Which among the following is not a correct statement with regard to Corporate Governance in India ?
The independent directors must attend at least three meetings a year.
Understanding Corporate Governance Statements in India
Corporate Governance is a system of rules, practices, and processes by which a company is directed and controlled. In India, corporate governance is primarily governed by the Companies Act, 2013 and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR).
The question asks to identify the statement that is NOT correct with regard to Corporate Governance in India. Let's examine each statement:
Analysis of Statements on Indian Corporate Governance
Statement 1: Every company must appoint an individual or firm as auditor.
This statement is correct. Section 139 of the Companies Act, 2013 mandates that every company shall appoint an individual or a firm as an auditor. This is a fundamental requirement for ensuring financial accountability and transparency in companies.
Statement 2: The independent directors must attend at least three meetings a year.
This statement is NOT correct as a general rule for mandatory attendance. While independent directors are expected to attend Board meetings and their attendance is important for the functioning of the Board, there isn't a universal rule stating they 'must' attend 'at least three meetings a year' covering all types of meetings. The Companies Act, 2013 requires the Board to meet at least four times a year, with a maximum gap of 120 days between two meetings. Independent directors are expected to attend these. Additionally, SEBI LODR Regulation 25(3) requires independent directors of a listed entity to hold at least one meeting in a financial year without the attendance of non-independent directors and members of management. Therefore, a blanket requirement to attend 'at least three meetings a year' specifically for independent directors is not the stipulated norm under key regulations.
Statement 3: One or more women directors are recommended for certain classes of companies.
This statement is largely correct, although the term "recommended" is a bit soft. Section 149(1) of the Companies Act, 2013, read with the relevant rules, mandates that certain classes of companies, including every listed company and every public company with paid-up share capital of ten crore rupees or more or turnover of one hundred crore rupees or more, shall have at least one woman director. So, for these specific companies, it's a requirement, not just a recommendation.
Statement 4: The maximum number of permissible directors cannot exceed 15 in a public limited company.
This statement is correct. Section 149(1) of the Companies Act, 2013 states that a company shall have a maximum of fifteen directors. A company may appoint more than fifteen directors after passing a special resolution in a general meeting. Thus, without a special resolution, the maximum limit is fifteen directors.
Conclusion
Based on the analysis, the statement that is not correct regarding Corporate Governance in India is the one claiming independent directors must attend at least three meetings a year as a mandatory minimum across all meeting types.
| Statement | Analysis | Correctness |
|---|---|---|
| Every company must appoint an auditor. | Mandated by Companies Act, 2013. | Correct |
| Independent directors must attend at least three meetings a year. | Specific rule of 'at least three' across all meeting types is not the standard requirement. Board meetings & separate ID meeting requirements exist. | Not Correct |
| One or more women directors recommended/required for certain companies. | Mandated for specified companies by Companies Act, 2013. | Correct (despite 'recommended' phrasing) |
| Maximum 15 directors in public company (without special resolution). | Limited to 15 by Companies Act, 2013 unless special resolution passed. | Correct |
Revision Table: Key Corporate Governance Requirements
| Requirement | Relevant Regulation (India) | Details |
|---|---|---|
| Appointment of Auditor | Companies Act, 2013 (Section 139) | Every company must appoint an auditor (individual or firm). |
| Board Meetings Frequency | Companies Act, 2013 (Section 173) | Minimum 4 meetings per year, max gap 120 days. |
| Independent Director Meeting | SEBI LODR Reg. 25(3) (for listed entities) | At least one meeting annually without non-independent directors and management. |
| Women Director | Companies Act, 2013 (Section 149(1)) | Mandatory for listed companies and certain public companies. |
| Maximum Directors (Public Company) | Companies Act, 2013 (Section 149(1)) | Max 15 directors; can exceed with special resolution. |
Additional Information on Corporate Governance
Corporate Governance is crucial for investor confidence, transparency, and long-term sustainability of companies. Key pillars include accountability, transparency, fairness, and responsibility. Regulations in India aim to ensure that companies are run in a manner that protects the interests of all stakeholders, including shareholders, employees, customers, and the community.
- Role of Independent Directors: Independent directors play a vital role in bringing objectivity to the Board's deliberations and decision-making. They are expected to safeguard the interests of all stakeholders, especially minority shareholders. Their duties include attending Board and committee meetings, scrutinizing the performance of management, and reviewing the effectiveness of governance practices.
- Board Composition: Regulations specify requirements for the composition of the Board, including the balance of executive, non-executive, and independent directors, and mandates for women directors in certain companies.
- Audit Committee: Companies are required to constitute an Audit Committee comprising independent directors, which oversees the company's financial reporting process, internal controls, and audit function.
Important Questions from Corporate governance and business ethics
Corporations are controlled and directed by which one of the following?
Which one of the following is not a principle of corporate Governance ?
Match the items given in the List - I and List - II and suggest the correct code :
List - I List - II (a) Ethics (i) Right code of behaviour for a group or profession (b) Morality (ii) Prescribes right conduct for everyone (c) Moral standard (iii) Needs some inclination to follow morality (d) Meta Moral Standard (iv) Practical and pragmatic Code :
Assertion (A) : When a corporation acts ethically and socially responsible in its business decisions and strategic planning, then the corporation will be more sustainable.
Reason (R) : Socially responsible corporate behaviour is increasingly seen as essential to long-term survival of companies.
Read the following passage and answer the questions :
Jensen examines the dynamics of corporate takeovers and challenges prevailing misconceptions surrounding them. He argues that takeovers are not merely hostile disruptions but serve as a crucial mechanism of the market for corporate control. According to Jensen, inefficient management teams often fail to maximize shareholder value and takeovers act as disciplinary tool by transferring control to more competent managers. He emphasizes that while popular belief portrays takeovers as destructive to employees and communities, empirical evidence suggests that they frequently generate significant economic gains by reallocating resources to more productive uses. Jensen distinguishes between the folklore-emotional and political arguments against takeovers depicting as harmful to employees and society and the science, which demonstrates thier role in improving efficiency and shareholder wealth. He also addresses concerns about debt financing in leveraged buyouts, contending that high leverage can impose financial discipline on managers by reducing wasteful spending. Ultimately, Jensen frames takeovers as an essential corrective force within capitalism, countering managerial inefficiency and aligning corporate behavior with shareholder interests. His analysis laid the groundwork for modern corporate finance debates on governance, agency costs and the value-creating potential of mergers and acquisitions.
