Situating And Analyzing Corporate Governance In India Accounting Essay

Chapter 4

4. Introduction

The old chapter of thesis analyzed corporate administration reforms and development around the universe subsequence to dirts and crisis with an extended treatment on the recent planetary fiscal crisis. This chapter situates and analyze corporate administration in India with contextual developments, reforms and modern-day province. Section 4.1 of the chapter gives brief overview of the of Indian economic system and the prevalent institutional and regulative model of corporate administration in the state. In this subdivision, the regulative model of corporate administration enshrined in the Clause 49 of Listing Agreement and Companies Act is undertaken in item. Section 4.2 of the chapter examines historical positions of corporate administration in India from the pre – independency period till pre-liberalization clip ( anterior to 1990s ) , following and analysing administration theoretical accounts in the state and predominating issues. Section 4.3 underlines corporate administration concerns and developments in the station liberalisation period. Section 4.4 investigates the corporate administration insufficiencies observed in the Satyam dirt. Section 4.5 gives reappraisal of corporate administration reforms undertaken in India in the subsequence to Satyam cozenage and planetary fiscal crisis. The undermentioned subdivision of the chapter ( subdivision 4.6 ) high spots corporate administration issues and concerns in the modern-day scenario in India. In the last subdivision, drumhead and decisions are presented.

4.1.1 Indian Economy: Brief Overview

The Indian economic system has grown robustly after induction of liberalisation and reform plans in 1991. India is one of the fastest emerging economic system of the universe with mean growing rate of 8.5 % in last six old ages. India is 4th largest economic system of the universe in footings of buying power para ( PPP ) with the Gross National Income ( GNI ) standing at 4.16 US $ trillion in 2010. In footings of gross domestic merchandise ( GDP ) , India is the 11th largest economic system with a GDP of 1.727 US $ trillion. India forms the nucleus of BRICS states, and besides included in the G20. Foreign investing in India has grown well from 3.5 US $ billion in 2000 to 24.16 US $ billion in 2010. It is one of the favorite state for foreign investing in the universe after the China and US. The country’sA per capita income ( GNI per capita ) stands atA 3400 US $ , which makes it a lower-middle income economic system.

Table 4.1 Indian Economic Indicators 2005-2010








Population ( Billion )







Gross Domestic Product ( GDP ) ( current US $ Billion )







GDP Growth ( one-year % )







Gross National Income, PPP ( GNI )

( Current US $ Billion )







GNI growing ( one-year % )







GNI per capita, PPP

( Current US $ )







Gross Domestic Savings ( % of GDP )







GDP per Capita ( current US $ )







Exports of goods and services ( current US $ Billion )







Imports of goods and services ( current US $ Billion )







Trade ( % of GDP )







Foreign Direct Investment ( FDI ) ( current US $ Billion )







( Beginning: World Bank Database )

The Indian capital markets have grown steadily in last two decennaries after the liberalisation of the economic system. India has world’sA 8th largestA equity market with approximative market capitalisation of all the listed amounting to 1.6 US $ trillion. India has an investor base of over 20 million stockholders, which is the 3rd largest in the universe after the US and Japan. There are about 5000 companies that are listed on the 22 Indian stock exchanges. National Stock Exchange ( NSE ) and Bombay Stock Exchange ( BSE ) are two major national stock exchanges of India, on which bulk of equity dealing occurs. BSE is one of the universe oldest ( 165 old ages ) stock exchange, and has the most figure of listed companies in the universe after the New York Stock Exchange ( NYSE ) . National Stock Exchange ( NSE ) , operates with a to the full automated screen based system and histories for the most of trading volumes that occur in the state. The strength of Indian capital markets has grown over the old ages. In twelvemonth 2010, the ratio of market capitalisation of listed companies to the GDP stood at 93.56 % .

Table 4.2 Indian Capital Market and its Strength








Listed domestic companies, entire ( on national stock exchanges )







Market capitalisation of listed companies ( current US $ Billion )







Market capitalisation of listed companies ( % of GDP )







S & A ; P Global Equity Indices ( one-year % alteration )







Stockss traded, entire value ( current US $ Billion )







Stockss traded, entire value ( % of GDP )







Stockss traded, turnover ratio ( % )







( Beginning: World Bank Database )

4.1.2 Institutional and Regulatory Framework of Corporate Governance in India

Institutional and regulative model determines the effectivity of corporate administration in any state. Institutional model sets stipulation for corporate administration, and ushers in advancing transparence and answerability. In India ‘s institutional model, there are three cardinal participants: the Ministry of Corporate Affairs ( MCA ) ; securities regulator, the Securities Exchange Board of India ( SEBI ) ; and two national degree stock exchanges, the Bombay Stock Exchange ( BSE ) and National Stock Exchange ( NSE ) . The Ministry ( MCA ) is chiefly concerned with the disposal of the Companies Act, 1956, other allied Acts and regulations & A ; ordinances framed thereunder chiefly for modulating the operation of the corporate sector in conformity with jurisprudence. The Ministry enforces the Companies Act, 1956 on both listed and non-listed through the Company Law Board ( CLB ) and through the tribunals. The SEBI established in 1992 under Securties Exchange Board of India Act of 1992 ( SEBI Act ) , acts as a securities market regulator and looks after all the companies listed on the recognized stock exchanges. SEBI has independent statutory authorization over securities ordinance, but it is required to subject an one-year study to the legislative assembly. SEBI regulates the stock exchanges, stock agents, portion transportation agents merchant Bankss, portfolio directors, market mediators, corporate investing strategies and primary issues ( World Bank, 2004 ) . SEBI guides the listed companies through its Listing Agreement, which contains regulations and processs that companies must follow to stay listed on a given stock exchanges. SEBI through its Listing Agreement, can present norms of corporate administration for the listed companies to follow. In India, there are two national degree stock exchanges – the BSE and the NSE. These are self regulative organisations, which are regulated and controlled by SEBI. The companies that seek to name on these exchanges are required to follow to with their several Listing Agreement.

In add-on to these cardinal determiners of the institutional model of corporate administration, there are few other of import organisations. Reserve Bank of India ( RBI ) , Registrar of Companies ( RoC ) , Competition Commission of India and Serious Fraud Investigation Office ( SFIO ) are other of import organisations that play a important function in the corporate administration government of India. Further, the Institute of Chartered Accountant of India ( ICAI ) , a ego regulative authorities organisational undertakes to reexamine the accounting criterion and regulates fiscal coverage criterions of Indian Companies. Along these, Institute of Companies Secretaries of India ( ICSI ) and National Foundation for for Corporate Governance ( NFCG ) are other of import egos regulative organisations that address issues of corporate administration in India.

All listed companies in India are guided by the regulative model enshrined in the Companies Act, 1956 along with the regulations and ordinances of the prescribed in the SEBI Act 1992 ; the Securties Contrcat Regulation Act 1956 ; the Depositories Act, 1996 ; the Sick Industrial Companies Act ( SICA ) , 1985 and the regulations of Listing Agreement. However, corporate administration regulative commissariats of all the listed companies are chiefly encapsulated in the Clause 49 of the Listing Agreement read along with the commissariats of the Companies Act of 1956. The undermentioned portion of this subdivision makes mention to the judicial admissions of Clause 49 of Listing Agreement and the Companies Act 1956 that provide that provide the regulative model for the operation of corporations in India. Clause 49 of the Listing Agreement

Clause 49 of Listing Agreement constitutes the first formal statutory milepost in Indian corporate administration. This has been termed as ‘watershed event in Indian corporate administration ‘ and has ‘established a new corporate administration government ‘ supplying a structured corporate administration regulative model for Indian public listed companies ( Afsharipour, 2009 ; Black & A ; Khanna, 2007 ) . This Clause was incorporated in the Listing Agreement by SEBI in 2000 based on the recommendations of the Birla Report. Initially introduced for BSE 200 companies on 31 March 2001, commissariats of Clause 49 of the Listing Agreement were made mandatary in a phased mode, and companies ‘ holding paid up capital of Rs. 3 Cr was required to follow by the terminal of March 2003. In 2003, SEBI endorsed the recommendations of the Murthy Committee by integrating them in Clause 49. On 1 January 2006 all listed companies came under its horizon. Cardinal judicial admissions of the Clause 49 of Listing Agreement include:

( 1 ) Insofar as the Board of Directors of public listed companies are concerned, the undermentioned judicial admissions are mandated in Clause 49:

( Army Intelligence ) Companies holding an executive manager as Chairman must needfully hold half of the Board comprising of independent managers ;

( aii ) In other instances, the Board shall hold at least one 3rd independent managers ;

( B ) The standard for “ independency ” includes ( I ) no monetary relationship or minutess with the company, its boosters, direction & A ; subordinates ; ( two ) no relationship with any of the Board members or with executives keeping places one degree below the Board ; ( three ) no relationship with the company for at least the predating three old ages. Directors nominated to the Board in pursuit of loan understandings by fiscal establishments shall be considered “ independent ” ;

( degree Celsius ) Companies to order a Code of Conduct for Directors ;

( 2 ) With respect to “ scrutinize commissions ” , the following are prescribed in Clause 49:

( a ) ” Audited account Committees ” shall dwell of at least three managers, all of whom shall be financially literate with at least one of them holding accounting or fiscal experience ;

( B ) At least two-thirds of the managers on the audit commission should be independent managers, one of whom shall be the Chairman of the Committee ;

( degree Celsius ) The audit commission shall run into at least four times in a twelvemonth and shall hold the duties of ( I ) reexamining the statutory and internal hearers and the internal audit map ; ( two ) oversing the company ‘s fiscal coverage procedure, revelations of fiscal information etc.

( vitamin D ) The audit commission shall bask the powers of ( I ) look intoing any activity that falls within its sphere ; ( two ) seeking information from the employees of the company ; ( three ) seeking outside legal and professional advice as it may hold necessary etc.

( 3 ) Clause 49 besides mandates the undermentioned revelation demands for listed companies:

( a ) Related party minutess ;

( B ) Accounting policies and any goings from criterions ;

( degree Celsius ) Directors ‘ Remuneration and other signifiers of compensation ;

( vitamin D ) Cases of non-compliances for the preceding three old ages ;

( vitamin E ) The company ‘s one-year study to include a particular chapter “ Management Discussions & A ; Analysis ” that would explicate the direction ‘s position in relation to industry construction & A ; developments, future mentality for the concern, chances and menaces, being and adequateness of internal control systems, section & A ; merchandise wise public presentation etc. ;

( degree Fahrenheit ) Details of commissariats of corporate administration that have been adopted by the company and expressed information on the non-compliance with any compulsory demands and the justification hence ;

( g ) Disclosure of the brief profile, countries of expertness and other directorships in regard of each campaigner who is proposed to be inducted as a manager ;

( 4 ) Clause 49 contains following commissariats on internal control and enfranchisement:

( a ) Fiscal statements, effectivity of internal controls, legal minutess must be certified by the CEOs & A ; CFOs who shall besides inform the audit commission of any important alterations therein ;

( B ) Conformity with corporate administration authorizations shall besides be certified by the Company Secretary or the company ‘s hearer.

( 5 ) In add-on, Clause 49 contains some non compulsory recommendations:

( a ) Tenure of independent manager non to transcend nine old ages in sum ;

( B ) Remuneration Committee comprised of non-executive managers ;

( degree Celsius ) Half annual fiscal revelation to all stockholders ;

( vitamin D ) Training of board members ;

( vitamin E ) Evaluation of public presentation of non-executive managers ;

( degree Fahrenheit ) Unqualified audit studies ;

( g ) Whistle blower policy. The Companies Act, 1956

The Companies Act, 1956 contains several commissariats related to corporate administration but in an unstructured manner, e.g. commissariats in relation to the signifier and contents of prospectus ( Sections 55-61, 64-67 ) and punishments for misdirecting statements in this ( Sections 62-63, 68 ) , signifier and content of the Annual Accounts and Returns ( Sections 159-162, 209-216, 218-223 ) , audit and hearers ( Sections 224-233B ) , Directors ‘ Report ( Section 217 ) , notice, docket, clip and topographic point of assorted meetings ( Sections 165-197, 285-290 ) , assignment of managers ( Sections 252-255, 257-260, 262, 265-266 ) , their retirement by rotary motion ( Section 256 ) , their disqualifications ( Section 274, 283-284 ) , their minutess with the company ( Sections 299-302 ) , stockholder sponsored probe into the personal businesss of the company by authorities bureaus ( Sections 235-247 ) , bar of subjugation and misdirection ( Sections 397-409 ) , etc.

Several corporate administration issues of importance, nevertheless, are left unattended in the Companies Act 1956, e.g. composing of the board, independency standards for managers, minimal academic makings for directorship, etc. ( Batra, 2006 ) . Light protection is provided to minority stockholders, for illustration, merely in instances of subjugation and misdirection. There is besides really modest focal point on transparence and revelations ( Afsharipour, 2009 ; Companies Act, 1956 ; Varottil, 2010 ) . In order to hold some necessary corporate administration judicial admission in the Companies Act 1956, it was amended by the Companies ( Amendment ) Act, 2000, which introduced many commissariats associating to corporate administration, such as extra evidences of disqualifications for managers, puting up of audit commissions, inclusion of manager duty statement in the manager ‘s study and the debut of the compulsory postal ballot for specified points of concern in the general meeting ( Singh & A ; Kumar, 2011 ) .

4.2. Corporate Administration in India: Historical Position

This subdivision looks into the historical position of corporate administration in India. The chief purpose of retracing and analysing corporate administration of the past period is that it would assist us with a sound apprehension of the current issues and administration theoretical account of India. Corporate administration in India before liberalisation period is analyzed by spliting into two parts. First portion of the subdivision examines corporate administration of pre-independent India, while the 2nd portion looks into station independent India boulder clay the start of liberalisation plans ( 1990s ) .

4.2.1 Pre Independence Era: Colonial Time period

Modern corporations of modern-day India owe their generation to the colonial period. The “ managing bureau system ” forms the bedrock on which these corporations evolved in the pre independency epoch ( Bhasa, 2006 ; Mukherjee Reed, 2002 ) . Over more than a century, with the coming of joint stock limited companies in the latter portion of the nineteenth century, managing bureaus dominated concern scenario in India by virtuousness of their power, control and expertness.

“ Pull offing agents or pull offing bureaus ” were the persons or vertex houses that through a legal contract with joint stock limited liability companies were delegated duty of pull offing it in stead of return of certain committee ( Bhasa, 2006 ; Mukherjee Reed, 2002 ) . Pull offing bureau system attracted several mercantile households in India, as allowed them to mobilise their little capital in assorted ventures and rapidly gain net incomes without excessively much of the hazard. Tatas, Birlas, Poddars, Singhanias, Dalmias, and Ruias were among few noted pull offing bureaus in India ( Bhasa, 2006 ) . The “ link between the pull offing bureau and the concern household established the structural footing for the family- controlled pudding stones that have dominated the Indian economic system since independency ” ( Mukherejee Reed, 2002 p. 251 ) .

Pull offing agents and bureaus in colonized in India served three of import corporate administration maps ( Mukherjee Reed, 2002 ) . First, they promoted new companies with their ain capital and as the company go successful, they would sell off most or all of the shareholdings, but would still retain the control through pull offing bureau contract. Second, they acquired plenty proficient expertness and managerial experience to manage the disposal and direction of the company. Third, pull offing bureaus performed the function of pulling new investors for the houses and set uping capital for the company, particularly in the period when recognition system was still in babyhood.

The pull offing bureau system, where solved many of the corporate administration jobs faced by corporations in that period of clip, it besides induced terrible administration issues. The system gave rise to the critical administration issue in most of the corporations in today ‘s context in the signifier of separation of ownership and control ( Bhasa, 2006 ) . Pull offing bureaus were able control the corporations even with low equity base, by meshing directorship on the board, intercorporate investing, or through pull offing bureau contract ( Goswami, 2002 ; Gollakota & A ; Gupta, 2006 ; Muhkerjee Reed, 2002 ; Sehgal & A ; Mulraj, 2008 ) . Pull offing bureaus ‘ control rights sufficiently exceeded their ownership or hard currency flow rights ( Chakrabarti et al. , 2008 ; Goswami, 2002 ) . The bureau contract corporation entered with managing bureaus favored inordinate power to the pull offing bureaus leting them to prosecute administration anomalousnesss. “ Pull offing agents rather blatantly violated the basic rights of the stockholders, and sought consciously to except them from holding any effectual voice in which houses were run “ ( Rungta 1970 as cited Mukherjee Reed, 2002 p. 252 ) . Pull offing bureaus were involved corporate administration misdemeanours, where they were able to burrow money from a profitable concern expropriating the stockholders, turning them loss-making to get down a new venture ( Bhasa, 2006 ) . Interlocking directorship that could hold served the administration intent, were in contrast were cardinal to the corporate unease.

The corporate administration, nevertheless, in the pre-independence period was good and comparable with many industrialist states of that clip. Colonized India had good developed corporate jurisprudence, working stock exchanges, comparatively stable banking system, as being portion of the English settlement ( Chakrabarti, 2005 ; Goswami, 2002 ) . The Indian Companies Act, was promulgated every bit early as 1866 and revised in 1882 and 1913, that provided sound land for the operation of both private and public companies. Laws were besides placed to cover with activities of trusts and Bankss ( Rungta, 1970 ; Sharma, 2012 ) . There were four developed stock exchanges at Mumbai, Kolkata, Ahmadabad and Chennai, with prudent norms for stock trading ( Goswami, 2000 ) . By independency, there 800 listed houses on stock exchanges, so equity civilization good developed among India population ( Goswami, 2002 ) . The banking system was besides comparatively stable, with most of the Bankss being private.

India, at clip independency, had ample corporate sector that contributed approximately 10 % of GDP ( Goswami, 2002 ) . The corporate Torahs, banking system and stock exchanges, all were comparatively sound by the terminal of 1947. Pull offing bureau system, provided its ain advantages, but that besides along several administration issues and cases. India, hence, at clip of decolonisation, was holding a comparatively good province of corporate administration and the economic system ( Howson & A ; Khanna, 2010 ) . But, this advantage was squandered in the period after that of independency, which is explained in the following portion of this subdivision.

4.3.2 Post Independence Era: License Raj Period

India, after its independency in 1947 from the British regulation was led by Pandit Nehru, who turned left to prosecute a socialist attack to development. The epoch after independency boulder clay 1991, when liberalisation started, was marked by heavy ordinance and ‘established a tightly controlled government covering about all the facets of corporate direction ‘ ( Armour & A ; Lele, 2008 ) . The socialist speech pattern of the state ‘s administration in the sixtiess led to an epoch of brush ordinance called “ License Raj ” in which merely big companies managed to last ( Chakrabarti et al. , 2008 ; Gollakota & A ; Gupta, 2006 ) . During License Raj period, the concern house theoretical account graduated over the pull offing bureau system, with the latter system eventually dissolved in 1969 through amendment in the Companies Act, 1956 ( Bhasa, 2006 ; Sehgal & A ; Mulraj, 2008 ) . Leading pull offing agents of the pre – independency epoch, that were actively engaged in advancing the concern, by virtuousness of their place, provided sound land to go concern pudding stones or “ concern houses ” in independent India ( Mukherjee Reed, 2002 ) .

In India, shortly after independency, a series of of import Torahs and ordinances were promulgated that significantly influenced the economic activities and corporate administration government. This started with the passage of Industries ( Development and Regulation ) Act, 1951, which mandated all the bing and proposed industrial units to obtain licences for their operation and even for spread outing their capacity ( Goswami, 2002 ; Gollakota & A ; Gupta, 2006 ; Khanna, 2010 ; Mukherjee Reed, 2002 ) . Another hindrance to free concern activities was Industrial Policy Resolution of 1956, which granted sole right to Government in 17 industries. Along with this, the Foreign Exchange Regulation Act and the Import and Export Control Act of 1947 imposed serious limitation of foreign exchange and import and export. Import replacing industrialisation ( ISI ) based authorities policy, which was based “ License Raj System ” created a government protected market that bolstered inordinate rent seeking, corruptness and unethical link between bureaucratism and concern elites ( Goswami, 2002 ; Howson & A ; Khanna, 2010 ; Mukherjee Reed, 2002 ; Reed, 2002 ) . Domestic concern was extremely protected, insulated from the foreign competition, with duties of seeking a licence for fabrication merchandises that promoted uncompetitive markets with no inducement for efficient operations, which provided a fertile land for corporate mis-governance in post-colonized India ( Goswami, 2002 ; Howson & A ; Khanna, 2010 ; Sehgal & A ; Mulraj, 2008 ) .

This epoch was marked by the development of Public Financial Institution ( PFIs ) as capital markets remained nascent and illiquid due to authorities control and ordinance ( Chakrabarti et al. , 2008 ) . The state lost the advantage of holding one of the oldest stock exchanges ( BSE ) , by puting up the office of Controller of Capital Issues ( CCI ) . It determined the equity monetary values for new issues based on a preset expression, by which issue monetary values were set so low that there remained no inducement to good corporate administration for higher market rating through equity ( Sehgal & A ; Mulraj, 2008 ) . The regulated capital market limited private investing through equity. The focal point during the period was on debt funding through authorities owned fiscal establishments ( Howson & A ; Khanna, 2010 ) . The authorities established three PFIs during this period: the Industrial Financial Corporation of India ( IFCI ) ; the Industrial Development Bank of India ( IDBI ) , and the Industrial Credit and Investment Corporation of India ( ICICI ) . These PFIs along with another 30 State Financial Corporations catered the demand of industrial recognition to corporations ( Goswami, 2002 ; Chakrabarti et al. , 2008 ) . Government, in this period, besides established insurance and common fund investing establishments like Life Insurance Corporation of India ( LIC ) , Unit Trust of India ( UTI ) and General Insurance Corporation ( GIC ) of India. These establishments held a important block of portions of the corporations, in which invested. In 1970s, Government nationalized all Bankss and rein control over the full banking system. Therefore, in station independency epoch, the full fiscal system was commanded by the Government, attaching several corporate administration jobs.

The PFIs supplied recognition to companies without holding plenty inducement to supervise the direction as these were appraised based on the sum of recognition sanctioned instead than quality of recognition ( Howson & A ; Khanna, 2010 ) . Fiscal establishments holding a significant equity interest can incite nominee managers on the board for supervising the direction of the company. However, as mentioned earlier, with no inducement campaigner managers remained a inactive perceiver, and acted merely as gum elastic casts. The tradition of big adoptions from fiscal establishments led to a higher debt equity ratio, a ratio in surplus of 2.5 to 1 was common during this government. The awkward monitoring by PFIs with high debt equity raised the moral jeopardy job of administration in corporations ( Howson & A ; Khanna, 2010 ) . The boosters, with even little equity, controlled the corporations, and easy recouped their investing from the house within one or two old ages its abetment. This was motivated by regulative theoretical account that had a odds and ends of high revenue enhancements and low ratings, which offered small temptation for companies and their boosters to demo higher net incomes and heighten stockholder value ( Singh, Kumar & A ; Uzma, 2010 ) . So, most of the boosters were involved self-dealing minutess, expropriating stockholder rights, doing the concern unviable in the undermentioned old ages after recovery of their initial investing. Therefore, in station, independency period, indirect province ownership with awkward monitoring against the background of execution of hapless bankruptcy Torahs bolstered permeant corporate mis-governance ( Goswami, 2002 ; Sehgal & A ; Mulraj, 2008 ) .

In post-independence epoch, Companies Act, 1956 and Securities Contract Regulation Act ( SCRA ) , 1956 endowed the regulative and legal model for operation of companies ( Singh & A ; Kumar, 2009 ) . The corporate boards were governed by model listed in subdivision 252 to 269, but they were really minimum in some respect as compared to the Torahs of the developed states. It was really opaque in footings of revelation and transparence norms, and provided really small protections to minority stockholder. The Institute of Chartered Accountants in India ( ICAI ) was non holding right of legal enforcement, which resulted in disobedience with revelation. The companies Act under its statutory model of corporate administration provided protection to stockholders against subjugation and misdirection merely. However, these Torahs were non able to protect the right of minority stockholders in existent footings, who were more frequently than non defrauded by companies ( Chakrabarti, 2005 ) . The expropriation of minority stockholders ‘ rights was common, facilitated by slack inadvertence by nominee managers of fiscal establishments and unequal legal commissariats ( Goswami, 2002 ) . These unequal Torahs let company boosters have friends and Alliess on the board. “ Boardss of managers have mostly been uneffective in India in their monitoring function, and their independency is more than non extremely questionable ” ( Chakrabarti et al. , 2008 p. 63 ) . Directors ‘ fee was regulated and board meetings were mere everyday exercisings ( Sehgal & A ; Mulraj, 2008 ) . Laws were unequal to protect the rights of creditors. During this period, “ administration constructions were opaque as fiscal revelation norms were hapless ” ( Varottil, 2009 ) . Non-compliance with revelation norms was common and non punished ( Chakrabarti, 2005 ) . In kernel, corporate administration during this epoch was hallmarked by a pantie and inconsistent legislative model, weak enforcement machinery with eventful hapless conformity and an even poorer prosecution/conviction rate ( Goswami, 2002 ) .

Therefore, in the station – independency epoch, the License Raj period, corporate administration in India aggravated, manifested by the outgrowth of authorities as of import proprietor and damaging economic policies ( Gollakota & A ; Gupta, 2006 ) . The job of corporate administration seeded by pull offing bureau system in colonised period got worse partially by dysfunctional supply and monitoring of capital by Government backed PFIs, and partially by insufficiency in statute law, and its enforcement. The permeant corporate mis-governance prevalent in the License Raj Period, earnestly set back the whole economic system taking to economic crisis in early 1990s, coercing the state to transport economic liberalisation.

4.3 Corporate Administration in Post Liberalization Period: Era of Reforms

4.3.1 Economic Crisis, Scandals and Impetus for Corporate Administration Reforms

The inefficiency prevailing in the state resulted in the hapless economic public presentation of the state and eventually took the signifier of the economic crisis of 1990, with immense financial shortage, low foreign exchange militias and big figure of loss doing public sector projects ( Kumar & A ; Singh, 2011 ) . The economic force per unit areas originating in the early 1990s marked by failure of the concern house theoretical account of administration provided the necessary drift for authorities to alter its policies of “ License Raj ” period ( Afsharipour, 2009 ; Mukherjee Reed, 2002 ; Reed, 2002 ) . The economic crisis of 1991, forced the Indian authorities to turn towards the International Monetary Fund ( IMF ) and the World Bank to acquire out of this crisis. “ As a status of renegociating loans, international finance organic structure imposed structural accommodation plans ” aˆ¦aˆ¦aˆ¦ that “ included a assortment of characteristics that induced a move to an Anglo-Saxon theoretical account of administration ” ( Reed, 2002, p. 230 ) . Indian authorities carried several reform activities, such as – opening up of the fiscal sector, reduced control on the import and its duties and allowance foreign equity in certain sectors, to emancipate the economic system by leveling bing control government that it was following ( Chakrabarti et. Al, 2008 ; Gollakota & A ; Gupta, 2006 ; Goswami, 2002 ) .

The economic liberalisation of the state followed with a series of corporate dirts and frauds. First in the series was Harshad Mehta securities market cozenage of 1992, affecting several Bankss with an estimated loss to the melody of Rs 100 1000 Cr ( Sehgal & A ; Mulraj, 2008 ) . This followed by explosion of instances ( in 1993 ) affecting unjust administration patterns of publishing discriminatory portions to boosters of company at to a great extent discounted monetary values, and the vanishing companies ‘ fraud ( in 1993 ) . In the discriminatory portion allotment cozenage, retail investors lost about Rs 5 1000 Cr, whereas 3911 companies vanished after raising Rs 25 thousand Cr from the capital market even without get downing their concern ( Sehgal & A ; Mulraj, 2008 ) . Both the dirts greatly shattered stockholder assurance, where they batch of money. Ketan Parikh cozenage of 2001 and the failure of UTI in 2001, once more aghast investors, which ushered in capital market reforms quickly and focused attending on corporate administration norms ( Chakrabarti et al. , 2008 ; Goswami, 2002 ; Mchold & A ; Vasudevan, 2004 ; Sehgal and Mulraj, 2008 )

The economic crisis instantly followed securities market cozenage ( Harshad Mehta cozenage ) underscored the pressing demand for important inspection and repair of corporate administration system in the state ( Afsharipour, 2009 ) . A comprehensive inspection and repair of the fiscal sector regulative construction was carried out in the ninetiess with a position to do it compatible with the liberalization/globalization plan of the authorities. Extremist transmutations included the abolishment of the office of CCI and the initiation of the free market-pricing government for security issues. Simultaneously, therewith, an independent board christened in 1992. “ The Securities and Exchange Board of India ( SEBI ) ” was formulated pursuant to the passage of the SEBI Act with the aim of set uping a individual window supervising mechanism for all facets of securities market operations. Constitution of SEBI was a major measure towards measure reforming and bettering corporate administration in the state in clip to come.

4.3.2 First Phase of Anglo-American Based Corporate Governance Reforms

The concern for corporate administration following the batch of cozenages, coupled with urgency to cover with increased competition due to globalisation and international developments ( abetment of corporate administration codification like Cadbury Report ) attracted both industry and regulators to transport out corporate administration reforms in the state ( Chakrabarti et al. , 2008 ) . These reforms channeled through different paths by different bureaus and fraught with important struggle were aimed at bettering corporate in India, and surely guided by Anglo-American corporate administration doctrine. Here, a brief treatment on first stage of corporate administration reforms, precursor to Satyam dirt is presented. Desirable Corporate Administration: A Code ( CII Code, 1998 ) :

The CII Code, a voluntary corporate administration codification, emanated in April 1998 from the recommendations of the undertaking force set up by the Confederation of Indian Industry ( CII ) in 1996. The said codification, based on the Anglo-American system of corporate administration, contained elaborate administration commissariats for listed companies with a focal point on the relationship between the Board of managers of the company and its stockholders ( Afsharipour, 2010 ) . However, being voluntary in its execution, it did non turn out to be every bit brave as envisaged ( Singh & A ; Kumar, 2009 ) . Kumar Mangalam Birla Committee ( Birla Report, 1999 )

The Kumar Mangalam Birla Committee was constituted by SEBI on April 7, 1999 to urge on the debut of a compulsory corporate administration codification. The commission was of the position that “ strong corporate administration is indispensable to resilient and vivacious capital markets and of import instrument of investor protection ” ( Birla Report, 1999 ) .The Birla Committee ‘s recommendations were once more, on the lines of the US corporate administration model, particularly influenced Blue Ribbon Committee guidelines on independent directors.The study provided statutory directives associating to the construction and operation of corporate boards ( with emphasized commissariats on the initiation of “ independent ” managers on the boards, as besides the standard by which such “ independency ” demands to be assessed ) and disclosures to stockholders. The study suggested the incorporation of a separate subdivision in the corporate one-year studies comprising of “ Management Discussion & A ; Analysis ” every bit good as the fundamental law of a Committee under the Chairmanship of a non-executive manager to look into stockholders ‘ grudges received by the company.

The recommendations of the Birla Committee shortly saw the visible radiation of twenty-four hours with SEBI reacting by amending the Listing Agreement, integrating therein Clause 49 in less than five months. This clause constituted the first formal statutory milepost in Indian corporate administration ( Black & A ; Khanna, 2007 ) . Naresh Chandra Committee ( Chandra Report, 2002 )

Sequel to the passage of the SOX Act in the US after some profile dirts, Government of India, Department of Company Affairs constituted a Committee under the Chairmanship of Shri Naresh Chandra to look into the reformation of the Companies Act, 1956 with a position to beef uping the corporate administration commissariats of the said Act. The said Committee made several recommendations chiefly aimed at streamlining the commissariats of the Act associating to hearers and scrutinizing with of import one focussing on disqualification of hearers, rotary motion of audit spouses, type of services an hearer can render. It besides addressed certain issues of revelations in communications between the company and its members. However, the recommendations of the Chandra Committee ne’er found their manner into the legislative act book, but some were included in Clause 49 of the Listing Agreement on the recommendations of the Murthy Report ( Dalal, 2003 ) . Naryana Murthy Committee ( Murthy Report, 2003 )

The Securities Exchange Board of India ( SEBI ) in response to the fundamental law of the Chandra Committee by MCA, formed a parallel Committee under the Chairmanship of Shri N R Narayanamurthy with footings of mention well overlapping with the Chandra Committee in 2002. The Murthy Committee was constituted, apparently in the background of the Enron & A ; WorldCom dirts in the US in that twelvemonth, to rede on the adequateness and efficaciousness of the commissariats of Clause 49 of the Listing Agreement, and to propose steps for the betterment of the predominating corporate administration patterns with a position to “ heightening the transparence and unity of the Indian stock markets ” . It was besides directed to urge steps so that Indian corporates adhered to the corporate administrations, non simply in missive but besides in spirit.

The Murthy Committee submitted its study on February 8, 2003. Some of its recommendations were extremist with far making branchings. The outstanding 1s include ( a ) the strengthening of the definition of “ independency ” in context of Board members ; ( B ) “ nominee managers ” i.e. managers nominated by moneymans in pursuit of loan understandings be non considered as “ independent managers ” and be capable to the same duties & A ; liabilities as normal managers ; ( degree Celsius ) enhancing and redefining the fundamental law and the function of “ audit commissions ” ; ( vitamin D ) protection of whistle blowers etc.

As in the instance of the Birla Committee, the Murthy Committee recommendations were besides quickly introduced into the corporate administration codification through the amendment of Clause 49 of the Listing Agreement. In peculiar, the upgraded commissariats in relation to the corporate boards, audit commissions, transparence, revelations and enfranchisements as advocated by the Murthy Committee were assimilated in Clause 49. JJ Irani Committee ( Irani Report 2004 )

Sequel to the execution of the positions of the Murthy Committee through amendments in Clause 49 of the Listing Agreement, the MCA constituted another Committee in December 2004 under the Chairmanship of Shri J J Irani to do its presence felt. The authorization to the Committee was to revamp and reorganise the Companies Act, 1956 with a position to integrating therein the internationally acknowledged best patterns in this respect. The Irani Committee came up with several recommendations that were in struggle with the extant Clause 49 of the Listing Agreement and/or the positions of the Murthy Committee e.g. ( a ) providing for several freedoms based on size and extent of public ownership in a compulsory corporate administration model so as to optimise conformity costs, while keeping a coveted degree of regulative cogency ; ( B ) the standard for “ independency ” of “ independent managers ” is proposed to be weakened significantly ; ( degree Celsius ) the compulsory demand of independent managers to represent one-half of the Board be weakened to tierce of the entire members of the Board ( vitamin D ) abolishment of age bounds for independent managers that were prescribed by the Murthy Committee ( Irani Committee, 2005 ) . Companies Bill, 2009

The Irani Committee submitted its study on May 31, 2005. Concurrently, the MCA had introduced a ‘Concept Paper on new Company Law ‘ through its web site on 4th August, 2004 ask foring remarks from assorted subdivisions of the society. In concurrence with inputs received from the Expert Committee & amp ; several other beginnings that included the Ministry of Law, the MCA set about the undertaking of a comprehensive revamping of the Companies Act, 1956. The attempts culminated in the debut of the Companies Bill, 2008 in the Lok Sabha on October 23, 2008 in the 14th Lok Sabha. The Bill was later referred to the appropriate Parliamentary Standing Committee on Finance for scrutiny and study. Before the said Committee could show its study, 14th Lok Sabha was dissolved and the Companies Bill, 2008 lapsed under the commissariats of clause ( 5 ) of Article 107 of the Constitution of India. In position of this, the Companies Bill, 2009 was introduced in Parliament on August 5, 2009, without any alteration in the earlier version of 2008.

4.3.4 Evaluation of Anglo-American Based Corporate Governance Reforms

The reforms introduced by Clause 49 of the Listing Agreement have improved the overall province of corporate administration in the state ( Patibandla, 2006 ) . Black and Khanna ( 2007 ) analyzed the consequence of Clause49 of Listing Agreement as a step of good corporate administration through an event survey method. They report portion monetary values of most affected companies increased by about 4 % , when SEBI introduced Clause 49 of the Listing for conformity ( Black & A ; Khanna, 2007 ) . Balasubramanium, Black & A ; Khanna ( 2008 ) in their survey conducted on 370 houses for the twelvemonth 2006 find that better governed house had higher ratings ( Tobin ‘s Q ) . Dharmapala and Khanna ( 2008 ) find that corporate administration reform through the execution of Clause 49 of Listing Agreement had well increased house value. Further, they conclude that reformatory effects of the 2004 amendment to Clause 49 were more marked than those of its initial acceptance due to enhanced countenances and enforcement commissariats for non-compliance with Clause 49 ( Dharmapala & A ; Khanna, 2008 ) . The Indian corporate administration model has besides been gauged on OCED Principles of Corporate Governance in World Bank Report ( 2004 ) on the Observance of Standards and Codes. The study states that India has come a long manner by presenting reforms and passing its corporate administration model. The developments over this period have “ improved the degree of responsibility/ answerability of insiders, equity in the intervention of minority stockholders and stakeholders, board patterns and transparence ” . A survey by ICRA ( 2005 ) has besides reported that corporations have made sound advancement in their administration patterns that may be benchmarked against patterns in the developed universe.

The insufficiency and inefficaciousness of the corporate administration model of India come out with monolithic corporate catastrophe at Satyam Computers. The debacle at Satyam has brought into spotlight the built-in defects in the present corporate regulative system. The following subdivision analysis of corporate fraud at Satyam, and corporate administration failure implicated at that place upon.

4.4 Satyam Scandal: the Massive Financial Scam

Satyam Computers Services Limited ( Satyam ) was founded by B Ramalinga Raju in 1987, to supply services in the Information Technology ( IT ) sector. It shortly prospered to go the state ‘s 4th largest package company with a client base spread across 66 states. Stockss of Satyam were traded on the Bombay Stock Exchange ( BSE ) , National Stock Exchange ( NSE ) , New York Stock Exchange ( NYSE ) and Euronext ( Amsterdam, Europe ) . Satyam featured at the 185th rank in the list of Fortune 500 companies at the clip of the debacle ( The Economist, 2009 ) .

‘Satyam ‘ that means ‘truth ‘ in Sanskrit, is the India largest accounting fraud, which by many termed as ‘India ‘s Enron ‘ ( The Economist, 2009 ) . In a lurid confession, Satyam ‘s Chairman B Ramalinga Raju, in his missive of January 7, 2009, unveiled the biggest corporate fraud in the history of India with uses affecting direct pecuniary deductions of Rs. 7,136 Cr. Further disclosures by the Central Bureau of Investigation ( CBI ) subsequence to their enquiries this figure extended to Rs. 12,000 Cr. Besides, investors in Satyam have lost non less than Rs. 14,000 Cr as per the new revelations ( Tellis, 2009 ) . In this background, a brief overview and facts are presented about how the Satyam fraud precipitated, and where were governance failure.

4.4.1 Revisiting Satyam Fiasco

On December 16, 2008, the Satyam Board met to make up one’s mind on the investing of US $ 1.47 billion in Maytas Properties and Maytas Infrastructure, both closely held companies under the controllership of Ramalinga Raju ( besides Chairman of Satyam ) and engaged in the wholly unrelated concern of existent estate development. The proposal was cleared by the Board which had more than 50 % representation of non-promoter managers on the Board. However, this Board determination evoked a monolithic inauspicious reaction at the Bourses and the company ‘s stocks plummeted on the US stock exchanges. Market analysts perceived the proposal as a scheme to syphon off resources from Satyam into family-run concern ventures. This created terror at the company ‘s central office and the proposed investing was called off at a reconvened meeting of the Board on the same twenty-four hours ( Garg, 2008 ) . The following two yearss witnessed feverish activity at Satyam ‘s central office. Four managers on the Board that included the non-executive manager Krishna Palepu and three independent managers Mangalam Srinivasan, Vinod Dham and M Rammohan Rao, wholly respected personalities in corporate circles, tendered their surrender. It was subsequently revealed that it was the last ditch attempt of salvaging Satyam through the Maytas trade. It boomeranged on Raju and the corporate death of Satyam was inevitable and at hand. Raju had exhausted all his options taking to his confessional statement while tendering his surrender from the Board ( India Knowledge @ Wharton, 2009 ) .

Raju ‘s surrender was instantly followed by that of Satyam ‘s CFO, Srinivas Vadlamani. Ramalinga Raju and his brother, Rama Raju, the Managing Director of Satyam, were arrested on January 9, 2009. Satyam ‘s Board was disbanded by the Government of India moving through the Company Law Board. An interim Board was appointed in proceedings on January 9/10/11, 2009 and an probe into the personal businesss was initiated by the SEBI. Committed attempts by the interim Board to happen an appropriate suer dullard fruit and the deck was cleared for the coup d’etat of Satyam by Tech Mahindra, in April 2009 ( Singh & A ; Kumar, 2009 ) .

4.4.2 Corporate Administration Failure at Satyam Computers with Reference to Existing Regulatory Framework

An intriguing, instead self-contradictory position of the failure of corporate administration at Satyam is provided by the fact that Satyam was awarded the ‘Golden Peacock Award ‘ in 2008 for planetary excellence in Corporate Governance. The award, nevertheless, was taken back after precipitation of the fraud at Satyam.

The Satyam dirt earnestly called into inquiry the efficaciousness of all effectual mechanisms of corporate administration. ‘Satyam ‘ signified a complete decimation of non merely the Indian corporate administration model, but besides the modern-day statutory listings on accounting and scrutinizing. To set the above world in position, it is opportune at this point to reproduce an infusion of the ill-famed missive of Raju dated January 7, 2009 addressed to Satyam ‘s Board ( The Financial Express, 2009 ) :

1. The Balance Sheet carries as of September 30, 2008

aˆ? Inflated ( non-existent ) hard currency and bank balances of Rs. 5,040 Cr ( as against Rs. 5,361 Cr reflected in the books ) ,

aˆ? An accumulated involvement of Rs. 376 Cr which is non-existent,

aˆ? An unostentatious liability of Rs. 1,230 Cr on history of financess arranged by me,

aˆ? An over declared debitors place of Rs. 490 Cr ( as against Rs. 2,651 [ Cr. ] reflected

in the books ) .

2. For the September one-fourth ( Q2 ) we reported a gross of Rs. 2,700 Cr and an operating border of Rs. 649 Cr ( 24 % of grosss ) as against the existent grosss of Rs. 2,112 Cr and an existent operating border of Rs. 61 Cr ( 3 % of grosss ) . This has resulted in unreal, hard currency and bank balances traveling up by Rs. 588 Cr in Q2 entirely. While acknowledging the fraud in his surrender missive, Raju asserted that he and his brother Rama Raju had obtained no fiscal benefit from the exaggerated grosss. He besides claimed that other board members were non cognizant of the true place of the company. The undermentioned infusion of his missive reveals how all this started and why he has made the self-confession ( The Financial Express, 2009 ) :

“ The spread in the Balance Sheet has arisen strictly on history of hyperbolic net incomes over a period of the last several old ages ( limited merely to Satyam stand-alone, books of subordinates reflecting true public presentation ) . What started as a fringy spread between existent operating net income and the one reflected in the books of histories continued to turn over the old ages. As the boosters held the little per centum of equity, the concern was that hapless public presentation would ensue in a coup d’etat, thereby exposing the spread. The aborted Maytas acquisition trade was the last effort to make full the fabricated assets with existent 1s. It was like siting a tiger, non cognizing how to acquire off without eaten. ”

The charge sheet filed by CBI estimated the quantum of misrepresentation at Rs. 11,875 Cr, holding found grounds of siphoning of extra Rs. 4,739 Cr by the Rajus ‘ through ( The Hindu Business Line, 2009 ) :

aˆ? Pledging of portions: Rs. 1,931 Cr ;

aˆ? Offloading of portions: Rs. 748 Cr ;

aˆ? Forged board declarations to procure loans and progresss: Rs. 1,220 Cr ;

aˆ? Dividends on extremely inflated net incomes: Rs. 230 Cr ;

aˆ? Fake clients and bogus bills against these clients to blow up grosss: Rs. 430 Cr ;

aˆ? Falsification of histories: Rs. 180 Cr.

As discussed antecedently, the Indian corporate administration regulative model ( predominately, the Clause 49 of the Listing Agreement ) in the state is administrated through four of import limbs: ( 1 ) Corporate Board with independent managers ; ( 2 ) Audited account Committees with appropriate supervising functionalities and powers and Hearers ; ( 3 ) Transparency and revelations ; and ( 4 ) enfranchisement of fiscal statement and answerability. Administration of the corporate administration regulative model is normally manifested through statutory commissariats ordering the execution of this set of maxims. Therefore, the failure of corporate administration at Satyam is here examined with mention to each of these premises. Corporate Board and Independent Directors ( IDs )

The dirt at Satyam Computers put the construct in ‘Independent Directors ‘ as a device of administrating corporate administration to serious examination. Satyam had duly complied with the commissariats of Clause 49 of the Listing Agreement in so far as they relate to independent managers. The Satyam Board comprised of 9 managers, of which bulk were independent managers. Infamous Satyam Board ( terminal of 2008 ) consisted of following managers ( Varottil, 2010 ) :

Executive Directors:

( 1 ) B. Ramalinga Raju, Promoter Chairman ;

( 2 ) B. Rama Raju, Managing Director and CEO

( 3 ) Ram Mynampati, Whole clip Director ;

Non-Executive, Non-Independent Directors:

( 4 ) Prof. Krishna G. Palepu, Professor of Business Administration at Harvard Business School ;

Independent Directors:

( 5 ) Dr. Manglam Srinivasan, sing professor at US universities ;

( 6 ) Vinod K Dham, Vice President and General Manager at Broadcom Corporation ;

( 7 ) Prof. M. Rammohan Rao, Dean, Indian School of Business ;

( 8 ) T.R. Prasad, former Cabinet Secretary, Government of India ;

( 9 ) Prof. V.S. Raju, former Director, IIT Madras.

The Satyam board, hence, comprised of high individuals. It consisted of six were non-executive managers ( out of which, five were independent managers ) , four of them were academicians, one former Cabinet Secretary and one former CEO of a engineering company. Analysts commented that the passiveness of these managers in the happenings at Satyam can, at best, be described as indurate carelessness surrounding on ‘collusion ‘ with the culprits of India ‘s largest corporate fraud. The undermentioned points were raised to back up the above statement of carelessness.

Probes revealed that Raju and Co. , were serving out fancied histories to the Board for the last six old ages ( Aneja, 2009 ) and yet there subsists no grounds of any inauspicious recording by any of the managers including the independent managers.

The proposed investing in Maytas that was placed for consideration at the Board meeting of December 16, 2008 had sufficient ingredients to elicit the wonder ( read intuition ) for the undermentioned grounds ( Prasad and Srinivasan, 2008 ; and Chandrasekhar, 2009 ) :

a ) The ownership construction of Maytas ( both investee houses were closely held companies promoted by household members of Ramalinga Raju ) ;

B ) The investee companies were engaged in the concern of existent estate development that could non, even by extended imaginativeness, be expected to take to interactive benefits ;

degree Celsius ) The sheer magnitude of the investing ( being US $ 1615. 11 million ) ;

However, there seems to be no record of any of the Board members holding expressed any reserves about the trade or otherwise qualified his sentiment thereon ( Varottill, 2010 ) .

aˆ? The meeting at which the impugned trade was adopted was convened at a three twenty-four hours progress notice and the docket thereof was circulated merely half a twenty-four hours earlier ( Reddy & A ; Mohan, 2009 ) . Listing guidelines, hence, do non look to be adhered to. Further Nevertheless, the managers seemed to be unfettered by the jokes of Raju ;

Whether the proposed trade attracted the commissariats of Section 293 and/or Section 372 read with Section 17 of the Companies Act, 1956 would hold depended on the assorted specific parametric quantities elucidated in this. All the same, ‘good administration ‘ unequivocally decrees that trades of such dimensions that would significantly, if non wholly, reshape the fate of the company, should travel to the stockholders for avowal. However, the Board seemed to hold been scraping the boosters ‘ line ( who, by the way, held merely approximately 3.6 % of the company ‘s shareholding as on January 07, 2009 ) to the hurt of 1000000s of other stakeholders of the company ( Aneja, 2009 ) . Auditing and Accounting

India ‘s corporate sector is regulated by a set of well-structured accounting and scrutinizing commissariats for conformity, administered through the Companies Act, 1956, Accounting and scrutinizing standards/pronouncements of the ICAI, Guidelines on revelations and investor protection issued by the SEBI, and extended commissariats of the Clause 49 of Listing Agreement ( for companies listed on stock exchanges ) .

Despite all these overpluss of legislative acts, regulations, ordinances, processs and guidelines, Mr. Raju was able to syphon off 1000s of crores of rupees by disproof of histories that included describing non-existent bank balances, involvement grosss that were ne’er received, forge client Billingss, adoptions on fabricated board declarations with the eventful coverage of non-existent assets of equal magnitudes ( The Financial Express, 2009, The Hindu Business Line, 2009 ) . All this was done under the auditorship of Price Waterhouse Coopers ( PWC ) , an auditing house with international credentials-the uses are believed to hold extended over a seven twelvemonth period at least ( Outlook India, 2009 ) . Two spouses of PWC have been arrested for their engagement in the cozenage ( Express India, 2009 ) . The dimensions and modus operandi of the fraud is a clear index of the blameworthy purposes of the hearers, commented the analysts. It is emphasized here that transcending a certain threshold should needfully be taken awareness of, as ‘culpable ‘ , peculiarly so, when such carelessness leads to detriment and damage to the belongings of 1000000s of people worldwide.

With the function of the statutory hearers being suspected, it is non surprising that the ‘internal control machinery ‘ besides failed wholly. Indian corporate Torahs envision an luxuriant ‘internal control ‘ apparatus through the internal audit model. In fact, the system has been late strengthened through the passage of Section 292A of The Companies Act, 1956 mandating the fundamental law of ‘audit commissions ‘ comprising of independent managers to augment the supervising web of histories and audit. These audit commissions are vested with powers tantamount to those of hearers, and can analyze all paperss, verifiers every bit good as inquiry the forces of the endeavor. Unfortunately, i.e. , the Satyam debacle presents an gathering of ‘failures and collusions ‘ with the internal hearers and audit commissions being minuscule components thereof. Disclosure and Transparency and Accountability

The transparence and revelation were of important concern at Satyam dirts. All information of significance bequeathed to the Board, the hearers, audit commissions, statutory governments ( SEBI and Registrar of Companies ) and the stock exchanges was found to be fabricated. There was another related facet to this and that was the insufficiency of the revelation norms, and the fallibility thereof in the custodies of brave corporate directors bent on juggling the puting populace for subterranean additions. By manner of illustration, there was important offloading of portions by Raju in the period between January 2001 to January 2009, conveying down his interest in the company from 25.6 % to 3.6 % , but this central arrow was nowhere highlighted ( Chandrasekhar, 2009 ; The Hindu Business Line, 2009 ) . Interestingly, the company ‘s top direction offloaded 6.01 lakh portions in the fiscal twelvemonth instantly predating Raju ‘s confession which besides escaped the attending ( Aggarwal, 2008 ) .

Clause 49 of the Listing understanding mandates that the CEO and CFO certify the fiscal statements and the adequateness of internal control system in the company. It besides stipulates filing of a corporate administration study punctually certified by the company ‘s hearers or a Company Secretary. All these commissariats seem to hold been punctually complied with, in Satyam case- merely that the duly certified statements were false. This provides testimony of the hindrance consequence ( or instead, the deficiency of it ) that is encapsulated in the statutory commissariats. Stated in field words, the punishments for false enfranchisements are grossly unequal and carry small inducement to release monolithic returns that accompany such frivolous enfranchisements. The culprits of the fraud were unperturbed by the corporate administration enforcement mechanism of the state.

4.5 Corporate Administration in the wake of Satyam: Second Phase of Reforms

The dirt at Satyam computing machines, with several disclosures of corporate administration defects shocked both regulators and industry. It acted as accelerator to transport 2nd stage of reforms in the state to turn to the blank. Both industry and regulators have initiated a figure of attempts to reform corporate administration in the state. Here a brief overview of the 2nd stage of reforms in the wake of Satyam in presented:

5.5.1 Industry Groups Response

The alliance of Indian Industry ( CII ) , shortly after, disclosure of fraud at Stayam, began analyzing issues of corporate administration. It constituted a undertaking force under the leading of Shri Naresh Chandra, which made reforms several recommendations in late 2009. The CII undertaking force observed Satyam as one of the instance, and favored corporate administration reforms through voluntary manner ( Afsharipour, 2010 ) .

The National Association of Software and Service Companies ( NASSCOM ) , excessively constituted a Corporate Governance and Ethics Committee caput by Shri Naryana Murthy to underline the demand for reforms. The Committee submitted its study in 2010, doing several recommendations, with accent on the audit commission, whistle-blower policy and protection of stockholder rights.

5.5.2 SEBI Enterprises

The SEBI constituted a Committee on Disclosure and Accounting Standards in November 2009 and issued a treatment paper to see several proposals for bettering corporate transpar