all the provisions of the Act and listing agreement and the contents are correct. Further it should be ensured that the provisions of the Information Technology Act,2000 as amended in 2008 are complied in hoisting the website. Additionally, the company should ensure that the Copyright Act, 1957 is not violated in any manner avoid unnecessary litigation.
Edited by : Mr Soubhik Chakraborty, Advocate.
Copyright & Publishing right with Author.