Is company an inclusive institution for achieving SDG 16?
This blog ‘Is company an inclusive institution for achieving SDG 16?‘ articulates Goal 16 of the Sustainable Development Goals and how it highlights the importance of effective, accountable, and inclusive institutions at all levels for a sustainable society. Persecution, injustice, and abuse continue to be pervasive, ripping at the fabric of civilization. We must certainly develop effective, accountable,… Read More »
This blog ‘Is company an inclusive institution for achieving SDG 16?‘ articulates Goal 16 of the Sustainable Development Goals and how it highlights the importance of effective, accountable, and inclusive institutions at all levels for a sustainable society.
Persecution, injustice, and abuse continue to be pervasive, ripping at the fabric of civilization. We must certainly develop effective, accountable, and inclusive institutions as well as global justice standards and a global commitment to peace.
Introduction
Target 16.6 states that each society must have strong and effective institutions in place to protect the rights of its constituents. India has amended its primary legislation India to promote corporate governance, so as to achieve SDG 16[i]
Companies flourish in tranquil environments with well-functioning institutions, where operational costs are predictable and working conditions are consistent. A responsible company makes significant contributions to long-term peace, development, and prosperity through its core business, strategic social investment and public policy. Companies can help to create more peaceful and inclusive societies by assisting in the development of effective and accountable institutions through good corporate governance.
Core Principles and Features of Corporate Governance in the Companies Act 2013
Every company should have an ethical corporate governance code in operation since it lessens the possibility of corporations engaging in fraudulent activities. A good corporate governance framework promotes accountability, transparency, and efficiency at all levels of the organisation and protects stakeholders’ well-being. India has made a conscious effort to include corporate governance in its legislation. The Companies Act of 2013 (‘the Act’) has undergone a significant modification to introduce corporate governance practices in the act. To achieve SDG 16, the following are the core principles and aspects of the Act.
(1) Accountability
People at all levels should be held accountable in order to achieve the company’s goals and objectives. Employees should report to management, management should report to the board of directors, and the board of directors should report to shareholders and investors. As a result, the company will refrain from engaging in unethical behaviour and will contribute toward achieving a sustainable society. Some of the practices that are introduced in the act are:
- Board of Directors
Board of directors is the decision making body of any company. It is necessary that a corporation establishes a board of directors in accordance with the terms of the Act. A minimum of three directors must be appointed in a public company and two directors must be appointed in a private company, according to Section 149[ii] of the Act. Moreover Section 149(3) mandates that every company shall have one director who has stayed at least 182 days in India.
Also as per the Act public listed company shall have at least one-third of directors as independent directors and public unlisted company will have two directors. The qualifications for selecting an independent director in a public company are outlined in Section 149(6). According to Section 134 of Act the director has to give a detailed financial report which includes the director’s responsibility statement. The purpose of this provision is to hold directors accountable for their conduct.
- Register for contracts or arrangements in which directors are interested
Every company shall keep one or more register containing particulars of all contracts or arrangements as per Section 184 and Section 188. Register shall be kept at the registered office and shall be open for inspection during business hours. If the Section is contravened, the company has to pay ₹25000.[iii]
- Punishment under Fraud
As per Section 447, the repayment of any debt under this Act or any other law for the time being in force, any person found guilty of fraud involving an amount of at least ten lakh rupees or one percent of the company’s turnover, whichever, shall be punished with imprisonment and fine.
- Copy of Financial Statement to be Filed with Registrar
Section 137 states that a copy of the financial statements adopted at the annual general meeting, shall be filed with the Registrar within thirty days of the date of the annual general meeting or within time prescribed under Section 403. If the company or Board of directors failed to comply with this, they shall be liable for imprisonment or fine or both.
- Power to Call for Information, Inspect Books and Conduct Inquiries
As per Section 206, if the Registrar determines that additional information or explanation is required following a review of any document filed by a company or, he may issue a written notice requiring the company to provide such information or explanation; or to produce such documents. If the Registrar determines that an unacceptable state of affairs exists in the company, he may issue another written notice requesting the company to supply more details for his inspection. Furthermore, where a company’s business has been conducted for a fraudulent or unlawful purpose, any official of the company who is in default shall be punished for fraud in accordance with Section 447.
(2) Transparency
Stakeholders should be kept informed about the company’s operations, financial statements, and overall performance, and it’s also crucial to provide them with precise and reliable information. Transparency in financial reporting instils trust in the company among its stakeholders. Some of the modifications introduced are:
- External audit
The independent auditor has to report the members on books of accounts examined by him and also every financial statement required to be laid before the company in the general meeting as mentioned in Section 143(2). The report shall state whether the accounts and financial statements give a true and fair view.[iv]
- Internal audit
Internal audit refers to an independent service to evaluate an organisation’s internal controls, its corporate practices, processes, and methods. The Act under Section 138 has mandated the internal audit for certain classes of companies.
- Related Party Transactions
Related Party Transactions are business transactions involving relatives of Directors. It is crucial to carefully examine transactions involving related parties. According to Section 188 every contract or arrangement entered into along with the justification of such agreements must be referred to in the Board’s report to the shareholders[v].
- Disclosure of interest by directors
As per Section 184 every director shall disclose its interest at the first meeting of the board in which he participates as a director and thereafter, at the first meeting of the board in every financial year, or whenever there is any change in the disclosures already made, then at the first board meeting held after such change. This Section is applicable on all directors of the company and all types of companies.
(3) Effectiveness
Effectiveness is a notion that assesses how well and effectively a company accomplishes its objectives. Top management must be able to exert effective control over the company. In addition, the government as a whole should be able to exert effective supervision over the company’s operations and policies. The intermittent changes are:
- Power of Registrar to Remove Name of Company from Register of Companies.
Section 248 states that if the Registrar has reasonable grounds to believe that a company has failed to commence business within one year of its incorporation or has not carried on any business or operation for two consecutive financial years and has not applied for dormant company status under Section 455, he shall send a notice to the company of his intention to remove the name of the company from the register of companies.
- Board meetings
Meetings of the Board are governed under Section 173(1) of the Act. The first meeting of the Board of Directors must be held within 30 days after the company’s incorporation. Furthermore, every company must hold a minimum of four board meetings per year, with no more than 120 days between two consecutive board meetings[vi].
- Annual general meeting
According to Section 96(1), every company other than a one-person company, in addition to any other meetings, must hold an annual general meeting each year and shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between the dates of consecutive annual general meetings.
- Return to be filed with the Registrar in case promoters ‘stake changes.
According to Section 93, every listed company shall file a return with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders of such company within fifteen days of such change.
- Appointment of directors
As per Section 152(5), a person appointed as a director shall give his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment.
Conclusion
This blog highlights how the Companies Act of 2013 maintains adequate checks and balances to ensure that such broad powers are not wielded indiscriminately, but rather in a sensible and accountable manner. These are all welcome changes in the globalised corporate world of today. The revisions are a step in the right direction for the company’s management and affairs to function smoothly and in the best interests of stakeholders while maintaining a good corporate reputation.
[i] Sustainable Development Goals | United Nations Development Programme. United Nations Development Programme. (2021). Retrieved 23 September 2021, Available Here
[ii] LLP, T. (2021). Company To Have Board Of Directors | Section 149. TaxGuru. Retrieved 24 September 2021, Available Here
[iii] Register of contracts or arrangements in which directors are interested – Advocatespedia. Advocatespedia.com. (2021). Retrieved 22 September 2021, Available Here
[iv] https://www.accaglobal.com, A. (2021). External audit professional | ACCA Global. Accaglobal.com. Retrieved 23 September 2021, Available Here.
[v] Why Related-Party Transactions Are Monitored Carefully. Investopedia. (2021). Retrieved 22 September 2021, Available Here.
[vi] Latest Board Meetings, Company Board Meetings, Forthcoming Board Meetings, List Of Company Board Meetings. Moneycontrol.com. (2021). Retrieved 25 September 2021, Available Here
