FOREWORD

“The governance of the corporation is now as important in the world economy as

the government of countries”

-James D. Wolfensohn, 9th President, World Bank

With globalization and the elimination of barriers to the gratis flow of capital, the

democratic deficit in the governance of corporations has been substituted with a sagacious

consciousness that effective corporate governance as exteriorized by transparency,

accountability, together with just and impartial treatment of shareholders is a qualification

in attracting capital inflows. The recent years have witnessed an exemplar shift in corporate

laws; multiple bills have been tabled aiming to amend Company laws, the Insolvency and

Bankruptcy Code, SEBI’s Listing Agreement and other allied laws. But, a company is an

assemblage of its stakeholders, and corporate governance is the relationship between the

company, its stakeholders and the society at large, broadly envisaging the way a corporation

polices itself. Differences between stakeholders, although unfortunate, have become

commonplace. To ensure that there is no aberration between the owners and executors, the

study of corporate governance emerges, which is predisposed by multiple laws of the land

and renders a pedestal for informed decision-making by stakeholders in relation to capital

distribution, corporate dealings, and financial performance regulation.

This Journal has indubitably hosted an array of articles displaying impeccable innovation in

the field of corporate governance. Whether it be the Millstein Report issued by the OECD

Business Sector Advisory Groupor the Cadbury Report, the Journal has covered the topic

to its profundity. Rendition of modish interpretation of laws has always been of great

interest to me, and the articles contained herein provided ample avenues for exploration of

the concept and approach of corporate governance. It was interesting to note how the

authors have linked transparency to the concept and afforded a new dimension vis-a-vis

Right to Information.

In conclusion, the Journal is quite affluent in terms of interpretive innovation, and I

sincerely congratulate the Editors, C-FACT, faculty, and management of Symbiosis Law

School – Hyderabad on assembling such an anthology.

Ms. Isha Singh Associate

Dhir&Dhir Associates

FROM THE DESK OF THE DIRECTOR

At Symbiosis Law School, Hyderabad our mission is to provide outstanding education and

inspire our students to engage in both academic and enriching extra-curricular programs.

Our students set high expectations for themselves, in an amiable environment to assuage

the community and are constantly rewarded by their achievements.

Symbiosis Law School, Hyderabad has earned its outstanding reputation through its

students’ successes, the rigorous educational program, various co-curricular and

extracurricular activities. The hard work of the students has paid off through this first

edition of the Journal of Corporate Governance and Transparency.

The objective of first edition of the journal is to review the relationship between corporate

governance mechanism, information transparency, interaction of internal and external

governance mechanisms. This Journal develops student learning and understanding, a

culture of thinking, inquiry, reflection, resilience and independence, always focused upon

developing the intellect and skills of a law student to enter into the ambit of corporate

bodies. It culminates with the bridging of the gap between academia and corporate, thus

accentuating and examining the ideas to constellate themselves towards Corporate

Governance.

Beyond this, it is a peer-reviewed journal worked on by the members of Centre for Finance,

Accountability, Corporate Governance and Transparency. This edition wouldn’t have been

possible without the joint efforts of all the members of the Cell who worked congruously

with the Faculty Members to bring out the best portrayals of talent shown by the Authors.

I hope this journal will provide an insight into the many opportunities and challenges that

are offered to the students. We are delighted to bring out the inaugural issue of this journal.

Prof. (Dr.) Sarfaraz Ahmad Khan Director

Symbiosis Law School, Hyderabad.

MESSAGE FROM THE FACULTY-IN-CHARGE

With its inaugural issue of research upon Corporate Governance, the Centre for Finance,

Accountability, Corporate Governance and Transparency (C-FACT) at Symbiosis Law

School, Hyderabad launches its venture aimed at expanding the fields of Corporate

Governance and Transparency. This journal is a peer-reviewed and a broad scope journal

that aims at bridging the gap between academics and corporate world. Original articles

covering research and development topics, which span all areas of Corporate Governance,

are published by this journal.

The journal is designed to advance corporate knowledge and will be unique in that it

encourages authors to submit works addressing fundamental aspects together with

practical/ sui generis issues, works that may otherwise appear in journals whose readership

is rather focused on only one aspect or the other. Our goal is to present innovation.

Practical and developmental issues related to the corporate governance are brought under

one roof and at a very high quality through a careful selection of manuscripts.

I would like to thank the Editorial Board who did an outstanding job in selecting the best

papers out of the huge number of papers that we had received. I would also extend my

sincere gratitude to the faculty reviewers who, despite, their busy schedule, managed to give

their best efforts to the Journal. I congratulate all members of C-FACT, for advancing their

full co-operation hard work towards getting the allied objectives fulfilled for the smooth

functioning of the Cell. I appreciate the Editorial Board for their unwavering help in

bringing out this issue.

Dr. Y. Kishore Kumar Faculty-in-Charge

C-FACT

ADVISORY BOARD

Prof. (Dr.) Sarfaraz Ahmed Khan, Director, Symbiosis Law School, Hyderabad

Dr. AnuradhaBinnuri, Deputy Director, Symbiosis Law School, Hyderabad

Prof. (Dr.) SripathiDwarkanath, Professor

Dr. Prageetha G Raju, Associate Professor

Dr. Y. Kishore Kumar, Assistant Professor

Dr. JayendraKasture, Assistant Professor

Dr. Sanu Rani Paul, Assistant Professor

Dr. D. Ganesh Kumar, Assistant Professor

EDITORIAL BOARD

Editor-In-Chief

Leepakshi Rajpal

Editors

Aritra Deb

Devika Mallik

Hari Naga Abhigna

Sayali Diwadkar

Sonal Gupta

MESSAGE FROM THE ADVISORY BOARD

Enhanced Transparency is one of the main objectives of the many proposed corporate

governance reforms. The uncontroversial nature of this goal, as most observers believe

helped increase transparency to an unambiguously good platform. Everything comes with

its own pros and cons but from an eagle’s eye of the corporate governance perspective,

there are likely to be both costs and increased transparency, leading to an optimum level

beyond which the enhanced transparency lowers profits. The result holds good even in

circumstances where there is no direct cost of increasing transparency and no issue of

revealing or leaking information to regulators or product-market rivals. One can point out

those reforms that seek to increase transparency may reduce a firm’s profits, raise executive

compensation, and inefficiently increase the rate of CEO turnover. There might be every

possibility that executives will take action to distort information. Career growth can be a

reason why these executives could increase transparency that increases penalties for

distorting information which can be profit reducing. This, in my opinion, raises many

questions and for such questions, I head over to the Journal of Corporate Governance and

Transparency.

I am glad and appreciate the initiative taken by C-FACT in bringing out a journal of

Corporate Governance and Transparency which is a peer-reviewed journal. Since the

journal aims to address academicians, students, lawyers, Consumer Forum functionaries,

practising professionals, in-house councils, researchers, other specialists in the field of

corporate law and consumer activists will have an opportunity to forays into the

complicated issues relating to corporate law and the discussions and analytical expositions

will lead to new ideas and new perspectives with regard to transparency in the corporate

world that would go a long way in contributing and shaping a new corporate regime in the

future.

I whole-heartedly congratulate both the management of Symbiosis Law School, Hyderabad

and the professors who have contributed much in bringing out such an excellent journal. I

wish the C-FACT team more success in all their future endeavors.

Prof. (Dr.) SripathiDwarkanath, Professor

Symbiosis Law School, Hyderabad

MESSAGE FROM C-FACT

We, at C-FACT are happy to announce the inaugural issue of the Journal of Corporate

Governance and Transparency: a peer-reviewed academic journal of a nascent joy, which is

an excellent dipaly of hardwork by the Editorial Board. With its broad scope bridging

corporate governance, transparency, and financial aspects of corporate laws, the journal is

dedicated to a challenge rather than to a topic or an intersection of topics. This challenge is

to understand the complexities of the corporate legal parlance. To solve it, we need to

understand the topics at a more complex level. We have received a lot of articles from all

over the country and choosing a few of them took each and every inch of our brain.

There are currently a number of research programs around the world that explicitly or

implicitly address the issue of corporate governance, yet despite impressive successes and

growing interest in corporate governance, wide gaps continue to prevail. Different

professionals may have different opinions and therefore, we invite our readership to send

their articles at any time during the year for the release of the next issue.

The inaugural issue of the Journal includes several seminal vision papers. They determine

the face of the journal and set the stage for subsequent issues that will publish mostly

research papers and theoretical concepts. At the same time, research papers included here

exemplify the kinds of papers that the journal will continue to publish.

Using the journal inauguration as an occasion, we would like to thank many people who

created the opportunity for the journal to be born and who made it happen. The list

includes the Respected Director, Deputy Director, and the Faculty in charge, Editors,

Advisory board, all the members of CFACT and all the students who contributed for the

journal.

Members: Aviral Arun, Arushi Bisht, Sonal Gupta, Leepakshi Rajpal, Aritra Deb, Devika

Mallik, SayaliDiwadkar, Hari Abhigna, Gargi Kulkarni, Sumer Karekar, Sivani Ledalla,

PriyanshiKataria, Vidhi Krishali, Deepika Gupta, Chaitanya Tripathi, Hritik Srivastava,

Naman Tyagi, Abhishek Jena, Namita, Bhaskara Sharma, Budhaditya Purkayastha, Pratiksha

Jain, Snehal Singh, Shikhar Nigam, Megha Jain, Keerthi Chaudhary.

TABLE OF CONTENTS

1. RIGHT TO INFORMATION AND THE OPACITY OF THE CORPORATE SECTOR

Sahana Pratap Simha ................................................................................................................. 1

2. RTI: A GIZMO TO GUARD TRANSPARENCY AND ACCOUNTABILITY

Sreeja Gangishetty ................................................................................................................... 14

3. CORPORATE GOVERNANCE AND TRANSPARENCY

Kunwar Deep Singh, Anandita Singh...................................................................................... 28

4. ROLE OF INSOLVENCY & BANKRUPTCY CODE IN CORPORATE

GOVERNANCE: A LEGAL ANALYSIS

Wajahat Monaf Jilani ............................................................................................................... 49

5. WHITE COLLAR CRIMES: AN ISSUE SELDOM ADDRESSED

Rishika Garg ............................................................................................................................ 62

6. GOOD GOVERNANCE: THE SYNONYM OF CORPORATE GOVERNANCE IN

INDIA

Anuja L. Parulekar, Sahil S. Kadam ........................................................................................ 74

7. CASE ANALYSIS: DARIUS RUTTON KAVASMANECK V. GHARDA

CHEMICALS LTD.

Shalini ...................................................................................................................................... 88

8. EPILOGUE ...................................................................................................................... 96

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RIGHT TO INFORMATION AND THE OPACITY OFTHE

CORPORATE SECTOR

-SahanaPratapSimha1

Abstract

The Right to Information Act, 2005 (hereinafter referred to as “RTI”) is widely known for

bringing down the opacity of the Government and its instrumentalities in India along with

ensuring that information disclosure does not affect the confidentiality of sensitive information.

Corporate Governance, in regulating the functioning of companies in the private and public

sector, establishes that, with regard to opacity in the corporate sector, principles applicable to

the public sector cannot directly be used in the private sector. Hence there arises a conflict

between the object of the RTI Act and information sought from the private corporate sector.

Section 8(1)(d) of the RTI Act exempts the disclosure of confidential and sensitive information

and thus acts as a competitive constraint by protecting the competitive position of companies in

the market. However, the proviso clause dilutes this immunity. At the satisfaction of the

competent authority, public interest can warrant the disclosure of potentially confidential and

sensitive information from the corporate sector that could harm the competitive position of a

third party.

This article shall seek to examine the extent of the role of the RTI Act in the corporate sector in

enhancing transparency and accountability in the latter with the force of public interest. There

exist various degrees of sensitivity and confidentiality of information arising from the corporate

sector. This article seeks to examine the circumstances surrounding the disclosure of

information including commercial confidence, trade secrets or intellectual property, the

disclosure of which could harm or affect the competitive position of a third party. This article

shall also examine the impact of the dilution of the exception provided for under Section 8(1)(d)

of the RTI Act on the competitive position of the affected companies in the corporate sector.

[Keywords: RTI, Corporate Sector, Opacity, Confidential, Competition, Public Interest.]

13rd Year, B.A. L.L.B, School of Law, Christ (Deemed to be University)

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INTRODUCTION

Information is perceived as power, particularly by developing countries.2 Right to Information

(hereinafter referred to as “RTI”), very simply put, is a tool that enhances transparency and

therein, accountability of the government and its instrumentalities. The Right to Information is a

right that is statutorily backed by the Right to Information Act of 20053 (hereinafter referred to

as “The Act” or “RTI Act”). This means that information seekers under this act have a right to

receive information and public authorities are duty-bound to disclose the information that is

sought, subject to exceptions provided in the Act. The Act elucidates the right to information

that is held by every citizen to access information that exists under the control of public

authorities. The Act seeks to ensure access to information to citizens who desire to have the

same with the objective of harmonizing conflicting interests. RTI improves public awareness

and in doing so, compels transparency and holds the Government and its instrumentalities

accountable and responsible to the governed. It can be understood from the aforementioned

outstanding features of the Act and the purpose it seeks to fulfill that the Act is largely

applicable to the public sectors and public bodies.

RTI and the Right to Know to precede a very significant aspect of any democracy, i.e., the

Right to Freedom of Speech and Expression which is guaranteed in India under Article 19(1)(a)

of the Constitution of India. Only through access to authentic information can one effectively

exercise his right to free speech and expression. Misinformed individuals will only diminish the

purpose of the right to free speech and expression by spreading false information among the

public. Since the Right to Information and Right to Know to precede the right to freedom of

speech and expression, the latter includes the right to collect and receive information.4

The RTI Act has limited reach over the private sector. Regulated applicability can be

understood mainly from Section 8 of the Act. Section 8 of the RTI Act exempts the disclosure

of information falling under various categories.Section 9 of the RTI Act states that the CPIO or

the SPIO can reject a request for information, the disclosure of which would involve an

infringement of copyright subsisting in a person other than the state. As per Section 24 of the

Act, several organizations contained under the Second Schedule of the Act such as Intelligence

Bureau, Directorate of Revenue Intelligence, Narcotics Control Bureau, etc. are not liable to

disclose information sought under the RTI Act except in circumstances where the information is

2OulacNiranjan; Right to Information and the Road to Heaven; Vol. 40, No. 47 Econ PolitWkly, 4870, 4870 (Nov.

19-25, 2005). 3 The Right to Information Act, No. 22 Acts of Parliament (2005). 4 PCUL v. Union of India, (2003) 4 SCC 399.

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relating to allegations of corruption or human rights violation. In such instances, these

organizations can be compelled to disclose information that is being sought.

Firms in an economy are governed by rules and regulations that are laid down to ensure good

governance and progress of the firm. Such rules seek to harmonize and balance the interests of

various stakeholders associated with the firm. Corporate governance is a framework that

regulates the functioning of a firm. It guides firms in their path to obtaining their goals and

objectives in a manner that contributes to the value of the firm and is beneficial to all the

stakeholders in the long term.5 Corporate governance not only regulates public firms but also

private firms. This is where the conflict arises between RTI and the private corporate sector.

Section 2(j) of the Act prescribes the disclosure of information that is held by or under the

control of any public authority. Public authority does not always fall within the meaning of the

private corporate sector. As such, private sector firms are not bound to disclose information

under the Act. Under Section 8(1)(d) of the Act, firms are protected from a citizen’s right to

information, where disclosure and misuse of such information could potentially harm the

competitive position of the company. Law recognizes the necessity behind the protection of

trade secrets and other interests exclusive to a company. Such secrets and interests are protected

under Section 8(1)(d) of the Act from disclosure if they have no relation to any form of public

interest.6

Under Section 8(1)(d) of the Act, the information exempted from disclosure can be disclosed if

the competent authority7 is satisfied that larger public interest warrants the disclosure of such

information. However, in certain cases, courts have ordered the disclosure of information upon

finding no reason to keep such information secret.8 Courts are also empowered to decide

whether the information sought falls within the meaning of intellectual property,9 commercial

confidence or trade secrets.

THE EXTENT OF OPACITY AS GRANTED BY SECTION 8(1)(D) OF THE ACT

Section 8 of the Act provides for certain circumstances wherein an exemption from disclosure

of information lies. Section 8(1)(d) of the Act exempts the disclosure of the following:

“information including commercial confidence, trade secrets or intellectual property, the

disclosure of which would harm the competitive position of a third party, unless the

5Lisa Mary Thomson; What is Corporate Governance?;The Economic Times; (Jan 18, 2009, 12.19 AM);

https://economictimes.indiatimes.com/money-you/what-is-corporate-governance/articleshow/3995278.cms. 6PrarveenSayyed; EXEMPTIONS FROM DISCLOSURE OF INFORMATION UNDER RIGHT TO

INFORMATION ACT, 2005: A METHODICAL REVIEW; BLR, 230, 236-248 (Oct-Dec, 2016). 7 The Right to Information Act, No. 22 Acts of Parliament, § 2(e) (2005). 8 State of Jharkhand v. Navin Kumar Sinha, AIR 2008 Jhar 19. 9 Union Public Service Commission v Central Information Commission, 2008 (1) RTI 164 (Delhi).

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competent authority is satisfied that larger public interest warrants the disclosure of such

information”10

Commercial Confidence refers to information that if disclosed, may damage the commercial

interests of a party. Information of such nature cannot be disclosed without the permission of

the concerned party. Confidentiality Agreements protect such information. A trade secret is any

confidential business strategy or information which gives a firm a competitive edge in the

market. It includes industrial, commercial and manufacturing secrets. Intellectual Property

refers to the ideas, knowledge, invention, innovation, creativity, research, etc., which is the

product of the human mind. Only the proprietor may exclusively use his property at his will and

he has the right to prevent others from using it, without his permission. Copyrights vested with

public authorities are not exempted from disclosure. Access to such information cannot be

denied under the Right to Information Act.11 Public interest means a subject that the public or a

section of the public becomes interested in.12

There is a growing trend wherein access to public records and information is limited in the

name of privacy.13 Along the lines of this trend, there exists the risk of increased opacity in the

corporate sector, leading to firms engaging in corrupt practices which will eventually be

advantageous to the concerned firm but disadvantageous to the public at large. Since the

establishment of the information sector in India with the aim of catering to the needs of

enhancing transparency and accountability in the country, the argument of privacy has been

raised in many cases.14 Details of loan accounts, securities of borrowers, details of property and

valuation reports of immovable assets are all information in the nature of commercial

confidence. Disclosure of such information is exempted under Section 8(1)(d) of the Act as

long as such information has absolutely no relationship with public interest since Banks are

generally required to maintain the secrecy of such information.15

In the case of Shyamal Yadav v. Air India,16 information regarding the details of free travel or

concessions availed by 78 ministers under the scheme of frequent fliers was sought by the

appellant. This information was held to be of the nature of commercial confidence and the

Central Information Commission held that disclosure of such information with regard to any

passenger would only result in misuse for the purpose of harassment and humiliation of the

10 The Right to Information Act, No. 22 Acts of Parliament, § 8(1)(d) (2005). 11 Dr. J. N. Barowalia; Commentary on The Right to Information Act 444 (4th ed., Lexis Nexis Publication, 2016). 12 Dewan; Exhaustive Commentary on The Right to Information Act, 2005 Act No. 22 of 2005 with International

Laws 199 (Indian Law House, 2010). 13Sairam Bhat; Right to Information 208-209 (EBH Publishers, 2012). 14Id. at 209. 15supra note 5. 16 Decision No. 2857/IC(A)/2008.

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passenger. The Commission stated that airlines provide incentives to passengers regardless of

their official status and commercial entities offer these incentives in the interest of promoting

their business. Thus, the Commission held that denial of this information to the appellant on the

ground of it being within the meaning of Commercial Confidence under Section 8(1)(d) of the

Act is justified.

In the case of N. Anbarasan v National Informatics Centre,17 it was held that information

relating to the development of a website or web-based application is considered as software

which is covered under Intellectual Property Rights. As such, this information is exempt from

disclosure. It is pertinent to note that, the information could not be disclosed in this case

because the appellant was a software developer.

The promotion of business entails strategies that are crucial to the maintenance of the

competitive position of the company. In any firm, there is the utmost freedom to determine the

extent of incentives or concessions that are given to the consumers with the view of promoting

the business. Such freedom is exercised to the convenience of the firm and its functioning. As

such, the disclosure of details of the basis for incentivizing consumers which is critical and

crucial for business promotion of commercial and service organizations is not justified.18

Information relating to monthly entertainment tax collected by cable operators from subscribers

is exempt from disclosure under Section 8(1)(d) of the Act since it would harm the competitive

position of the third parties operating in the said area.19 Seeking information in respect of

details of customers falls under the exempted category under Section 8(1)(d) of the Act.20

Aside from information including commercial confidence, trade secrets, and intellectual

property, the information sought in breach of a confidentiality clause entered into by the

concerned parties is exempt from disclosure.21 Confidentiality clauses inserted into the

document of a commercial business or transaction exempts the disclosure of Memorandum of

Understanding (MOUs). However, if there is no such confidentiality clause incorporated, then

the MOUs shall fall under the public domain.22

Rules in the nature of a subordinate legislation which have the legal force of the Parliament and

forbid the disclosure of information regarding importers/exporters such as their names, etc. in

the daily list, then the exemption from disclosure of such information is justified under Section

17 Appeal No. 24/ICPB/2006, CIC Decision dated 5.6.2006. 18Subhash Chandra Agarwal v Ministry of Petroleum & Natural Gas, HPCL and BPCL, CIC Decision No.

2200/IC(A)/2008. 19 J.S. Kohli v Commissioner of Entertainment Tax, New Delhi, Appeal No. CIC/WB/C/2006/00101, CIC

Decision dated 23.8.2006. 20RajanVerma v. Union of India, Ministry of Finance, Banking Division, New Delhi, 2008 (2) CCC 335 (P&H). 21 Anil Kumar v Indian Telephone Industries, Bangalore, Appeal No. 25/ICPB/2006, CIC Decision dated 5.6.2006. 22 Sh. PramodPagare v Indian Oil Corporation Limited, CIC/MA/A/2006/00427.

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8(1)(d) of the Act.23 At the discretion of the courts, several elements other than the ones

mentioned in Section 8(1)(d) of the Act have been deemed to be exempt from disclosure for the

reason that disclosure of such information is outside the purview of public interest. Income tax

returns and information that is provided to income tax authorities in the course of assessment

proceedings are exempt from disclosure because considering assessment proceedings as public

proceedings have the propensity to interfere with the former. As such, the disclosure of

information arising during the course of assessment proceedings is not considered to be in the

larger public interest.24

In the case of Rakesh Sanghi v. International Advanced Centre for Powder Metallurgy and

New Materials, Hyderabad,25 the CIC held that no canon of public interest or transparency

justifies the disclosure of vital information or research-data of Research and Technological

Institutions without the latter obtaining tangible or intangible benefit from such disclosure or

exchange. The CIC also held that a citizen’s right to seek information is not absolute. It is

conditioned by the Government’s right to invoke exceptions where such exceptions are

applicable.

THE EXCEPTION TO SECTION 8(1)(D) OF THE RTI ACT, 2005 – COMPELLING

TRANSPARENCY

The exception to Section 8 of the RTI Act provides that if the competent authority is satisfied

that larger public interest warrants the disclosure of information then information including

commercial confidence, trade secrets, and intellectual property must be disclosed. Along with

Chief Executive Officers (CEOs), Chief Financial Officers (CFOs) and Chief Operating

Officers (COOs), corporate entities now also have the accountable positions of Chief

Information Officers (CIOs). CIOs collect, process, verify, validate and then disseminate

corporate information to the various interested information stakeholders. It then becomes the

responsibility of these stakeholders to carry forward the information movement in the corporate

sector. However, government public officials and corporate managers have not openly accepted

or welcomed the pressure from the information movement. Some regard these developments are

invasion or infringement of their personal function space.26

Courts are also empowered to exercise their discretion in holding that certain agreements with

third parties such as agreements for providing driver’s license smart cards, registration book

23 Ramesh Shetty v Central Information Commisison (DZ), CIC/MA/A/2006/00012. 24 Naresh Trehan v Rakesh Kumar Gupta, 216 (2015) DLT 156. 25 CIC/AT/A/2007/01363. 26supra note 1.

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smart cards, optical smart cards are not exempt from disclosure as it would not lead to the

disclosure of intellectual property or trade secrets. In the view of larger public interest, it would

be desirable to disclose such information to allow public scrutiny of such agreements and

contracts.27 There is simply no merit in contending that the business of a private establishment

is a private matter in which no citizen can have any interest. A citizen is entitled to know if the

law is strictly followed by the licensing authorities in authorizing business activity.28

Suggestions from an individual are not considered as a trade secret. In the case of Shri K.B.

Singh v HMT Limited, Bangalore,29 the Commission ordered the disclosure of documents

regarding the suggestions made by the appellant himself which were being considered by the

Suggestion Committee. The Commission held that there was no trade secret or third-party

involvement in this case and thus ordered the information that was sought by the appellant to be

disclosed.

In the case of State of Jharkhand vs. Navin Kumar Sinha,30 the Supreme Court observed that,

“People have a right to know the basis on which the decision has been taken. If tenders are

invited by the public authority and on the basis of tender documents, the ability of a

tenderer or a bidder is decided, then those tender documents cannot be kept secret, that too,

after the tender is decided and the work order is issued on the ground that it will amount to

disclosure of trade secret or commercial confidence. If the authorities of Government refuse

to disclose the document, the very purpose of the Act will be frustrated. Moreover, the

disclosure of information sought for by the petitioner, cannot and shall not be a trade secret

or commercial confidence rather the disclosure of such information shall be in public

interest, in as much as it will show the transparency in the activities of the Government.”

Information regarding field trials of genetically modified (GM) crops conducted for the purpose

of looking into the feasibility of growing these GM crops and assessing their harmful impact

does not come within the meaning of commercial secrets as understood under Section 8(1)(d) of

the Act. This information concerns the larger public interest of farmers as well as other

communities. As such, the disclosure of this information is not exempted under Section 8(1)(d)

of the Act and has to be disclosed in public interest.31

27Shonkh Technology International Ltd. v. State Information Commission Maharashtra Konkan Region, and

United Telecom Limited v. State Information Commission Maharashtra Konkan Region and Ors.; 2011 (113)

BOMLR 2433. 28 A.S. Lall v Police Headquarters, New Delhi, F.No. CIC/AT/A/2006/00075, CIC Decision dated 2.6.2006. 29 CIC/OK/A/2006/00012. 30 State of Jharkhand v. Navin Kumar Sinha, AIR 2008 Jhar 19. 31DivyaRaghunendan v Dept. Of Biotechnology, CIC/WB/A/2009/000668.

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A very significant aspect of public interest is the ability of the public to scrutinize information

that is sought. In the case of Sh. N. Anbarasan v Indian Overseas Bank,32 an important

observation was made,

“Transparency in the functioning of public authorities is expected to be ensured through

the exercise of right to know so that a citizen can scrutinize the fairness and objectivity of

every public action. This objective cannot be achieved unless the information that is

created and generated by public bodies is disclosed in the form in which it exists them.

Therefore, an information is to be provided in the form in which it is sought, under Section

7(9) of the Act, if it does not exist in the form in which it is asked for and provided to the

applicant, there is no way that proper scrutiny of public action could be made to

determine any deviations from the established practices or accepted policies.”

In this respect, the information sought in the present case was related to public action with

regard to processes followed for the purchase of computers and accessories. Such public action

falls under the public domain. Thus here, the exemption under Section 8(1)(d) of the Act cannot

be claimed. Only if the information that is sought is provided in the prescribed format as

discussed above, then will the public have a chance to scrutinize whether the public action is

deviant from established practices or accepted policies.33

An instance where larger public interest warranted the disclosure of information was in the case

of Electronics Corporation of Tamil Nadu Limited v Tamil Nadu Information Commission.34

In this case, the Commission ordered the disclosure of information regarding the field

inspection report of water bodies at Thiruporur and other villages in Chengalpattu Taluk for the

purpose of checking the sustainability of those lands in order to set up Information Technology

industries or other industries because larger public interest warranted the disclosure of this

information.

The interest of the public largely lies around the object of checking corruption, misuse of

resources and other unethical practices that public or private bodies may be engaging in. In this

sense, transparency in the public and private sectors seeks to shed light on whether the interests

and resources of the public are being exploited. For instance, in order to check for any possible

misuse of Government Vehicles, the logbooks regarding the movement of official government

vehicles must be put in the public domain to allow public scrutiny. The disclosure of this

information is heavily warranted by public interest.35

32 CIC/MA/A/2006/00453. 33Id. 34 (2010) 5 MLJ 402. 35 M.D.N Panickar v Steel Authority of India, CIC/MA/A/2010/000389.

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The disclosure of question papers, solutions to questions, model answers as well as instructions

wasgiven to moderators, examiners after examination and evaluations of the answer scripts do

not harm the competitive position of any third party. As such, this information is not exempt

from disclosure under Section 8(1)(d) of the Act.36 Total marks secured in the interview and

written papers are required to be published in Assistant Provident Fund Commissioner

Examination, 2002. The techniques and procedures to establish a cut-off point must also be

disclosed. Further, the composition of the Selection Committee must be disclosed.37 In the case

of Prof. Rajeev Kumar v IIT Kharagpur,38 the CIC ordered IIT Kharagpur to disclose the list

of subjects and marks obtained by candidates excluding their names and personal details to the

appellant for the purpose of facilitating his object of compiling this data into the required

format.

Tender, bid and quotation can be regarded as a trade secret, before the conclusion of a contract.

However, once the contract is concluded, one cannot claim the confidentiality of such

transactions.39 The proviso clause contained in Section 8(1)(d) of the Act plays a great role in

compelling transparency of the corporate private sector. However, aside from public interest

and the discretion of the competent authority, judgments with precedential value also

significantly impact the opacity of the corporate sector.

IMPACT OF DISCLOSURE ON THE COMPETITIVE POSITION OF THE THIRD

PARTY

Generally, public officers who do not wish to disclose certain information but are compelled to

do so state that such disclosure would inhibit the executive from objectively discharging their

functions at any given point in time.40 Competition laws entail that there must exist free and fair

competition between various firms in a market. India is a socialist state, as proclaimed in the

Constitution of India, and seeks to promote and secure the welfare of all players in the market.

One of the primary reasons for securing a competitive market is ensuring that in view of public

interest, there should be no concentration of economic power.41

Licensing is the legal authorization for starting any business. There is no reason to understand

why the grant of licenses or the grounds for providing a license can be deemed to be

36 Institute of Chartered Accountants of India v. Shaunak H. Satya and Ors., (2011) 8 SCC 781. 37Rajnish Singh Chaudhary v Union Public Service Commission, Decision No. 450/IC(A)/2006, Decision dated

15.12.2006. 38 Appeal Nos. CIC/OK/A/2006/000659 AND CIC/OK/A/2007/000168, CIC Decision dated 26.5.2007. 39 Sri Ramesh Chand Sai v National Institute of Science Communication & Information (NISCAIR),

CIC/WB/C/2006/00176. 40Supra note 1. 41 Dr. H. K. Saharay; Textbook on Competition Law 5 (2nd ed., Universal Law Publishing, 2016).

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“confidential” information. Disclosure of this information in no way affects the competitive

position of the business being licensed or any other businesses since it is an authorization which

merely allows for the establishment of the business and thus enables the citizens to monitor

whether the business is functioning in accordance with the law. However, on the other hand, the

manner of functioning or running the business falls under the category of commercial

confidence or trade secret.42 Disclosing this information can allow a firm’s competitors in the

market to use it to the disadvantage of the firm and weaken its position in the market.

Information relating to sales of promotion schemes are exempt from disclosure under Section

8(1)(d) of the Act since it is confidential and commercially sensitive information that can be

misused affect the competitive position of a third party in an adverse manner.43 Similarly, the

disclosure of commercial information relating to inspection notes, supply orders, etc. of a firm

can have a considerable impact on a firm’s commercial interest and competitive position in the

market. Thus, such information is exempt from disclosure under Section 8(1)(d) of the Act.44

The economic implications of the disclosure of such information can be drastic. The firm could

face a significant reduction in its chain of supply with competitors using the information

regarding their supply orders and its magnitude to divert the supply to themselves. This would

significantly drain the firm of its resources to carry forward its business in a profitable and

sustainable manner.

The intellectual property of a firm allows it to stay competitive in society. Guarding its unique

nature plays a significant role in ensuring that the firm does not get pushed out of the market by

its competitors. Such intellectual property can never be compromised since it would risk the

competitive position of the firm in the market. Furnishing information relating to the IPR of a

firm to the public would lead to unpermitted use of such information by the firm’s competitors

with a view of eliminating competition in the market. Thus, while an appellant is requesting

information from a firm, he has to make a request for specific information rather than general

information. However, the firm would be liable to disclose such information only when it is not

related to the IPR of the company, the disclosure of which could harm the competitive position

of the firm in the society.45

42 Shri PrabhuDayalPunjani v Municipal Corporation of Delhi, CIC/WB/A/2006/00328. 43Amarpal Singh v Registrar of Newspapers for India, CIC/AD/C/2009/000695. 44 Shri K.S. Periyaswamy v Ministry of Defence (DGQA), CIC/AT/A/2006/00201. 45 Shri N. Anbarasan v National Informatics Centre, F. No. PBA/06/028 AND Appeal No. 158/ICPB/2006.

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In the case of Reliance Industries Limited v Gujarat State Information Commission,46 with

regard to weighing the importance of larger public interest and harm to the competitive position

of a third party, the court held that,

“In considering whether the public interest in disclosure outweighs in importance any

possible harm or injury to the interest of such a third party, the Public Information Officer

will have to consider the following:

(i) The objections raised by the third party by claiming confidentiality in respect of the

information sought for.

(ii) Whether the Information is being sought by the applicant in the larger public interest or

to wreak vendetta against the third party. In deciding that the profile of person seeking

information and his credentials will have to be looked into. If the profile of the person

seeking information, in light of other attending circumstances, leads to the construction that

under the pretext of serving public interest, such person is aiming to settle the personal

score against the third party, it cannot be said that public interest warrants disclosure of

the information solicited.

(iii) The Public Information Officer, while dealing with the information relating to or

supplied by the third party, has to constantly bear in mind that the Act does not become a

tool in the hands of a busy body to settle a personal score.”

The RTI Act cannot be used for furthering personal commercial interest at the expense of

another commercial entity. The main objective of Section 8(1)(d) of the Act is to prevent such

misuse of the Right to Information. Misusing the provisions of this act to reduce competition in

the market can have serious and undesirable economic implications for the firms and the

consumers.

CONCLUSION

Every citizen has the right to know about the activities being carried by the government in the

name of the people. In any civilized society, RTI is a fundamentally important subject.

Transparency of information and an informed citizenry are vital to the functioning of a

democratic society, contain and check corruption and hold the government and its

instrumentalities accountable to the people.47

The economy of every country survives with the operation of competition in the market. Firms

compete with each other by setting competitive prices and attracting consumers to their

46 AIR 2007 Guj 203. 47Barowalia, supra, 9.

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respective products. The competition allows for a wide range of choices for consumers. The

exemption provided under Section 8(1)(d) of the Act seeks to ensure that companies do not

assume a position of dominance in the market by eliminating competition. Healthy competition

in a market is of fundamental importance. Section 8(1)(d) of the Act allows information officers

and courts to deny the disclosure of information which might have been sought with a mala fide

intention of settling personal scores with competitors. This is not only disadvantageous to firms

in the market but also the consumers as it would restrict consumer choice and they would thus

be locked-in. Further, Section 57 of the Competition Act, 200248 is in consonance with the RTI

Act in stating that information obtained by the Competition Commission of India relating to any

enterprise shall not be disclosed without the prior permission of the enterprise in writing.

When information is not confidential in nature or secret in nature and the disclosure of which

does not harm the competitive position of any third party, then there is no reason that can justify

the withholding of such information by a public authority.49 Thus, if the information being

sought is not covered by the exemption under Section 8 or Section 9 of the Act, then the public

authority is liable to disclose the information that is sought by any citizen.50 However, whether

it is with regard to the public or private corporate sector, public interest can prevail in several

matters even when the information is relating to commercial confidence, trade secrets or

intellectual property rights. Public interest and activity are thus greatly responsible for the

country’s progress through awareness.

Where the government has directly or indirectly financed any firm, or has a shareholding of up

to 26% equity, or any concession by way of aid or grant then that company may be held to be a

public authority.51 As discussed in the introduction to this paper, Section 2(j) of the Act talks

about information which is held by or under the control of any public authority. If a company

does not fall within the category of a public authority as described above, then such a private

company is not bound to disclose any information under the Act. Requiring substantial

disclosure of information by private companies at the will of the citizens would thus require

legislative amendment. In this regard, the parliament would have to construct a mechanism to

balance the interests of both the private corporate bodies as well as the citizens interested in the

information. To a large extent, however, by protecting the information of private firms

including trade secrets, commercial confidence, and intellectual property, a company’s

competitive position in the market is safeguarded.

48 The Competition Act, No. 12 Acts of Parliament, § 57 (2002). 49Shekhar S. Shrivastava v State Information Commissioner, AIR 2016 H.P. 127. 50 Dr. D. P. Verma, Mr. Raj Kumar; Corporate Sector and the Right to Information: A Jurisprudential Analysis;

Vol. 3, Issue 8 IJSER, 1, 6 (August 2012). 51Id.

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Although RTI’s applicability on the corporate sector is heavily restricted, corporate

transparency and good corporate governance are brought about through other legal instruments

such as the Companies Act, 2013, and other securities regulations such as the Securities and

Exchange Board of India Act, 1992 the Securities Contract (Regulation) Act, 1956, etc. These

legal instruments lay the foundation for a regime of the release of information by firms.

However, there is careful regard given to the sensitivities involved in such corporate

information. This is because sensitive information relating to a corporate firm which is

disclosed can be misused by its competitors and thus harm the competitive position of the firm.

As discussed in the paper, harm caused to the competitive position of any firm can have serious

implications on the growth of the market economy and consumer welfare in that sector. Thus, it

is in the best interest of the firms competing in the market and the consumers that the

sensitivities involved in the information of a private corporate firm should not be disclosed

either through the RTI Act or any other law for the time being in force unless larger public

interest warrants for the disclosure of the same.

In conclusion, the main objective of the RTI Act of ensuring transparency and accountability

should be in consonance with the corporate sector to the extent that, the public has a right to

information where the direct interests of the public are concerned.

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RTI: A GIZMO TO GUARD TRANSPARENCY AND

ACCOUNTABILITY

-SreejaGangishetty52

Abstract

This article mainly deals with the use of RTI in the banking and financial sectors of government

organizations. These are the most sensitive sectors of the economy, which has a lot of chances of

manipulation and corruption. The paper mainly focuses on changes and developments happened

in the banking and financial sector after the introduction of RTI. The management of

transactions and the credit mechanisms became transparent and this increased the

accountability of the workers and the employees. The changes in the recruitment of the

employees in the financial sector had a huge impact due to the introduction of the transparent

mechanism. There are a lot of accounts that are used for corrupted purposes and all of them

were brought into the limelight through RTI. This is a weapon in the hands of people, to know

the mechanisms of the banks and the rules followed by them. The main aspect of democracy is

the involvement of the people in development. RTI has brought this principle into force and has

improved the inclusiveness of the people in the governmental functions. The goals and the major

usage of the RTI in the banking sector are stated clearly in the article. The application of the

principles and their major utility concepts are explicitly clarified in this paper.

[Keywords:Public sectors, Private sectors, Banking Regulations, Transparency, Accountability,

Relativeness, Corruption, Democracy, Participatory Democracy, Development, Financial

Sector, Exclusiveness, Inclusiveness, Justice, and Illegality.]

522nd Year, B.A. L.L.B, Symbiosis Law School, Hyderabad.

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INTRODUCTION OF RIGHT TO INFORMATION:

Transparency reduced corruption, but good governance goes beyond that in achieving Openness.

Openness means involving the stakeholders in the decision-making process. Transparency is the

right to information, while openness is the right to participation. Here, in a democratic

governance it is very essential for the government to maintain transparency on the first sense, the

main instinct of the democratic government is to provide transparency in the administration and

to give opportunity to the people for inclusion in the administration53 so right to information is

not the option but, compulsory element in the Democratic society.

“Information is the basic human right and the fundamental foundation for the formation of

the Democratic institution.”

-Nelson Mandela

The right to information was not the act that directly came into existence, it came after a lot of

discussions, Amendments, and developments. In a transparent world, there is the existence of

people participating in the functions of the government. This inclusiveness is the major element

in the democratic world. If there is no transparency in the administration of the government, then

the word Democracy would be useless. With a lot of circumstantial and casual differentiations,

this Right to Information was introduced. In 2002, freedom to information was introduced but

this didn’t last for a long time54. Later this was changed eventually to Right to Information Act,

2005. This not only gave trust to the people of India but also the responsibility to fulfill their

duties as the citizens of India.

ORIGIN OF IDEA OF RIGHT TO INFORMATION:

The people of Rajasthan in 1994 have pioneered the conflict at the right to records whilst

thepoorpeasantsinthe rurallocationfirstmadeastrongdemandfortherighttoinformation.The

initiative for this battle came out of a system by way of the MazdoorKisan Shakti Sanghatan

(MKSS) for the proper livelihood. The slogans of campaigners were for the proper to facts so

one can access their basic requirements. 'Ham Jagenge, Ham Jiyenge' (the right to realize, the

53 M. M. Ansari, Impact of Right to Information on Development: A Perspective on India’s Recent Experiences,

(24/08/2016; 1.35 pm), cic.gov.in/CICIntlEvents/IC-MA-LectureAtUNESCO-15052008.pdf

54 Dr. Abhe Singh Yadav, Right to Information Act, 2005-An Analysis, 5 – 10 (4thedition 2015).

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right to live) and `Hamara Paisa - HamaraHissab' (our money: our account)55. By setting

theiruniquecallforcopiesoffilesrelatedtoimprovementworksoftheirvillageinthecontext of the

wider demand for the right to facts, those rural campaigners had made the connections

betweenrecords,democracyandissuesintheirsurvivalhadbeenhonestlyclear.Later,forty-day

Dharna in Beawar in 1996 positioned forth an immediate call for a change inside the Panchayat

laws to allow citizens to reap licensed picture copies of any files in neighborhood self- Raj

authority’s workplaces56. However, unique attention turned and located on facts of expenditure

like bills, vouchers on muster rolls. Simultaneously, a demand turned into made for a

comprehensive law for the citizens' right to information in all spheres of governance. This

struggle has had a dramatic and salutary impact on the established modes of brazencorruption.

The MazdoorKisan Shakti Sanghatan of Rajasthan as a pioneer in this field has exposed the

`hyperlink' between the shortages of transparency inside the administration and corruption. The

Right to Know motion started out in Rajasthan had unfolded to other States like Madhya

Pradesh,Maharashtra,UttarPradesh,TamilNadu,and AndhraPradesh.Inreality,theeffectofthe right

to facts has long past throughout India57. The Government of India had appointed a

WorkingGroupheadedunder H.D.Shourieon2ndJanuary1997tohavealookatthe feasibility and

need to introduce a complete-fledged proper to Information Act as a way to meet the desires of

open and responsive government. The Shourie committee submitted its report on 21st May

1997, whilst inter alia contained a Freedom of Information Bill 1997. The

fileturnedintoaddedtotheawarenessoftheChiefMinister'sconference58TheChiefminister’s

conferencelaidthefoundationforthedevelopmentofthefreedomofinformationactandlater reformed

into the Right to Information Act,2005.

IS THIS NECESSARY IN DEMOCRATIC SOCIETY? :

According to Mr. Justice P.N Bhagavat, “Where a society has chosen to accept democracy as its

creedal faith, it is elementary that the citizens ought to know what their government is doing”.

Right to information is now a fundamental right under Article 19 (1) (a) of the Constitution.

But, till 2005, there was no information which is accessible to the common people. Without

55Further discussion on the motion of thanks moved by Shri Madan Lal Khurana on the 16th March, 2000 and

seconded by Dr. NitishSengupta. 56 Dr. N. V. Paranjape, Right to Information Law , 3rd edn. 2016, Hissar , Haryana, LexisNexis, p.5, 6. 57P.Chandra Kumar, RIGHT TO INFORMATION IN STRENGTHENING PARTICIPATORY DEMOCRACY,

Globalised Media Journal - Indian Edition Winter Issue / November 2009. 58 Srivastava, The Right to Information in India: Implementation and Impact, Volume 5, No. 1 Quarter IV, Afro

Asian Journal of legal Sciences, 2011.

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anyinformation,expectingthepeopletoparticipateinthesocial,politicalandeconomicdebate is not

reasonable59 Information is like an index to measure the level of development of the country.

Supreme Court in many of its cases highlighted the importance of the Right to information in

the development of the democratic society. In S.P Gupta v. Union of India60expressed the view

that “In a democratic setup People have the right to know about the functioning of the

government”. And again, in PrabhuDatt v. Union of India61 held that the right to know the

information of the functioning of the government is included in the right of freedom to press in

the administration of the democratic society62. This states the positivity and supportiveness of

the judiciary in right to information to be part of the society. It shows us the importance of this

right as a part of the life of the human being. Every citizen has a right to know the procedures

and activities going on in the country.

Corruptionisthebeastthatiseatingthe trustofpeopleoverthegovernmentelectedbythem. This is not

only considered as the loophole of the administration but also treated as the major

elementofignoranceinthepeopleregardingtheadministrationanditspolicies.Thisignorance,

inotherwordslacktransparencyisknownasthemajorbacklogforthepeopletofightagainst the odds63.

Right to Information has created a huge scope and paradox for the elimination of

ignorance.Thisemergedasthemajorplatformforthedevelopmentandgrowthofthenational inclusion

in citizens of India. Participatory democracy gave hope for the citizens to express their ideas

and opinions towards the policies and mechanisms. Since they are thebeneficiaries of that

particular scheme, they will know the importance and necessities of this rather thanthe

policymakers. This inclusiveness in the administration gives them a fresh and effective idea for

accurate implementation of the theories.

In Peoples Union for civil liberties v. Union of India64, it was stated that the right to information

was further elevated to the status of a human right, necessary for making governance

transparent and accountable. Here Transparency is the basic word for the interpretation of the

Right to Information, but coming to the accountability, this comes into existence, only when

citizens feel the responsibility on themselves. This responsibility arises only

withinclusiveness.The righttoInformationwillactastheindirecttooltobringfundamentalduties

59 Harsh Mander and Abha Joshi, The Movement for Right to Information in India 60 (1993) 4 SCC 441 61 AIR 1982 SC 6 62 Supra, S.L.Geol 63 Adv. R.K.. Pradeep, The Right To Information – New Law And Challenges, Butter Worth Publications, pp 23 64 2003(001)SCW 2353 SC

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intoenforcement65.

RTI AS THE TOOL FOR JUSTICE:

Despite multiple issues were raised in the implementation of the principles of RTI, there are a

lot of instances, where there is a proof of justice being delivered to the citizens who approached

through RTI66. Some of them are:

1. In 2008, RTI activists YogacharyaAnandji and Simpreet Singh filed applications that

were instrumental in bringing to light links between politicians and military officials.

The 31-story Adarsh Building in Mumbai, which had permission for only six floors,

was originally meant to house war veterans and widows. But the flats went to

politicians,bureaucrats,andtheirrelativesinstead.Thescamledtothe resignationofAshok

Chavan, former Chief Minister ofMaharashtra.

2. The same year, a Punjab-based NGO filed an application that led to the revelation that

bureaucrats heading local branches of the Indian Red Cross Society were using funds

intended for victims of the Kargil war and natural disasters to buy cars, ACsand

payhotelbillsamongothers.Theofficialsresponsiblewerechargedwithfraudandthe funds

transferred to thePMO.

IMPORTANCE OF RTI IN THE BANKING AND FINANCE SECTOR:

There was always an exception given by the RBI and the financial sector entities

statingthatthedisclosureofinformationofthebankswouldbeagainstthesafetyandsecurity of the

national interest under section 8 of the Right to information act,2005.

Section 8(1)(d) of the RTI Act exempts from disclosure- "information including commercial

confidence, trade secrets or intellectual property, the disclosure of which would harm the

competitive position of a third party unless the competent authority is satisfied that larger public

interest warrants the disclosure of such information;"

This is only applicable when there is any information that is against the social interest. The

establishment or the applicability of the Right to Information Act, 2005 is for bringing

transparency in administration. It has to be open to the public, and they should know the

mechanisms and the loopholes in administration. When people are not aware of the negative

65 NationalStockExchangeofIndiaLimitedv.CIC,WP(C)No.4748of2010decidedon15April2015byHigh Court 66 Dr. RudraraoDeshmukh Urban Co-operative Bank Ltd., Vindya Region v State Information Commissioner

AIR 2011 Bom 96

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orthelossesofbanksandthefinancialsectors,thenthatwouldbealosson apartofachieving the motto

of Right toInformation67.

The Central Information Commission (CIC), even as allowing an enchantment, directed the

PublicInformationOfficer(PIO)ofReserveBankofIndia(RBI)toofferentirefactsregarding running

of Dindayal NegriSahakari Bank Ltd as well as inspection reviews, report noting of RBI to the

appellant the Right to Information (RTI)Act68.

While giving the judgment on 30 December 2011, Shailesh Gandhi, the then Central

Information Commissioner stated, "If there are irregularities within the functioning of the

Bank,citizenssurelyhavearighttorecognizeapproximatelythesame.Alargerpublicinterest

mightbeservedwiththeaidofdisclosingthisinformation-underSection8(2)oftheRTIAct. The

Nation's interest would be higher served through transparency and publicity of unlawful acts.69"

Here the provisions of the Sections within the RTI act are contradicting with each other, but it

doesn’t mean that the national interest principle will act as the barrier for providing the Right to

Information to the general public in regards to banking and financial sectors70. A large section

of the agricultural sector and illiterate people are not aware of this right to information. They

just believe in the information given by the local officers of the bank, which cannot always be

believed as authentic information.

The Supremacy given to the Right to information act on all the other contemporary acts is

stated in section 22 of the Right to information act, 2005. In one of the controversies regarding

the application of RTI over the official Secrets Act, 1923 it was stated that,

"Section22oftheRTIActgivessupremacytothesaidActandstipulatesthattheprovisionsof the RTI

Act will override, notwithstanding anything to the contrary contained in the Official Secrets Act

or any other enactment for the time being in force. This non-obstante clause has

tobegivenfulleffectto,incompliancewiththelegislativeintent.Whereverthereisaconflict between

the provisions of the RTI Act and another enactment already in force on the date

whentheRTIActwasenacted,theprovisionsoftheRTIActwillprevail.71"

This describes the importance given to the Right To Information Act,2005 on other acts or the

enactments which were prevailing during that time. Even though there are banking regulations

that are against the principles of RTI and are not permitted to disclose the information, this was

67VaricharyaN.K.,CommentaryontheRighttoInformationAct,DeccanLawHouse,Hyderabad,2007

68SatheS.P.,“RighttoInformation”,9thed.,LexisNexisBetterwords,NewDelhi,2019. 69Ms. Kalpana Vs. PIO, Rohini District Courts, Delhi 70 WareS.L,“RighttoInformationandGoodGovernance”,DeepPublicationsPrivateLimited,NewDelhi,2008 71 DasB.,“HandbookontheRighttoInformationAct,2005”,UniversalPubPvt.Ltd.,Delhi,2008.

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not permitted and the provisions of RTI were successfully uplifted. Mr. Gandhi stated, a good

way to claim the exemption under Section 8(1)(d) of the RTI Act, the PIO have to establish that

disclosure of the data sought (which may additionally include business or trade secrets and

techniques, intellectual assets or similar facts) would bring about harming the aggressive role of

a 3rd party. This is the clear distinction made in the case by Mr. Gandhi. In this case the

information was not provided to the appellant, because it is in the purview of the fiduciary

relationship between, bank and RBI. Banks trusted the RBI authorities and gave them the

information. If they are providing public with the information, that would be the break of trust

ora fiduciaryrelationship72.

PUBLIC AND PRIVATE AUTHORITIES (SCOPE AND AMBIT):

As per Section 2 (h) of the Right to Information Act, 2005,

“PublicAuthority”meansanyauthorityorbodyorinstitutionofself-governmentestablished-

A) By or under theConstitution

B) By any other law made byparliament

By any other law made by the statelegislature

C) By notification issued or order made by the appropriate Government, and includesany-

1. Body Owned, controlled or substantiallyfinanced,

2. Or Non-government Organization substantiallyfinanced,

Directly or indirectly by funds provided by the appropriate governments.

Thisis themostdebatedandimportanttopicundertheRTIact.Sincethiswouldactas

themostimportantfactorforexpandingthescopeandaltitudeoftheRTIact.According to this, the act

is divided into 2 parts mainly, theyare

The Act thus defines public authorities in two parts:

-Thefirstpartofthedefinition(clauses2(h)(a)to(d))clearlydelineatebodiescreatedby the

Constitution of India (Union and state executives, Election Commission, etc.), by-laws made by

Parliament and state legislatures (Central and state universities, regulators such as RBI, SEBI,

TRAI etc.), and by government orders or notifications (Planning Commission) as

publicauthorities73.

-The second part broadens the scope of the definition of a public authority to include anybody

72Nagraj M. N., “Commentary on Democracy “, New Century Publications, New Delhi, 2009. 73Wadia A.K., op. cit.

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owned, controlled or substantially financed, and any non-governmentalbody

substantiallyfinancedbytheappropriategovernment.Thissecondpartofthedefinition

hasbeenthesubjectofmuchcontroversylargelybecauseitleavesthequestionofwhat constitutes (a)

ownership, (b) control or/and (c) substantial financing open to interpretation. Unsurprisingly,

therefore, most of the case law related to the question of public authorities is linked to this

aspect of thedefinition74.

This clearly describes that banks are in the ambit of RTI. A common man has all the right to

know,whatishappeninginthebankwhereheissavinghismoney.Thecitizeninademocratic nation is

free to know, the ambit and administration of the banks and the financialinstitutions, which are

governing his financialpowers.

In M.P. Varghese v. Mahatma Gandhi University 75the Hon’ble Kerala High Court at the same

time as elaborating the means of public authority in the RTI Act 2005 states that the

one'scorporationsthatarereceivingthemonetaryusefulresourcefromtheStateareunderneath the

ambit of the general public authority. The phrase State is defined underneath Article 12 of the

Constitution when it comes to the enforcement of fundamental rights via courts, while the RTI

Act is supposed to accomplishing the item of supplying an effective framework for effectuating

the facts acknowledged beneath Article 19 of Constitution ofIndia.

INTERPRETATIONS OF THE PUBLIC AND PRIVATE AUTHORITIES:

Form v. Function, While Section 2(h) seems to emphasize the form of an entity (how it changed

into constituted, who owns, controls and price range it, has vital to determining its repute as

Public Authorities, a few choices of the CIC76and the Delhi High Court 77have used case-law to

nation that an entity’s sports also are critical. This is an interesting broadening of the definition

because the definition within the Act does no longer explicitly nation that the

natureofthefunctionsachievedbywayofaframeoughttobeacriterionindeterminingwhether or not or

now not it may be described as a publicauthority.

Broad v. Narrow interpretation, there have additionally been controversies over

whetherthesecondoneapartofthedefinitionsimplyqualifythefirstapartofthedefinition,

74Wadia A.K , “Global Sourcebook on Right to Information”, 20th edn., Kanishka Publishers and Distributors,

New Delhi, 2016. 75 AIR 2007 Ker 230 76Goel S. L., op. cit. 77 Mishra R.l, “Right to Information and Rural Development in India”, New Century Publications, New Delhi,

2009.

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orwhetherthetwopartsareunbiasedofeverydifferent.Adoptingtheprimaryapproachwould imply

that the assessments of ownership, manage and large financing would be limited best to bodies

covered in clauses (a) to (d) of Section 2(h). The 2d technique, alternatively, would result in the

inclusion of entities not blanketed within clauses (a) to(d).

The 2nd technique has been upheld by High Courts as the perfect interpretation of the

definition. The Delhi High Court has stated that the second one a part of the definition

is“awesomeinthe alternative,andnownotcumulative”.78TheDelhiHighCourthasabsolutelysaid that

the goal of the 2nd part of the definition is to convey our bodies that won't have been

established with the aid of or below a notification, however, are nonetheless notably financed,

ownedormanagedbyusingthegovernment. TheDelhiHighCourthasadditionallyclarified that

entities falling within the first a part of the definition (from clauses (a) to (d) do no longer have

to additionally be drastically financed, or owned and controlled through thegovernment.79

The support of judiciary in upliftment of the RTI is the most notable thing, the effort made

through the delivery of the previous judgments for betterment of the society, these precedents

acted as the basements for the evolution of RTI. This proved that the judiciary can act as the

pioneer in giving birth to the acts of publicimportance.

WhileRighttoInformationActstatesthatsimplestthoseprivateagencieswhichhave“sizeable”

investmentfromthegovernmentcomeunderthepurviewoftheRTIAct,ininstanceswherein those

entities are in partnership with the government, it's miles feasible to get vital statistics

outofthem.Withmunicipalcompanies,nation,andvitalgovernmentsincreasinglymoreopting for

Public-Private Partnerships (PPP), transparency could take a beating, as private businesses have

been given a possibility to duck under the Right to Information Act. The Act says that best if

personal groups are “considerably” funded then they come below the purviewof public domain.

But the question about the authority which is going to make decisions regarding“great funding”

remains unanswered. Benefitting from this loophole, the personal our bodies take cover and

refuse to offer facts to the man or woman orgroup.

PRACTICAL EXAMPLES OF RTI EXPANSION:

A sterling case is that of the Ideal Road Builders (IRB), a non-public organization that collects

toll charges from maximum of the highways in Maharashtra, together with the Pune- Mumbai

78 Arorap.k,“TheRighttoInformationAct”,ProfessionalPublishers,NewDelhi,2007. 79 Ibid.

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Expressway80. It is impossible you acquire statistics concerning the data of toll collection.

However, in such cases, for the reason that their partnership is with a central authorityframe,a

citizencangetrightofentrytosuchrecordsfromtheauthoritiescompany. Strangely, the Maharashtra

State Road Development Corporation (MSRDC), the authorities

bodyinthissituationwhichisremittedtodisplaythetollseriesitselfhasnotmonitoredthesales of the

IRB regardless of appointing an unbiased engineering representative, STUP Consultants Pvt.

Ltd. However, residents demanded this fact beneath RTI Act; and thereby the MSRDC changed

into compelled to request the IRB to ship the facts of toll series, year- smart. One of the officers

confessed that they had simplest currently asked the IRB to supply records because of the stress

of RTI queries which were previously untouched.

Similarly, Metros which can be being “compelled” upon residents in several towns and towns

across the United States of America, without the right planning, are in most cases constructed

by means of the Delhi Metro Rail Corporation (DMRC). Here too, the DMRC is a non-public

frame and any question underneath RTI is denied. In the case of the Pune Metro, the DMRC has

disastrously deliberated the metro and submitted a shoddy and superficial Detailed Project

Report (DPR)81. Despite the undertaking record no longer satisfying the Pune Municipal

Corporation’s (PMC) terms of reference and it now not abiding by the valuable government

guidelinesatthesametimeasmakingtheDPR,thePMC’strendyframeandtheadministration has

blindly surpassed the task. It now lies with the national government, which did not allot finance

for it inside the modern-day finances. The scandal of this Rs10, 000-abnormal crores’

infrastructure this is going to feature to the chaos of the already congested roads in Pune and

emergeasaheavytaxburdenforcitizensfordecades,cametomildduetotheRTIinvokedon the PMC.

Thus, in non-public-public partnerships, you could get entry to public documents by putting a

question to the ‘publicaccomplice’.

The key technique and philosophy of the RTI Act appear to be that since the State acts on

behalf of the residents, anyplace the State gives cash, the citizen has a proper to understand

(righttofacts)82.In myopinion,ifthecashgivenforthegoingforwalkschargesisovereither 20% of the

strolling charges of Rs. 1 Crore, the frame must be taken into consideration as receiving ‘great

finance’ and is included within the definition of a ‘publicauthority’.

80 Supra 26 81 Goulash 200., op. cit. 82 People’s Union for Civil Liberties v. Union of India, (2004) 2 SCC 476 : AIR 2004 SC 1442.

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LIMITATIONS:

1. The unavailability of any preceding has a look at which has been conducted to find out

the position of RTI and its effective functioning in the bankingsector.

2. As on this studies availability of published records from State bank of India isn't to be

had. All facts have been taken from the internet site of widely known authors of famed

newspapers83.

3. Relevancy of records has no longer be supported with the aid of any legal published

data. Insufficient availability of cutting-edge information associated with RTI

applications functions inSBI.

ROLE OF RTI IN MITIGATING CORRUPTION AND ILLEGALITY:

Corruptionisneithertheinbuilttermofthesocietynorourcultureandtradition.Thisisthe concept that

emerged as a result of the development of economic interest. This economical interest is part of

the globalization process. As a part of the development, people should know

theinformationregardingit84.Therearefourmajorreasonsfortheprevalenceofcorruptionin

ourcountry.

1. Lack oftransparency

2. Lack ofAccountability

3. Lack of institutionalmachinery

4. Lack ofinformation

AllthesereasonsaredirectlyorindirectlyrelatedtotheRighttoInformation.Givingpublic access to

the functioning of the government will eliminate most of the reasons behind the prevalence of

corruption. Accountability arises only when there is involvement of the people. If there is no

flow of information then, there is no scope of the passage of the information in thesociety.

WiththeCorruptionbeingconsideredasoneofthemostimportantObstacleswithinthe efficient

shipping of improvement sources to the terrible growing nations. Thesatisfactory

oflifestylesofhumanbeingshasadditionallybeenadverselytormentedbycorruption.The time has

come now in which the obligation of tackling this problem, wishes to be takenby using the

83 V.K DAS, The Right to Information Act 2005, at p. 25 84 T Lunar, "U.S. Foreign Aid to East and South Asia," ed. Congressional Reward Service (2013).

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people themselves85. Civil society institutions have a key position to play in producing the

much-needed attention, determination, and force, to expose the maladies of corruption and great

music the functioning of public organizations. To snap out of the prevailingsectionandco-

ordinateourethical,tomakeaverylastthrusttointerruptrampant corruption wherein Our people

have been held captive for hundreds of years. Right to Information Act performed that and

given the humans strength to assignment their authorities. This isn't always a small aspect.

Therefore, 62% decline in corruption in Bihar from 2005 to 2008 where Bihar is most corrupted

State. It prevents corrupt public officials from misusing these records to enhance their very own

hobby. Thus, RTI has tremendous electricity to make government accountability and

transparency. We havethepower and obligation of bringing Good Governance by the usage of

and making consciousness about the use of RTI86.

The mainthrustofRTIlawtoexchangethesubcultureofsecrecy,red-tapism,andaloofnessthat

hasplaguedIndia‘smonolithicandopaqueforms.Thiseffortturnedintofirstmadethrough MKSS

(MazdoorKisanShakti Sangathan) to address corruption at grass root stage. TheRTI Actisfull-

sizeemergingasaneffectiveanti-corruptiontool.RTIlegalguidelinesor

sunshinelawsasthey'recommonlyknownas,supplycitizen’scriminalrightstogetentry to

information held by way of their governments, bringing tons needed transparency or opaque

functioning of governments87. Over 80 international locations enacted this law. India‘s RTI Act

is internationally identified as a strong and effective law. Over the last 6

years,RTIhasbeenusedextensivelyviaregularIndianresidentstocallforagreatrangeof facts from

theirauthorities.

In the ultimate 3 years, there had been 3 Million RTI request had been filed and being used to

redress character grievances. India‘s terrible and disadvantaged, the easy act of filing an RTI

software empowers and often ends intangible results.

Ex: 1.Ponds scam--- rural Orissa-- village are underneath the authorities National Wage

Employment Scheme. He acquired records that Ponds have by no means built but money

became allocated and spent.2. Slum-dwellers in Delhi there were grouped into four agencies do

not observe.

Thefirstorganizationsubmittedtheirsoftwareanddonotobserve.The2dgroupconnected an advice

85 CR Kumar, "Corruption and Human Rights: Promoting Transparency in Governance and the Fundamental

Duties to Corruption," Columbia Journal of Asian Law 53 (2008-2009).

86Vital, Corruption of India: The Road words to National privatization, pp 41-49 87 M. K Pandey, Right to Information Awareness and Development, ed : 4, pp 415-456

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letter from NGOs to their utility. The third group paid the bribe. The group who paid bribe

changed into a success and fourth institution whose RTI request was processed very rapid. Here

to mention ―Access to information seems to empower the bad to the factor where they obtain

nearly the same treatment as middle-elegance –people at the hands of civil servants. This is that

payment of a bribe can‘t do‖. It is a robust weapon to combat corruption arbitrariness and

misuse of electricity. It is a vital device for top governance and this law has been used to tackle

a high profile ofcorruption.

SUGGESTIONS:

Some of the tips concerning the position of RTI in banking zone are cited below:

1. This act needs more rationalization for implementation of unique provisions.As it

requires step by step action elements for every particularprovision.

2. AsIndiaisproperlytechnophileandhavingthe truepowerofknowledgeablehumanbeings

however until now there's a massive requirement of Mass consciousness marketing

campaign at Central and state levels. The important goal in the back of this focus

application is to boom public hobby and know-how approximately their right to

information from any public authority, to encourage citizen involvement; and

additionally to increase transparency in the authority'sgadget.

3. Tocompulsionallpublicauthoritiesandeducationestablishmentsfortheincorporation

andimplementationoftrainingmodulesprimarilybasedonRTIinalltrainingpackages related

to publicawareness88.

4. Todevelopaconsensusonanotunusualsetofregulationsandnormsthatmightenable and

inspire the public to observe for facts from residing in a single state from every other

kingdom, in place of going first of all to examine and understand the policies of every

country and capable authorityseparately.

CONCLUSION:

InConclusion,itisclearlyvisiblethatRTIisthemajortoolforsolvingalotofproblemsthat are

prevailing in the democratic society. All the policies and functioning of the government is for

the development of the people. What is the use of people-centric policies when people

88 R Jenkins and AM Goetz, "Accounts and Accountability: Implications of the Right-to-Information Movement in

India," Third Quarterly 20, no. 3 (1999).

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arenotawareofthosepolicies?WhatistheuseofKisanYojanasandPradhanMantriyojanas, if people

are not aware of the fruits of those schemes? What is Democracy when people are not given

right to know the functions of the government? What is the use of emergency when there is no

applicability? The answer to all these questions was provided with the introduction of the Right

to Information Act. This is not only considered as the powerful element of the society but also

the trust is given by the government to the people, a tool of true Democracy, a tool of

applicability and a measure of upliftment. It is not only an added advantage but also an element

to promote inclusiveness89. All these are the fruits of Right to Information.

Withregardtotheprivatesector,it'sfaressentialtoholdstabilityamongfactsandalternate

secrets.Tomakeiteasierforeachthefactseekersandtheprivateentities,theexceptionsneed to be

narrowed down so that there may be clarity90. Many times, private our bodies resist providing

data due to the fact it is able to screen some wrongdoing on their component, in an effort to

destroy their popularity, damage their commercial enterprise, and provide an opportunity to its

competition a possibility to overhaul them. One of the criticisms that are leveled against the

extension of the regulation to the non-public quarter is that it’ll increase their running price as

they should create a separate database for amassing and storing the records.

The RTI has advanced as a tool for maintaining transparency within the basic functioning and

governance of the state. While the right to seek records from public information can’t be

wondered, the right to are searching for statistics from personal bodies has been a tough

difficultytothevaguenessofthelaw.Specificrulesneedtobemadealmostaboutthesoftware of RTI to

personal entities. The law should additionally specify which sort of statistics may be demanded

from a personal entity. With rapid globalization and deregulation, non-

publicbodiesalsoplaypublicfeatures.PrivateBanks,personaltelecomcompanies,and

healthcarequartercanbegivenasexamplesofpublicentitieswhoplayapublicfunctioninthe society.

Bringing such non-public entities underneath the regulation is essential to keep a positive level

oftransparency. India is proud to adopt the concept of Right to information, this acted as the

cornerstone for the success of democracy in India. This emerged as the part and parcel of one of

the largest democracy in the world.

89 P Vernon, "Rebuilding Lives," Frontline 2005. 90 DMoyo,AidRecognition:WhyAidIsnotWorkingandThereIsaBetterWayforAfrica(London:publication of the2009).

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CORPORATE GOVERNANCE AND TRANSPARENCY

-Kunwar Deep Singh, Anandita Singh91

Abstract

Corporate governance has developed outstandingly in the most recent decade. Various nations

have issued corporate administration codes which emblematize that great corporate governance

without a doubt contribute towards multiplied transparency and disclosure. With the

internationalization of cross-frontier portfolios, the method of reasoning is that poor corporate

governance is seen as hazardous and shareholders see great corporate governance (GCG) as an

indication of strength in an enterprise. Corporate governance runs simultaneously with

expanded transparency and disclosure. It is valuable to allude to the OECD (1998a) Principles,

which recognize the key components of good corporate administration. Transparency and

disclosure are the cardinal components of corporate governance structure as they give the base

to educated basic leadership by financial specialists and investors. Nonetheless, the new idea of

transparency puts greater duty on the organization to let reality accessible yet, in addition, let

the financial specialists and investors know reality. Corporate governance in the present

situation has turned out to be progressively dynamic because of expanded examination,

consistency of thorough standards of governance and staying aware of the interest of the

stakeholder and investors. Because of these actualities, new wrongdoings in the organizations,

known as the white-collar crimes, have begun taking off high and regularly past the cutoff-points

and limits. White-collar crimes are peaceful wrongdoings committed by businessmen through

misleading exercises who can get to a large amount of money with the end goal of monetary

benefit. Corporate affairs provide a protocol for the working of corporation under Companies

Act, 2013, under which white-collar and corporate crimes are dealt with. The special provisions

managing white-collar crimes and the arrangement of the Indian Penal Code ought to be wisely

comprehended to control the issue regarding the same.

91 3rd Year, BBA.LLB. (hons), Corporate Law, School of Law, UPES

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Keywords: Corporate governance, transparency, disclosure, white-collar crimes.

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INTRODUCTION

Corporate governance has been seen as a fundamental standard of corporate principles aimed at

reducing unethical corporate practices while maintaining a fair business environment. Corporate

governance is the framework by which organizations are governed and superintended92. The

board of Directors is in charge of the administration of their organizations. Corporate governance

has been seen at the front line of setting up measures of corporate ethics aimed at reducing

corrupt corporate practices while protecting a reasonable business condition.

Creditors and financial specialists see good corporate governance (GCG) as an indication of

strength in a corporation rationale are poor corporate governance is seen as hazardous. The

strength of a corporation’s governance systems and the quality of a company's governance

frameworks and the nature of its open revelations are winding up progressively imperative since

stakeholders are giving careful consideration to what is accounted for and how.93 Subsequently,

stakeholders are requesting superior financial revealing and corporate transparency as well as

more GCG practices through their administration so as to cut down their unreliability towards

investment choices. Particularly stakeholders commonly acknowledged, that GCG accomplishes

superior administration and increasingly assets allocation and improves better corporate

execution.

CORPORATE GOVERNANCE FRAMEWORK

Corporate governance is about the exercise of power over corporate elements. The board is the

significantdriving force of governance in a company and primarily determines whether a

company’s administration is sound. The essential goal of GCG is to contribute to enhancing

corporate performance94. In any foundation, GCG starts with proprietors and permeates down

through the board and distinctive administration levels to the representatives. Regardless of what

the proprietorship is, there is a requirement for transparency and responsibility in its relationship

with other stakeholders. In this context, all rules that define the governance obligations,

impetuses and sanctions facing the board, management and employees must be very much

enunciated. Board members must be considered responsible and liable for their decisions and

actions that have sway on the interests of different stakeholders. The basic principles of

92 Disclosures on Corporate Governance, Association of Chartered Certified Accountants (ACCA) Reporting

Trilogy – Research on Reporting Disclosures: Part 2 (2009). 93Tricker, B. Corporate Governance Principles, Policies and Practices- Oxford University Press, (2009). 94 33/3-4,Beeks W. and Brown, P. Do better-governed Australian firms make more informative disclosures? Journal

of Business Finance and Accounting, 422 – 450 (2006).

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corporate governance are threefold: The significance of transparency has been widely perceived

by both academics and market controllers- Transparency, resulting in numerous rules and

directions being introduced over time to guarantee timely and reliable disclosure of financial

information, creating standards to which companies must follow – Accountability, The

company recognizes the right of all shareholders under the law and cooperate with them for their

own growth and financial stability- Responsibility.95

Corporate governance in present worldwide condition has turned out to be more complex and

dynamic in recent years due to increased regulatory pre-requisites and more noteworthy scrutiny,

creating increased obligations for top managerial staff to comply with expanded governance

standards and furthermore coping with increasing interest for T&D. Significant consideration has

been centered on corporate T&D since the Asian financial emergency. It has generally concurred

that the main failure leading to the financial emergency stemmed directly from the absence of

financial exposure and lack of governance practices such as the supervision and responsibility of

directors.96 Accordingly, there has additionally been an expansion in the number and

complication of accounting principles and other regulatory necessities for exposure around the

world to secure the investing public.

Hence, corporations must provide satisfactory, exact, and timely data to investors and the general

public regarding financial performance, liabilities, possession, and corporate governance affairs.

This is critical if investors are to be able to make informed decisions on the risks and rewards of

any ventures97. It has been seen that companies with better governance also uncover more data.

Companies which are frail in governance lack of financial disclosure and transparency.98

Corporate governance concerns the control of an enterprise, vested in the top managerial staff

who play a critical coordinating role to balance the interests of various stakeholders (both

internal and external) and accomplish economic benefits. In general, corporate governance

features the vital principles of oversight and control over the executive administration's

performance and key directions; and their responsibility to the investors. A code of morals,

which illuminates and stipulates adherence to some of the progressively abstract ideals of trust

95 BDO Corporate Governance Review, 7th Annual Review on HSCI Companies (2012) 96G.N.Bajpai, The Essential Book of Good Corporate Governance (1st ed.,2016). 97. Guidance on Good Practices in Corporate Governance Disclosure. The UNCTAD (United Nations Conference on

Trade and Development) (2006) 98 5/6, Bhasin, M.L. Dharma, Corporate Governance and Transparency: An Overview of the Asian Markets,

International Journal of Business and Management,56 - 73,(2010)

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and responsibility, is fundamental for GCG.99 The board and management should try to uphold

and sustain responsibility, transparency, reasonableness, and integrity in all aspects of the

company tasks.

Corporate transparency portrays the extent to which a corporation's actions are noticeable by

outsiders. Transparency is one of the key strides to corporate governance and guarantees that

management will not engage in inappropriate or unlawful conduct since their conduct can be and

will be investigated. To accomplish transparency, a company should adopt accurate accounting

strategies, make full and brief disclosure of company data and also make divulgence of

irreconcilable situations of the directors or controlling investors, etc. A key component of ‘good’

governance is ‘transparency’, which uses an arrangement of balanced governance among the

executives, management, auditors and investor. As per the standards of corporate governance of

the Sarbanes Act,100 organizations should elucidate and make publicly known the roles and

duties of board and management to provide stakeholders with a dimension of responsibility.

Accountability ensures that managers utilize the company’s assets in the most proficient and

desirable way as well as for the most suitable objective without inappropriate regard for

individual interests. Cadbury report101 stresses that making the responsibility work is the duty of

both the board and management. Management is responsible to the board, which in turn is

responsible to shareholders. They should also implement procedures to autonomously check and

defend the integrity of the company's financial reporting and provide the quality of information

to all stakeholders of the organization. The revelation of material issues concerning the

organization should be timely adjusted and balanced to ensure that all investors have access to

clear, genuine data.102 With everything taken into account, T&D improves the control and

behavior that helps in effective responsibility for performance results.103 An entity is more likely

to accomplish better outcomes when corporate governance practices of T&D are given

importance inside the association.104 On the other hand, firms with poor corporate governance

methodologies are bound to fail to meet expectations in the long haul.

99 Bushman, R., Piotroski, J., and Smith, A. What determines corporate transparency? Journal of Accounting

Research, 42 (2), 207 – 252 (2004). 100Sarbanes-Oxley Act, 2002. 101 Report of the Committee on the Financial Aspects of Corporate Governance (the Cadbury Report). 102 Bennis, W., Goleman, D., and O’Toole, J. Transparency: How leaders create a culture of candor, San Francisco,

Jossey-Bass (2008). 103 Corporate Practices and Conduct, Bosch Committee, 3rd ed. (1995). 104Sanjay Anand, Essentials of Corporate Governance, 77 (2012).

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OECD PRINCIPLES –

The OECD Principles of Corporate Governance were advocated by OECD Ministers in 1999 and

have since turned into a global yardstick for policy formulators, financial specialists,

organizations and different stakeholders around the world. They have propelled the corporate

administration's motivation and gave explicit direction to authoritative and administrative

activities in both OECD and non-OECD nations. The Financial Stability Forum has assigned the

Principles as one of the 12 key measures for sound financial frameworks. The Principles likewise

give the premise to a broad program of participation among OECD and non-OECD nations and

support the corporate administration segment of World Bank/IMF Reports on the Observance of

Standards and Codes (ROSC). While an assortment of elements influences the administration

and basic leadership procedures of firms, and are essential to their long-haul achievement, the

Principles center on administration issues that outcome from the severance of possession and

control105.

Corporate governance is influenced by the connections among members in the administration

framework. Controlling investors, which might be peoples, family members, coalition

partnership, or different firms acting through a holding firm or cross-shareholdings, can

fundamentally impact corporate conduct. As proprietors of equity, institutional shareholders are

progressively requesting a voice in corporate governance in a few markets. Individual investors

normally don’t try to practice administration rights yet might be very worried about acquiring

reasonable treatment from controlling investors and boards. The job of each of these members

and their interactions differ broadly among OECD nations and among non-OECD nations too.

These connections are subject, partially, to law and direction and to some extent, to willingly

adaptation and, above all, to market forces.

The following Principles of Corporate Governancewere given by OECD:106

1. Ensuring the Basis for an Effective Corporate Governance Framework:

1.1 The corporate governance framework should be developed with a view to its

impact on overall economic performance, market integrity and the incentives it

105 Organization for Economic Co-operation and Development. Corporate Governance: Improving Competitiveness

and Access to Capital in an Era of Global Markets. Report to OECD by the Business Sector Advisory Group on

Corporate Governance (1998) 106Organisation for Economic Cooperation and Development (OECD), OECD Guidelines for Multinational

Enterprises, 27 June 2000, https://www.refworld.org/docid/425bd34c4.html

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creates for market participants and the promotion of transparent and efficient

markets.

1.2 The legal and regulatory requirements that affect corporate governance practices

in a jurisdiction should be consistent with the rule of law, transparent and

enforceable.

1.3 The division of responsibilities among different authorities in a jurisdiction should

be clearly articulated and ensure that the public interest is served.

1.4 Supervisory, regulatory and enforcement authorities should have the authority,

integrity, and resources to fulfill their duties in a professional and objective

manner. Moreover, their rulings should be timely, transparent and fully explained.

PILLARS OF CORPORATE GOVERNANCE-

Corporate governance stands on four pillars, in particular, disclosures, related party transactions,

accounting, and book-keeping, reporting norms and boardroom practices. Generally, pundits in

the corporate governance area have considered it to be a three-legged stool, in particular,

disclosures, accounting and bookkeeping reporting standards, and boardroom practices.107

However, every corporate governance failure where financial wrongdoings are involved has had

something to do with the RPT’s. Thus, to club, the RPT’s with disclosures are leaving the

regions of wealth management and wealth sharing inadequately observed and a window open for

seeping out resources. The strength of all the pillars can make the corporate edifice safe and

sound, gave these pillars functions in tandem and provide strength to each other. Collectively,

the strength of the four pillars of Corporate Governance ought to be more prominent than the

entirety of the strength of individual pillars.

1) Management inclusive of the chief compliance officer

2) Auditors- Internal and Statutory.

3) Board sub-committees, such as:

a. Audit committee

b. Nomination and remuneration committee

c. Risk management committee

d. Stakeholders’ relationship committee

e. Board of directors.

107 9/1, Bushman, R. and Smith, A. Transparency, Financial Accounting Information, and Corporate Governance,

FRBNY Economic Policy Review, 65 – 87(2003).

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TRANSPARENCY AND RISK MANAGEMENT–

Transparency and well-built corporate governance are required in both national and worldwide

transactions and at all periods of investment. With the transit of the US Sarbanes Oxley Act of

2002, international organizations must choose the option to push for good, transparent

information accessibility. Quick transparent information is getting to be fundamental to the

foundation of a “pipeline” of vulnerability and risk administration data. Risk administrators need

predictable, available information on108 present and prospective corporate exposures, the expense

of overseeing risks now and before. This sort of data gives risk experts the apparatuses to cost

fluctuating risk management options. There has just been much discourse about improving

governance through the use of better interior financial authority. Risk administrators could

possibly lock onto this as they desire to get more engaged in the organization risk administrator

and the information expected to help that framework.

Energized by proximate inspection of corporate governance risk and the drive to strengthen

investor esteem, information transparency has turned out to be a great instrument against risk

vulnerability.109 The steps towards significant financial transparency, superior governance, and

improved investor esteem can be accomplished. There is additionally an expanding request on

better governance since institutional shareholders accumulate greater and increasingly focused

share segments. Since shareholders’ choices increasingly more rely upon administration metrics,

administration of given firms face constraint to additionally redesign their corporate governance

guidelines and acquire worldwide prescribed procedures of quality governance. Suitably,

organizations should watch out for giving an account of corporate administration in light of the

fact that GCG must be noticeable at first to be a powerful effective driver so as to draw funding

capital. Otherwise, capital markets cannot work productively.

Transparency lies at the crossing point between the people in general’s entitlement to know and

the organization’s right to privacy. People in general’s entitlement to know implicit the investor's

scrutiny for getting organization data about administration and procedure. The shareholders have

a lawful claim to know tremendous aggregate of data about the firm’s activities and expectations.

Then again, the organization’s right to privacy means the firm’s entitlement to control the

accumulation, use and revelation of all data and the executive techniques in connection to the

108Fombrum, C., Gardberg, N. and Barn, M. Opportunity platforms and safety nets: Corporate citizenship and

reputational risk, Business and Society Review, 85-106 (2000). 109Fombrum, C. and Shanley, M. What’s in the Name? Reputation building and corporate strategy, Academy of

Management Review, 233-258 (1990).

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enterprise. Mistiness, the inverse of transparency, is characterized as the condition of being

difficult to comprehend and not understandable or communicative.110 At the point when data is

not coherent, it is not believed. When data is hidden, it is normal to accept there is genuinely

something to conceal.

TRANSPARENCY IN FINANCIAL REPORTING-

Financial divulging is an elemental data part for investors in their basic decision making. Real

hazard in corporate financial reporting is that financial reports are not reasonably introduced

because of accidental or deliberate misleading. The board may neglect to give certain data to

numerous different clients of fiscal reports, intentionally deceptive them about the company's

activities. Without the required data, it is difficult to completely comprehend a company's money

related condition. 111Transparency in budgetary detailing empowers investors, creditors, and

market members to assess the financial state of an institution. Furthermore, helping financial

specialists settle on better choices, transparency builds trust in the reasonableness of the business

sectors. Consequently, controllers should seek to guarantee that business sectors are reasonable,

effective and transparent and financial specialists are given reasonable access to market, cost or

corporate data.

An intricate and mystifying budgetary report gives no thought regarding the certifiable dangers

included and the genuine fundamentals of the organization.112 Organizations with enigmatic

financials and convoluted business structures are more dangerous and less profitable

investments. There are a few organizations exploiting accounting dictum in various ways that

impede transparency. This may, for instance, darken the organization's dimension of debts. On

the off chance that an organization conceals its obligation, investors can't evaluate their

vulnerability to bankruptcy plausibility. In addition, transparency is imperative to corporate

administration since it empowers the board of governors to assess the executives' viability and to

take early remedial activities, when important, to address disintegration in the financial state of

organizations. Along these lines, it is that every public organization gives a reasonable, thorough

and solid depiction of their financial condition and execution.113 On the assumption that the data

110 International Standards of Accounting and Reporting Guidance on Good Practices in Corporate Governance

Disclosure 111 Hong Kong Stock Exchange Listing, Disclosure of Financial Information Appendix 16, (2012) 112 3 Patel, S., Balic, A. and Bwakira, L. Measuring transparency and disclosure at firm-level in emerging markets,

Emerging Markets Review, 325 - 327(2002). 1131/8, Stiglbauer, M. Transparency and disclosure on corporate governance as a key factor of companies’ success: a

simultaneous equations analysis of Germany, Section 3. General Issues in Management, Problems and Perspectives

~ 37 ~

in financial reports is transparent, investors and different clients of the data are less likely to be

shocked by obscure exchanges or occasions. Investors and creditors anticipate clear, solid,

steady, similar, and transparent announcing of occasions.

Accounting norms give a structure that is expected to display financial data in a way that

encourages educated decisions. For the financial statement to give the data that investors and

other leaders require, significant and reliable accounting principles and equivalent practices are

vital. Great financial disclosure has turned into a corporate administration device of shaping

desires identifying with future organization execution. Today, corporate announcing is not

limited to the financial reports, but, incorporates a wide cluster of extra issues that must likewise

be unveiled so as to give investors the basic data they have to esteem their ventures.

According to a published source, publication of the direction places accentuation on financial

divulgences and scope of non-financial revelations, for example, organization targets;

proprietorship and investors rights; changes in charge and exchanges including critical resources;

and administration structures and arrangements, and so forth.114 Given the huge instability in the

global capital markets, the interest and requirement for ample transparency and reasonable

corporate budgetary detailing are basic. Corporate administration promoters would propose

sound corporate administration systems are vital in keeping up appropriate corporate financial

detailing rehearses, along these lines, helping in alleviating pressures in worldwide markets.

The following Principles of Transparency and Disclosure were given by OECD:115

A. Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company.

2. Company objectives.

3. Major share ownership and voting rights.

4. Remuneration policy for members of the board and key executives, and information about

board members, including their qualifications, the selection process, other company

directorships and whether they are regarded as independent by the board.

5. Related party transactions.

6. Foreseeable risk factors.

7. Issues regarding employees and other stakeholders.

in Management (2010). 114 Guidance on Good Practices in Corporate Governance Disclosure by the United Nations Conference on Trade

and Development (20060. 115 Ibid

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8. Governance structures and policies, in particular, the content of any corporate governance

code or policy and the process by which it is implemented.

B. Information should be prepared and disclosed in accordance with high quality standards of

accounting and financial and non-financial disclosure.

C. An annual audit should be conducted by an independent, competent and qualified, auditor in

order to provide an external and objective assurance to the board and shareholders that the

financial statements fairly represent the financial position and performance of the company in all

material respects.

D. External auditors should be accountable to the shareholders and owe a duty to the company to

exercise due professional care in the conduct of the audit.

CORPORATE GOVERNANCE AND DISCLOSURE-

Corporate administration is turning into an imperative speculation evaluation apparatus since

there are adequate empirical research discoveries showing a positive relationship between

corporate administration and financial proportions, valuations and share price performance.

Progressively, numerous financial specialists examine corporate administration as one of the key

components when they settle on a venture choice. In the event that investors take the view that

poor corporate administration is a hazard, it is essential that organizations enhance their

corporate administration measures so as to draw in investment capital.116 These days, most

nations are reforming their laws and rules to include compliance with GCG and T&D norms and

organizations are willfully having their corporate governance and T&D practices appraised, to

flag their quality and to improve their present practices. There are five mainstays of T&D which

involves: 117

Truthfulness – Information unveiled must give a precise description of conditions.

Completeness – Data disclosed must be adequate to empower shareholders to make informed

choices. Data must include both financial and non-financial matters.

The materiality of Data – Data unveiled must be material to impact investment choices.

Timeliness – Data unveiled must be prompt to empower shareholders to respond as fast as

possible.

116 Pope, P. Discussion of disclosure practices, enforcement of accounting standards and analysts’ forecast accuracy:

An international study, Journal of Accounting Research, 273-283 (2003). 117 Uren, D. (The transparent corporation: Managing demands for disclosure, Crow’s Nest, NSW, Australia, Allen

and Unwin (2003).

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Accessibility– Data disclosed must be easily accessible and effectively available to shareholders

at little cost.

The revelation of dependable, auspicious data adds to fluid and effective markets by empowering

investors to settle on investment choices dependent on the majority of the accessible data that

would be material to their resolution. Thus, investors are demanding better reporting and more

noteworthy transparency. Corporate administration frameworks are utilized by an organization to

advance probity, complete and exact financial announcing and responsibility.118 T&D are basic

components of a powerful corporate administration structure as they furnish the basis for au fait

decision making by investors, partners, and speculators with respect to capital distribution,

corporate exchanges, and financial execution supervision.119 Thus, T&D serves to investors as

well as helps controllers in keeping upmarket certainty and framework dependability. T&D are

requisite for corporate administration as inflated transparency and better divulgence decrease the

data asymmetry between an organization's administration and financial stakeholders, alleviating

the agency issue in corporate administration.

As per the economic theory, diminishing the data asymmetry by increasingly discretionary

financial divulgences on the stock market expands share liquidity and decreases value cost of

capital. According to the agency perspective, agents are required to act artfully at shareholders

behest and other stakeholders’ profits. Since principal and agent have antithetical interests and

objectives, organization complications may emerge when agent settles on choices that outcome

in the quest for objectives that contrast with those of the principal.120 This brings up the issue of

how the administration can be made responsible and the affair of administering the corporation

further transparent. Organizations recurrently make deliberate divulgences that go past least

disclosure necessities in light of the market request A strong exposure routine that advances

authentic transparency is essential for market-based observing of companies and key to

investors’ ability to practice their possession rights on an informed basis. Empirical involvement

in nations with huge and dynamic equity markets demonstrates that disclosure can be a dominant

asset for impacting the behavior of companies and protecting shareholders. A strong revelation

routine can help draw capital and maintain trust in the capital markets.

On the other hand, feeble exposure and non-transparent practices can add to immoral conduct

and a loss of market trustworthiness at great expense, not just to the company and its investors,

118 G. N. BajpaI, The Essential Book of Corporate Governance (2016) 119 Uren, D. The transparent corporation: Managing demands for disclosure, Crow’s Nest, NSW, Australia, Allen

and Unwin (2003). 120 Robert Ian Tricker, Corporate Governance: Principles, Policies, and Practices (2009).

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yet in addition to the economy as a whole. Shareholders and potential investors require access to

regular, reliable, and comparable information in sufficient detail for them to assess the

stewardship of management and make informed decisions about the valuation, ownership, and

voting of shares. Insufficient or unclear information may hamper the ability of the markets to

function, increase the cost of capital, and result in poor allocation of resources.

The following Principles of Equitable treatment to shareholders were given by OECD121:

A. All shareholders of the same series of a class should be treated equally.

1. Within any series of a class, all shares should carry the same rights. All investors should be

able to obtain information about the rights attached to all series and classes of shares before

they purchase. Any changes in voting rights should be subject to approval by those classes of

shares which are negatively affected.

2. Minority shareholders should be protected from abusive actions by, or in the interest of,

controlling shareholders acting either directly or indirectly, and should have effective means

of redress.

B. Insider trading and abusive self-dealing should be prohibited.122

C. Members of the board and key executives should be required to disclose to the board whether

they, directly, indirectly or on behalf of third parties, have a material interest in any transaction

or matter directly affecting the corporation

Corporate transparency is essential if there should be an occurrence of worldwide organizations

that work through a system of related backups, subsidiaries, joint endeavors and different

possessions fused in various locales including some clandestine jurisdictions. Without

transparency, a large number of these establishments stay camouflaged from public

contemplation and investigation.123 In this manner, all things considered, the material corporate

property goes unreported and investors don't have an unmistakable and complete image of the

Group's tasks, incomes, benefits and tax collection. Be that as it may, divulgence necessities are

not expected to put preposterous authoritative or cost weights on organizations nor are

organizations expected to uncover data that may imperil their competitive position except if

revelation is important to upgrade the speculation choice and to abstain from misdirecting the

investors. Therefore, to figure out what data ought to be unveiled, numerous nations apply the

121IBID. 122 Brian Tayan, Corporate Governance Matters: A Closer Look at Organizational Choices and Their Consequences

and David F. Larcker (2011). 123 Jill Solomon, Corporate Governance and Accountability (2003)

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idea of materiality. Material data can be characterized as data whose exclusion or error could

impact the financial choice taken by clients of data.

WHITE-COLLAR CRIMES

In the early 1940s, American sociologist Edwin Sutherland invented the expression "white-collar

crimes," depicting it as “a crime committed by a person of respectability and high social status in

the course of his occupation.”124

There has always been questions revolving around white-collar crimes. Some of the scholars

suggest that there is ambiguity about the nature of white-collar compared to ordinary

crime.125Another scholar probed the question “Who is the white-collar criminal?126:

White-collar crime is traditionally associated with high status and respectable offenders: the

‘crimes of the powerful’ and corporate crime. However, the examination of one group of white-

collar offences reveals that offenders were typically small businesses, employees, and those more

properly described as ‘criminal businesses. While this could be attributed to the ‘immunity’ of

the corporate offender from prosecution, it can be argued that such patterns of offending reflect

not only enforcement policies but also wider structural and market factors. Thus, analyses of

economic and white-collar crime may concentrate overmuch on the corporate offender, and

makeover simplistic distinctions between ‘corporate’ and other varieties of white-collar

offending.127

Managing Business Integrity by Stefan Heissner's expresses that the theoretical media existence

in the light of extortion and corruption-related cases has prompted the improvement of an

extremely sharp feeling of social mindfulness and comprehension for white-collar crimes. This is

because of the degree of harm brought about by white-collar crimes. Sutherland underlined the

inordinate degree of distress brought about by the wrongdoing of the well off in contrast with the

much explored and prominent spotlight on wrongdoing by poor people, and the similarly

unbalanced dimension of social control reactions.128

Sutherland instantiates the corporation as a guilty party on account of war crimes where

organizations benefit profoundly by misemploying the condition of national crisis amid times of

124Sutherland, E. H., White-Collar Criminality, American Sociological Review 1, 7, (1939). 125Nelken. D, White –Collar and corporate Crime, The Oxford Handbook of Criminology. Oxford: Oxford

University Press, (2012). 126Croall. H., Who Is the White-collar Criminal? The British Journal of Criminology 157-162 (1989). 127 Hans N. &Francien L., Prevention of Organised Crimes (2004) 128Gyanendra Kumar Sahu, White Collar Crimes: A legal challenge on Indian corporate system, International

Journal of Current Research, 3 (2015)

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war. The corporate structure is a benefit boosting element shape war profiteering.129 This is

institutional wrongdoing by potent associations that may perpetuate environmental wrongdoing,

war profiteering, state-corporate wrongdoing, and human rights infringement.130

While Sutherland’s concept of white-collar crime has enlightened sociologists, criminologists,

and management researchers, the concept may have confused attorneys, judges, and lawmakers.

In most jurisdictions, there is no offense labeled white-collar crime. There are offenses such as

corruption, embezzlement, tax evasion, fraud, and insider trading, but no white-collar criminal

offence. Sutherland’s contribution to the challenge of concepts such as law and crime can be

considered one of the strengths of his work as he showed that laws and legal distinctions are

politically and socially produced in very specific ways. For lawmakers, there is nothing intrinsic

to the character of white-collar offenses that makes them somehow different from other types of

offenses.

OFFENCE CHARACTERISTIC-

White-collar crime is a distinctive kind territory of criminology because of its unconventional

relationship with societal impact contrasted with different sorts of criminal offenses. White-

collar crime is characterized in its correspondence to stature, possibility, and access. 131This is

the wrongdoer-based viewpoint. Conversely, offense-based ways to deal with white-collar crime

underline the activities and nature of the unlawful go about as the characterizing operator. In

their examination of the two methodologies, Benson and Simpson132 talk about how guilty party-

based definitions stress societal qualities, for example, high economic wellbeing, capability, and

reputation of the actor. Since status is excluded in the meaning of offense-based methodologies

and status is allowed to differ freely from the definition in most enactments, an offense-based

methodology enables proportions of status to become external expository protean.133

Benson and Simpson's134 approach accentuates the possibility that people with access to deep

pockets to transgress, and those who hold authoritative positions of dominance are bound to

carry out a white-collar crime. They don't restrain their opportunity perspective on undertakings

129E.T.Bureau, 200 suspected e-commerce companies under DIPP radar, The Economic Times (2016) 130 Individual accountability in the spotlight: Global Fraud Survey, News Releases (Jan. 23, 2019, 2:31 P.M),

https://www.ey.com/in/en/newsroom/news-releases/news-ey-individual-accountability-in-the-spotlight-global-fraud-

survey 131 Muhammad A. Khan, Globalization and White Collar Crimes, Pakistan Journal of Criminology 5, 20 (2017) 132Benson, M. L., & Simpson, S. S, Understanding White-Collar Crime: An Opportunity Perspective, New York:

Routledge. (2015). 133 Vol.6, Dr. Sanjay I. Solanki, A Critical Study on White-Collar Crimes in India 54 (2017) 134Ibid.

~ 43 ~

in organizations. Be that as it may, they highlight that opportunities are regularly more prominent

in a hierarchical setting. Convenience Theory, notwithstanding, accepts that wrongdoing

perpetrated in a hierarchical setting be called white-collar crime. This is in cadence with

Sutherland's original work, where he stressed profession and position as key attributes of guilty

parties.

But the more evolved view on the subject advocates that Edwin Sutherland’s initial definition of

white-collar crime as “a crime committed by a person of respectability and high social status in

the course of his occupation”, should not be comprehended along the lines of corporate fraud

alone. The underlying attributes (deception and lack of physical force) remain constant, the ways

of executing the crime have advanced and the people responsible have burgeoned across the

social-economic strata. White-collar crime is a class of regularly expanding the scope, including

high-level corporate offense toward one side of the range and the phishing plans of a regular

citizen acting alone at the opposite end. These unlawful exercises are presently so common as to

influence the overall population on an everyday basis.135

Therefore, a more preferable definition should be “illegal and unethical acts that violate fiduciary

responsibility or public trust for personal or organizational gains.”136 This definition covers the

traditional types of economic wrongdoings as well as the high-tech crimes, as well as crimes

both inside and outside of the institutional setting.

OFFENDER ATTRIBUTES-

The white-collar wrongdoer is an individual of admiration and high economic well-being who

perpetrates financial wrongdoing throughout his or her occupation137.In the wrongdoer-based

point of view, white-collar offenders generally have numerous qualities that are steady with

desires of high reputation in the public arena. White-collar offenders show both accomplished

position and credited position.138 Accomplished position alludes to position that is accumulated

over passage time and with some level of attempt, for example, guidance and salary. Credited

135 Richard A. Posner, Optimal Sentences for White-Collar Criminals, A.L.J 17, 409 (1980) 136 Individual accountability in the spotlight: Global Fraud Survey, News Releases (Jan. 23, 2019, 2:31 P.M),

https://www.ey.com/in/en/newsroom/news-releases/news-ey-individual-accountability-in-the-spotlight-global-fraud-

survey 137Leasure, P., & Zhang, G., “That’s How They Taught Us to Do It”: Learned Deviance and Inadequate Deterrents

in Retail Banking. Deviant Behavior, (2017). 138 Stuart P. Green, The Concept of White Collar Crime in Law and Legal Theory, Buffalo Criminal L.R 1, 22

(2004)

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position alludes to position that does not require any particular activity or quality, yet rather is

depends on more physically noticeable attributes, such as race, age, and sex.

The primary wrongdoers’ attributes remain benefit and superior rank. Early observation

recommends that the general public feel that white-collar crime isn’t as genuine as different

types of offense.139 Many individuals feel that street lawbreakers ought to get severe penalties. In

this line of reasoning, an individual might be extra worried about theft and physical cruelty that

may hurt them. They might be less worried about white-collar crime that does not influence them

specifically. Possibly the individuals who are financially worried about their very own economic

prosperity will be progressively worried about white-collar crime.140

White-collar culprits have community capability related to various job-related occurrences over

the general public. Capability and control in the hands of people empower white-collar crime,

with power basically getting from the placement people authentically hold.141

GENDER PERSPECTIVES-

Research has proposed a connection between sex and tax agreement, with men being more

distinctly possible to perpetrate tax wrongdoing as compare to women. Analysis of tax avoidance

has both a wrongdoer -based viewpoint and a wrongdoing-based viewpoint. Affluent peoples

have more chances to circumvent tax agreements and to more profit from it. Also, evading tax

agreements can be sorted in an executive setting, where the business organization's control

accounts for the reason of tax avoidance. Status influences the capability of people effectively to

circumvent identification or authorization for non-acceptance, and the chance to perpetuate

variations of tax wrongdoings is ranking based. Tax agreement can be the consequence of

association among Control and belief, where both control and beliefs depend on individual

ranking.142

The unlawful-based way to interpret white-collar crime is also connected when inspecting tax

wrongdoings. The activity of being incompliant utter itself that the wrongdoing is viewed as a

crime. A unique sort of tax wrongdoing is bank deposits in tax harbors. Banks help lawmakers

139 Tony G. Poveda, Rethinking White- Collar Crime 50 (1994) 140Thomas E. Dearden , An Assessment of Adults’ Views on White-Collar Crime, Journal of Financial Crime 309,

318, (2017) 141 Stuart P. Green, The Concept of White Collar Crime in Law and Legal Theory, Buffalo Criminal L.R 1, 22

(2004). 142 Hazel Croall, Understanding White Collar Crime 8 (2001)

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and others convert petroleum rents and other different resources into concealed prosperity using

bank deposits in tax harbors:

Political upper-class misuse public office to extricate rents. Even the average amount of

government rents may have a socially disagreeable impact, through the unfavorable selection of

political applicants and by misrepresenting political inducement.143 In nations without well

maintained democratic governance, political rents can be significant and the financial and

political consequences acute.

When white-collar wrongdoers are brought to equity, it was established that “significantly a

bigger number of females were given community assistance than males” since “females are

viewed as homemakers for households, and the court frameworks would prefer not to punish a

female in a way that would remove her from her household”.

OCCUPATIONAL AND BUSINESS CRIME-

Segregation in white-collar offenses can be made between vocational crimes and business

crimes. Vocational crime is perpetrated by people in a hierarchical setting for solely personal

gain and to the disadvantage of the institution.144 Business wrongdoing is perpetrated by or in the

name of an institution, for the benefit or intensification. Obviously, in business wrongdoing

institutions cannot commit illicit acts autonomously of human operators/agents.145

Vocational crime is ordinarily committed under states of low dimensions of socialization and

puny responsibility. Employees might be new to hierarchical objectives or essentially overlook

institutional aim, while concomitantly endeavor toward individual goals because of infirm

curtailment by the responsibility system.146 The existence of vocational wrongdoing might be

indicative of colossal debacle in an institution's framework since an institution without

committed and responsible representatives advocate a higher probability of failing at the end.

Vocational wrongdoing will, in general, be perpetrated by affluent people who feel no loyalty

towards the institution, and who do as such only for personal benefit.147

Business wrongdoing, on the other side, is normally committed under states of elevated amounts

of socialization and robust responsibility. Employees relate to the institution as well as its

objectives. The quest for institutional aim over individual goals does not imply the truancy of the

143 Marshall B. Clinard, The Black Market: A Study of White Collar Crime 22 (1969) 144 Gilbert Geis, White Collar and Corporate Crime: A Documentary and Reference Guide 48 (2011) 145 Hazel Croall, Understanding White Collar Crime 14 (2001) 146 Richard A. Posner, Optimal Sentences for White-Collar Criminals, A.L.J 17, 409 (1980) 147 George Robb, White Collar Crimes in Modern England 34,37 (1992)

~ 46 ~

crime. Or maybe, an accomplishment of hierarchical objectives turns out to be important to the

point that on the off chance that it is impossible to fulfill those in lawful ways, therefore, devoted

employees do it in unlawful ways. 148

Both vocational and business wrongdoing is committed inside the institutional setting. Corporate

crime is perpetrated for business ascendancy, for example, cartels, and corruption. Illicit value

fixing and market sharing happen in cartels to empower members in cartels to accomplish more

benefits. Bribes are propounded to potential clients, partners, and open authorities to empower

contracts and licenses. 149

CORPORATE AFFAIRS

Shri Injeti Srinivas, Secretary, Ministry of Corporate Affairs, said, “The challenge before India is

to figure out a way to internalize Corporate Governance. Corporate Governance is in the interests

of companies as it enhances their image, acceptability, and profitability.” Shri Sriniwas vocalized

this at a Cooperation Agreement signing ceremony between the Indian Institute of Corporate

Affairs (IICA) and International Finance Corporation (IFC) at the Ministry of Corporate Affairs,

New Delhi.

Following points were discussed during the ceremony:

1.The Board of Directors needs to exert tactical surveillance over business activities while

specifically estimating and compensating the administration’s accomplishment. At the same time

the Board needs to guarantee compliance with the lawful structure, probity of financial

bookkeeping and reporting approach and validity in the eyes of the investors through appropriate

and punctual divulgence.

2. Board’s obligations inalienably request the undertaking of judgment. Subsequently, the Board

essentially must be vested with a sensible degree of judgment. While corporate governance may

involve both lawful and social standards, no recorded arrangement of rules or laws can ponder

each circumstance that an executive or the board, on the whole, may wind up in. In addition, the

presence of composed standards in itself can’t keep an execute from mishandling his position

while experiencing the motions of acceptable consideration as recommended by composed

standards. Consequently, social standards that incorporate enlightened and reflective decision

148 David Weisburd et al., White Collar Crime and Criminal Career 67 (2001) 149Thomas E. Dearden , An Assessment of Adults’ Views on White-Collar Crime, Journal of Financial Crime 309,

318, (2017)

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making, division of power, observing of the administration and impartial execution of

obligations owed to the organization just as the investors are similarly vital.

3.Anyway, in a circumstance where organizations have developed in size and have large public

interest potential, it is essential to endorse a proper fundamental structure that needs to be in

accordance with all the organizations without giving up the essential prerequisite of permitting

activity of circumspection and business judgment in the light of a legitimate concern for the

organization and the investors. The obligation of consent must be seen in subject of the

customary-based law system predominant in the nation along with a wide assortment of

possession structures including family-run or controlled or generally firmly held organizations.

The professional domain of any organization today, impacts and incorporates numerous aspects.

There are such huge numbers of individuals who get influenced by the demonstrations of the

organization both straightforwardly and in a roundabout way. The primary parties that get

affected are the customers or partners who are their fundamental recipients and are at paramount

peril. Corporate supervision has been managed by corporate laws forlong.The basic laws make

an organization at risk for the activities of its operators when representatives/specialists act

inside the extent of their work and make a benefit for the partnership with that venture. White-

collar crimes can today effectively be seen making a grave imprint in the working of any society.

They have turned into the vital shades of malice today. The general public can't make do without

them and in the meantime, it is getting to be hard to make do with them. The corporate affairs of

the numerous institutions, which had earlier paved way towards good corporate governance, now

set the footing for the new kinds of white-collar crimes to flourish., most of which are committed

by the employees who are in twin jobs; one job is of being targeted by these crimes and then

again being the main player in committing those crimes.

CONCLUSION

Due to contemporary corporate administrative transgressions, governments have reacted by

espousing various administrative changes. One segment of these progressions has been expanded

disclosure prerequisites. For instance, Sarbanes-Oxley (sox), appropriated in response to Enron,

WorldCom, and further public governance debacles, necessitated comprehensive detailing of off-

balance sheet financing. Furthermore, sox expanded the punishments to officials for

prevaricating.

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The relatedness among governance and transparency is unambiguous in the public's cognizance;

transparency was expanded to improve administration. However, most pedagogical symposium

about transparency has nothing to do with corporate governance. The most generally examined

merit of transparency is that it decreases uneven data, and consequently brings down the expense

of exchanging the firm's securities and the firm's expense of capital.

In this paper, we give a structure to understanding the job of transparency in corporate

administration. We examine the effect that exposure has on the legally binding and checking

connection between the institution and the public at large. We see the nature of data the firm

reveals as a decision variable that affects the agreements of the firm and its investors, public, etc.

Through its effect on corporate administration, the higher quality revelation gives both benefits

and imposes costs. The benefits reflect the way that progressively exact data about execution

enables institutions to settle on better staff choices and investors and others get a more

comprehensive picture of the institution.

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ROLE OF INSOLVENCY & BANKRUPTCY CODE IN CORPORATE

GOVERNANCE: A LEGAL ANALYSIS

-WajahatMonafJilani150

Abstract

Even before the Insolvency & Bankruptcy Code (“IBC”) had come into force, it was

projected to have a major impact on the ease of doing business and corporate governance in

India. While there has been much academic and financial focus on the former, the latter has

gone unnoticed. The IBC has ushered a dramatic shift in India’s policy viz-a-viz bankruptcy

resolution, from the debtor-possession to a creditor-in-control system. In other words, it is the

creditors who control the management and affairs of the corporate debtor during insolvency

proceedings. While corporate governance was commonly understood as applying to situations

when a company was solvent, the IBC has emphasized the importance of corporate governance

in situations when the company is rendered insolvent or immediately prior to it. This paper seeks

to study the role of the IBC in maintaining a healthy corporate governance structure of a

company. It will also seek to examine the specific role and scope of independence of the

Resolution Professional (RP) /Interim Resolution Professionals (IRP), who replaces the board of

directors, in control and management of the corporate debtor after the initiation of the

Corporate Insolvency Resolution Process (CIRP). In addition, the role of the Committee of

Creditors, in overseeing the functioning of the RP/IRP and approving a resolution plan, is key to

this analysis. In addition the paper examines the practical working of the IBC and the major

concerns that have arisen.

Keywords: Corporate Governance, Insolvency and Bankruptcy Code, Resolution professional,

Committee of Creditors.

150LLM Candidate, Kings College London, UK, 2019-20.

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INTRODUCTION

While the term ‘corporate governance’ has been in existence for decades, the tumultuous events

of the past decade have ensured that it is central to any modern corporate practice as well as to

the corporate law paradigm of a country. Consequently, in India’s corporate-legal domain,

legislations and policy decisions are being taken to enhance and inculcate a culture of good

corporate governance.

A prime example of such a legislation is the Insolvency & Bankruptcy Code, 2016 (hereinafter

“IBC” or “Code”), which even before its introduction in the Parliament, was touted by the then

Minister of State for Finance in the Government of India, as a law which will have a big impact

on corporate governance in the country.151 In the past two and a half years since the IBC came

into force, the jurisprudence around various aspects of the code has developed through academic

research as well judicial decisions. However, much of the focus has been on the utility of the

code in ensuring speedy and effective insolvency resolution and creating a business-friendly

environment in India. From a governance point of view, the code has brought about a dramatic

shift in India’s bankruptcy policy from a ‘debtor-in-possession’ framework under the Sick

Industrial Companies Act, 1985 and set of other bankruptcy laws, which provided that during the

continuance of insolvency proceedings the existing management and/or promoters would remain

in control of the corporate debtor, to a ‘creditor-in-control’ regime wherein the existing

management ceases to have an active role in the running of the company, and the creditors

assume control of the company. The statement of objects and reasons of the code states that one

of its objectives is to ‘balance the interest of all stakeholders’. In doing so, the code has

recognized and strengthened the currently weak creditor rights in running of companies in India,

particularly during insolvency resolution. This research focusses on the relationship between the

IBC and corporate governance and studies the rationale of various provisions of the code through

the prism of corporate governance.

RELATIONSHIP BETWEEN IBC AND CORPORATE GOVERNANCE

As far as the challenge of defining the term ‘corporate governance’ is concerned, the most

widely accepted definition is the one provided by The OECD Principles of Corporate

151 K R Srivats, Bankruptcy code will have big impact on corporate governance: Jayant Sinha, The Hindu Business

Line (Feb 09, 2016), https://www.thehindubusinessline.com/economy/bankruptcy-code-will-have-big-impact-on-

corporate-governance-jayant-sinha/article8211994.ece

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Governance which defines it as “a set of relationships between a company's management, its

board, its shareholders and other stakeholders.”152 According to the principles, good corporate

governance should provide proper incentives for the board and management to pursue objectives

that are in the interest of the company and its shareholders.

Most corporate entities are governed and operated through key managerial executives and a

board of directors. In normal circumstances and healthy financial situation, the board of directors

is responsible for the company’s governance, while the creditors are not usually involved. The

board of directors has a fiduciary obligation to the company and its shareholders. However, when

the company fails to meet its financial obligations or to repay its debt and the IBC is invoked, the

control of the corporate entity also undergoes a change from a debtor-in-possession to a creditor-

in-control regime. This system protects creditors’ interest not only during the corporate

insolvency resolution process (“CIRP”) but also in the time period during which the company is

heading towards insolvency.153

The code permits operational creditors, financial creditors as well as the debtor itself to initiate

the CIRP when the corporate debtor has committed default. Once the application has been

admitted, section 12 prescribes that the CIRP shall be completed within a period of 180 days

from the date of admission of the application to initiate such proceeding, which may be extended

only once for a period of not more than 90 days. Furthermore, the code provides that from the

date of commencement of CIRP, the adjudicating authority shall declare a moratorium which

prohibits the institution or continuance of suits against the corporate debtor, the transferring,

encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal

right or beneficial interest therein as well as any action to foreclose, recover or enforce any

security interest created by the corporate debtor in respect of its property.154 For the governance

of the corporate debtor during the CIRP, Section 16 & 17 of the code are particularly significant.

While Section 16 provides for an ‘Interim resolution professional’ (“IRP”), Section 17 lays down

that the powers of the board of directors of the corporate debtor shall stand suspended and its

powers, as well as the management of the corporate debtor, shall vest in the IRP. To ensure that

the corporate debtor carries on as a going concern, the code mandates that all personnel of the

152 OECD Principles of Corporate Governance, Organisation for Economic Co-operation and Development, 12

(2004), http://www.oecd.org/daf/ca/corporategovernanceprinciples/31557724.pdf 153 Sharad Abhyankar and NirmalMohanty, The Code and Corporate Governance, The Insolvency and Bankruptcy

Code: Implications for Corporate Governance (Apr, 2017),

https://www.nseindia.com/research/content/res_QBApr17.pdf 154 The Insolvency & Bankruptcy Code, 2016, Section 14.

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debtor including its promoters shall cooperate with the IRP, it also provides for the duties and

powers of the IRP. Chief among the duties of the IRP is the duty to constitute a committee of

creditors (“COC”). This committee of creditors, in turn, is authorized to either confirm the IRP

as the resolution professional (RP) or appoint another person as the RP. Such a resolution

professional shall be responsible for the conduct of the CIRP as well as be duty-bound to

preserve and protect the assets of the corporate debtor. However, the RP is required to obtain the

consent of the COC for key financial and operational decisions concerning the corporate debtor.

Interestingly, although the directors or partners of the corporate debtor may attend the meetings

of the COC, they would not have the right to vote. Any resolution plan, if found eligible by the

resolution professional, be approved by a vote of at least 60% of the COC and approved by the

adjudicating authority shall be binding on the corporate debtor and its employees, members,

creditors, guarantors and other stakeholders involved in the resolution plan.

RATIONALE FOR SHIFT FROM DEBTOR-IN-POSSESSION TO CREDITOR-IN-

CONTROL REGIME

From a corporate governance perspective, the debtor-in-possession regime was not most ideal.

Under this system, the management of the corporate debtor which has been responsible for

leading it into the CIRP would effectively be responsible for not only its day-to-day operations

but also its reorganization efforts or decisions regarding potential liquidation. In such a situation

the ability of the management to uphold its fiduciary obligations towards the company, its

promoters, its shareholders and other stakeholders could be doubtful.

In other words, when a corporate entity becomes insolvent or nears insolvency, the interest of the

various stakeholders in the entity may shift. As a result of the lack of funds, the equity holders or

directors may favor a riskier option, which may suit their interest rather than the long term of the

corporate entity or its creditors. There may also be conflicting interests between secured and

non-secured creditors, which may be in conflict with the objective of ensuring that the entity

continues as a goingconcern. Directors and officers may, therefore, find themselves with

conflicting duties to different groups of creditors and stockholders in guiding the corporation

back to solvency or through reorganization.

In the pre-IBC era, the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”) was

the law that provided for the rescue and rehabilitation of distressed companies. Under this law,

industrial companies in distress could make a reference to the Board for Industrial and Financial

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Reconstruction (“BIFR”), which in turn would either sanction a rehabilitation scheme for the

company or refer it to the High Court for winding up. These proceedings under SICA adopted

the ‘debtor-in-possession’ approach which permitted the incumbent management of the

distressed company to remain in control of running the business during the pendency of the

reference to SICA. In addition, SICA provided for a wide and automatic moratorium in favor of

the corporate debtor against enforcement actions by creditors during the pendency of the

proceedings before the BIFR. This debtor-in-possession approach coupled with the wide

moratorium explains the reputation that SICA became a tool for debtors to protect themselves. It

acquired a reputation for delays as delaying the SICA process was in the interest of the managers

of the corporate debtor, was abused by debtors who used the BIFR as ‘safe heaven’ to siphon off

assets from creditors and gave immunity to the corporate debtor from the pressure of legal

enforcement by its creditors.155

The Banking Law Reforms Committee (BLRC), which was instrumental in formulating the IBC,

noted the negative impact of the debtor-in-possession system on the economy of the country in

its report156:

“Speed is of the essence for the working of the bankruptcy code, for two reasons. First, while the

‘calm period’ can help keep an organization afloat, without the full clarity of ownership and

control, significant decisions cannot be made. Without effective leadership, the firm will tend to

atrophy and fail. The longer the delay, the more likely it is that liquidation will be the only

answer. Second, the liquidation value tends to go down with time as many assets suffer from a

high economic rate of depreciation. From the viewpoint of creditors, a good realization can

generally be obtained if the firm is sold as a going concern. Hence, when delays induce

liquidation, there is value destruction. Further, even in liquidation, the realization is lower when

there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is

primarily about identifying and combating the sources of delay.”

Moreover, this model for insolvency resolution was particularly unsuitable for companies with

concentrated ownership such as family-run businesses, which dominate the Indian corporate

landscape.157 In concentrated ownership systems the management of a company is closely

associated with strong shareholders. In other words, the strong shareholders control the

155 Kristin Van Zwieten, Corporate Rescue in India: The Influence of the Courts, Journal of Corporate Law Studies

(1) (2015) 156 Dr. T. K. Viswanathan, The report of the Bankruptcy Law Reforms Committee Volume I: Rationale and Design

14. (2015), https://ibbi.gov.in/BLRCReportVol1_04112015.pdf 157 Supra note 4, at 1.

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appointment of key management personnel and directors to the company’s board. The affiliation

of these executives is not limited to the company but extends to the controlling group of

shareholders. In the context of other such concentrated ownership systems, it has been argued

that “leaving incumbent management to run the corporation while in bankruptcy plays into the

hands of the strong shareholders and exacerbates the risk of loss to the creditors.158 Because the

corporation is insolvent, shareholders will tend to direct the management to engage in overly

risky projects and gamble for yield with the creditors’ money. It follows then, that to neutralize

this risk and better represent the creditors’ interest in bankruptcy and management should be

removed from control of the firm.”159

Even though many of the general corporate governance concepts and their application carry

through to the governance of an insolvent corporation, or even a corporation that has filed for

bankruptcy, those concepts are modified, sometimes dramatically, by bankruptcy law and its

aims. The most significant changes reflect the critical role that creditors and the courts play in

the corporate governance of a debtor.160

As already discussed, as a company approaches insolvency, the incumbent management being in

control of the company is potentially risky from a corporate governance point of view.

Therefore, with an intention to pre-empt and prevent any loss to the company or its creditors, as

well as to strengthen the power of creditors who are faced with a defaulting debtor, the IBC has

heralded India into the creditor-in-control regime. The IBC has based on the premise that the

limited liability company is a contract between equity and debt. As long as debt obligations are

met, equity owners have complete control, and creditors have no say in how the business is run.

When default takes place, control is supposed to transfer to the creditors; equity owners have no

say.161

Most recently, in the landmark Swiss Ribbons Pvt Ltd &Anr. v. Union of India and

Ors.162case, the Supreme Court of India has captured the benefits of the creditor-in-possession

approach:

158 George Triantis, A Theory of the Regulation of Debtor-in-Possession Financing, 46 Vanderbilt Law Review 401

(1993). 159 David Hahn, Concentrated ownership and control of corporate reorganizations, working paper no. 6-03,

Interdisciplinary program for Law, Rationality, Ethics and Social Justice, 1, (2003),

https://biu.ac.il/law/unger/working_papers/6-03.pdf 160 The Bureau of National Affairs, Inc, Corporate Governance of Insolvent and Troubled Entities, 109 CPS I

(2017), https://www.youngconaway.com/content/uploads/2018/05/Portfolio109DA1-1.pdf 161 Supra note 7, at 10. 162 2019 SCC OnLine SC 73.

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“…the primary focus of the legislation is to ensure revival and

continuation of the corporate debtor by protecting the corporate debtor from its own

management and from a corporate death by liquidation. The Code is thus beneficial legislation

which puts the corporate debtor back on its feet, not being mere recovery legislation

for creditors. The interests of the corporate debtor have, therefore, been bifurcated and

separated from that of its promoters/those who are in management. Thus, the resolution process

is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium

imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the

assets of the corporate debtor during the resolution process. The timelines within which the

resolution process is to take place again protects the corporate debtor's assets from further

dilution, and also protects all its creditors and workers by seeing that the resolution process

goes through as fast as possible so that another management can, through its entrepreneurial

skills, resuscitate the corporate debtor to achieve all these ends.”

Thus the creditor-in-possession approach, from a governance perspective, ensures that the

interest of the corporate debtor is protected. In line with the approach, while powers of control

are taken away from the management of the corporate debtor, they are placed in the hands of a

specialized professional who is chosen by a committee of creditors, and who is made responsible

for conducting the CIRP within a prescribed timeperiod. In doing so, the code has ensured that

assets of the corporate debtor are preserved. Moreover, faced with nowhere to hide and the

potential of losing control of their companies permanently, the promoters have been encouraged

to resolve their debt situation. These factors have led to a sustained M&A investment and

promoted entrepreneurship in the country. The prospect of acquiring significantly valuable assets

at reasonably attractive prices, and the potential of these assets to generate future returns have

fuelled this momentum from both domestic and international investors.163

ROLE OF RESOLUTION PROFESSIONAL/INTERIM RESOLUTION

PROFESSIONAL IN CORPORATE GOVERNANCE

When insolvency proceedings commence against a corporate debtor under the IBC, as discussed

in the preceding section, the responsibility of the management and operation of the corporate

debtor shifts from the corporate debtor’s promoters/board of directors to an ‘Interim resolution

professional’/ ‘Resolution professional’. To ensure the integrity and independence of the CIRP,

163 PricewaterhouseCoopers Private Limited & Confederation of Indian Industry (CII), Decoding the Code: Survey

on Twenty One Months of IBC in India, 2, (2018).

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regulations under the code require the resolution professional to be independent of the corporate

debtor.164 According to the regulations, a person shall be considered to be ‘independent of the

corporate debtor’ if he satisfies the following conditions:

a) is eligible to be appointed as an independent director on the board of the corporate debtor

under section 149 of the Companies Act, 2013 (18 of 2013),where the corporate debtor is

a company;

b) is not a related party of the corporate debtor; or

c) is not an employee or proprietor or a partner.

Moreover, a resolution professional is required to make full disclosures at the time of his

appointment and thereafter, in accordance with the code of conduct. This code requires that

resolution professional or his or her relatives do not knowingly acquire any assets of the

corporate debtor unless it is shown that there was no impairment of objectivity, independence or

impartiality. Further, the Code imposes an obligation of continuing disclosure on the RP in

respect of any pecuniary or personal relationship with any stakeholders entitled to distribution in

accordance with section 53 and 178 of the Code. The Code also prohibits RP’s and their relatives

from accepting gifts or hospitality which undermines their independence.165

The code mandates that the adjudicating authority shall appoint an interim resolution

professional within 14 days from the commencement of insolvency proceedings. 166 The IBC has

provided an elaborate mechanism for ensuring that the corporate debtor continues as a going-

concern, provisions for the management of the debtor as well as allocation of responsibility to

resolution professional, institution of a committee of creditors, etc. has been provided for, with

the objective of ensuring maximisation of the debtor’s assets and early resolution.

The responsibility of the management of the affairs of the corporate debtor has been handed to

the Interim resolution professional until the appointment of a resolution professional. Section 17

of the code deals with ‘management of the affairs of the corporate debtor by the Interim

resolution professional’ whereas Section 20 deals with ‘management of operations of the

corporate debtor as going concern’. Section 17 provides that from the date of appointment of the

Interim resolution professional:

164 Insolvency and Bankruptcy Board Of India (Insolvency Resolution Process For Corporate Persons) Regulations,

2016, regulation 3. 165 Insolvency Professional Agency of Institute of Cost Accountants of India, Code Of Conduct For Insolvency

Professionals,1, (2017), http://www.ipaicmai.in/IPA/Upload/Code-Conduct-IPs.pdf 166 The Insolvency & Bankruptcy Code, 2016, Section 16.

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(a) The management of the affairs of the corporate debtor shall vest in the interim resolution

professional;

(b) the powers of the board of directors or the partners of the corporate debtor, as the case

may be, shall stand suspended and be exercised by the interim resolution professional;

Subsection (2) of Section 17 states that the IRP shall act and execute in the name and on behalf

of the corporate debtor all deeds, receipts, and other documents and shall have the authority to

access the electronic records, books of accounts, records and other relevant records of the

corporate debtor.

In order to ensure a smooth transition and to prevent hurdles in the functioning of the corporate

debtor, Section 19(1) of the code requires the ‘personnel’ of the corporate debtor i.e. the

directors, managers, key managerial personnel, designated partners and employees, if any, of the

corporate debtor167 as well as its promoters or any other person associated with its management

to assist and cooperate with the IRP in the management of the corporate debtor. In the event of

non-cooperation with the IRP, the adjudicating authority has the powers to direct such persons to

cooperate with the IRP.

The IRP is also tasked with the responsibility of making every endeavor to protect and preserve

the value of the property of the corporate debtor and manage the operations of the corporate

debtor as a going concern.168 To do so, the code lists out the actions which the IRP shall have the

authority to carry out, including ‘all such actions as are necessary to keep the corporate debtor as

a going concern.’

One of the most important responsibilities of the IRP, which will be discussed in the next

section, is the responsibility of constituting a committee of creditors (“COC”). This COC shall,

in turn, be responsible for either appointing the Interim resolution professional as a resolution

professional or appoint another resolution professional.169 The code mandates that the entire

CIRP and managing the operations of the corporate debtor shall be undertaken by the resolution

professional.170 The resolution professional shall conduct the meetings of the Committee of

creditors171 and shall prepare an information memorandum for the purpose of preparing a

167 The Insolvency & Bankruptcy Code, 2016, Section 5(23) 168 The Insolvency & Bankruptcy Code, 2016, Section 20. 169 The Insolvency & Bankruptcy Code, 2016, Section 22. 170 The Insolvency & Bankruptcy Code, 2016, Section 23. 171 The Insolvency & Bankruptcy Code, 2016, Section 24.

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resolution plan.172 In order to protect the assets of the corporate debtor, the resolution

professional is tasked with ‘preserving and protecting the assets of the corporate debtor.’173

ROLE OF THE SUSPENDED BOARD OF DIRECTORS

As pointed out earlier, Section 17 of the Code says that once the IRP is appointed ‘powers of the

board of directors or the partners of the corporate debtor, as the case may be, shall stand

suspended and be exercised by the interim resolution professional’. However, confusion has

arisen because of the phrasing of section 24(3) which requires a resolution professional to give

notice of the meeting of the committee of creditors to the members of the “suspended board of

directors or partners of the corporate debtor”. The confusion centers on the moot question i.e.

whether the board of directors is suspended or only their powers? In other words, do the directors

of the corporate debtor continue to remain directors in their individual roles while not having the

collective powers as ‘the board of directors’ or do they cease to be directors as well?

A careful reading of section 17(1) reveals that the section speaks about suspending the ‘powers’

of the board of directors, not the board of directors. The word “suspended” qualifies “powers of

the board”, and not “board of directors” itself.174 The board of directors continues to exist but is

only rendered powerless with respect to the acts for which the law empowers it. Nevertheless,

the individual directors continue to be directors of the corporate debtor in the register of the

registrar of companies (“ROC”). Section 19 of the code, in fact, requires the personnel, which

includes directors to render assistance to corporate debtors. In addition, these directors are also

invited to attend the meetings of the committee of creditors.

Moreover, in Steel Konnect (India) (P) Ltd. v. Hero Fincorp Ltd175 the appeal before NCLAT

was filed by the Directors of the debtor company against which the insolvency proceedings

under Section 7 stood admitted by the adjudicating authority. The respondent creditor challenged

the locus of the debtor Directors on the ground that an interim resolution professional has been

appointed who has already taken over the management of the corporate debtor and the

powers of the Board of Directors, since then has stood suspended in terms of Sections 17(1) (a)

and (b) of the IB Code. NCLAT dismissing the contention of the respondent creditor reasoned

that though the functions of the Board of Directors or partners of corporate debtor

172 The Insolvency & Bankruptcy Code, 2016, Section 29(1) 173 The Insolvency & Bankruptcy Code, 2016, Section 25. 174Shikha Bansal Resolution Professional vis-à-vis Board of Directors: Governance of InsolventCompanies, 1,

(2018), http://vinodkothari.com/2018/03/resolution-professional-vis-a-vis-board-of-directors/ 175 2017 SCC OnLine NCLAT 390.

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are suspended and their power can be exercised by the interim resolution professional, such

exercise of power is limited to the extent of the purposes mentioned under Section 17(2) of the

IB Code. The Directors do not cease to be Director(s) or member(s), since they are

not suspended but only their function as Board of Director(s) is suspended and therefore,

the Directors have locus to file an appeal under Section 61 of the IB Code and need not appeal

through the interim resolution professional.

Recently, with regard to whether members of the suspended directors should be given copies of

the resolution plans and other confidential documents that the COC considers during the

meetings, The Supreme Court in Vijay Kumar Jain v. Standard Chartered Bank &Ors.176held that

the scheme of the Code makes it clear that the directors, though not members of the COC, have a

right to participate in every meeting of the COC. In addition, for discussion on resolution plans,

they also have the right to receive copies of the resolution plans which are presented to the COC.

Although this decision does give rise to a number of questions, it makes the conduct of the COC

meetings more transparent.

ROLE OF THE COMMITTEE OF CREDITORS

One of the most important aspects of the insolvency and bankruptcy code’s ecosystem is the

Committee of Creditors (“COC”). The IRP has the responsibility of constituting the COC after

duly collating all the claims received against the corporate debtor and due determination of its

financial position.177 This committee consists of mainly all the financial creditors of the

corporate debtor who shall have voting rights. Nevertheless, the code prescribes that the notice of

its meetings shall also be given to the suspended board of directors, partners and operational

creditors if the amount of their aggregate dues is not less than ten percent of the debt, although

they shall not have the right to vote. The proviso to Section 21(2) clarifies that a director who is

also a financial creditor who is a related party of the corporate debtor shall not have any right of

representation, participation, or voting in a meeting of the committee of creditors.

For protecting the interest of the corporate debtor as well as its creditors, the code mandates that

the RP shall not take important decisions concerning the corporate debtor’s finances, its

operations or its management as are provided under section 28(1) without the prior approval of

the committee of creditors. In fact, any decision shall be approved by a vote of not less than 60%

of the voting shares for it to be valid. The Committee of creditors also has the responsibility of

176Writ Petition (Civil) No.1266 Of 2018. 177 The Insolvency & Bankruptcy Code, 2016, Section 21.

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examining the resolution plan submitted by the resolution applicant and confirming that it meets

the requirements laid down under section 30(2).

A resolution plan, in order to be successful, has to be approved by a vote of 60% of the voting

share of the financial creditors, after the COC has satisfied itself about the feasibility and

viability of the resolution plan. Therefore not only does the Committee of creditors have a key

role in the governance of a corporate debtor while it is in the midst of the insolvency

proceedings, but it is also pivotal in the resolution of the insolvency and maximization of the

assets of the corporate debtor.

MORATORIUM AND STRICT-TIME LIMIT FOR THE CIRP

Given the past experience of the assets of the corporate debtor being siphoned off or losing its

value, the code makes express provisions to prevent the same. Section 14 of the Code provides

that from the insolvency commencement date, the adjudicating authority shall declare a

moratorium which prohibits certain actions being undertaken during the pendency of the

insolvency proceedings, such as:

a) The institution of suits or continuation of pending suits or proceedings against the

corporate debtor including executions of any judgment, decree or order;

b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its

assets or any legal right or beneficial interest therein;

c) any action to foreclose, recover or enforce any security interest created by the corporate

debtor in respect of its property;

d) the recovery of any property by an owner or lessor where such property is occupied by or

in the possession of the corporate debtor.178

The prohibition from taking the above-mentioned action ensures that the assets of the corporate

debtor are not harmed in any manner, that the management or the promoters of the company

cannot extract any undue benefit from the corporate debtor and that the insolvency resolution

process remains unaffected.

In addition, another lacunae of the debtor-in-possession regime under the erstwhile SICA was the

inordinate delays which often worked to the advantage of the promoters/management of the

corporate debtor. Under the IBC regime, the code mandates that the CIRP shall be completed

178 The Insolvency & Bankruptcy Code, 2016, Section 14.

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within a period of 180 days, extendable once up to 90 days and no more.179 Although it is an

ambitious challenge and delays continue to take place, it is nevertheless a welcome initiative

from a governance perspective.

CONCLUSION

A recent survey by the PricewaterhouseCoopers (PwC) found that more than two-thirds of the

lenders preferred insolvency resolution through the IBC for the recovery of their dues because it

not only enhances the chances of recovery but also ensures a quicker turnaround time.180 This is

in sharp contrast to the inordinate delays and the diminishing value of the assets of the corporate

debtor in the pre-IBC era.

With the particular characteristics of the Indian economy in mind and decades of inactive legal

machinery, the IBC has definitely brought a new wave of optimism in India’s corporate-legal

setup. While it has certainly propelled India’s status in the ‘ease of doing business’ rankings, at

the same time it is quietly going about optimizing the governance mechanism of the corporate

entity during the insolvency or pre-insolvency phase. Moreover, the shift to the creditor-in-

control regime and its implementation through the IBC will certainly strengthen the low power

of the creditors who for decades have faced immense challenges in recovering their dues.

179 The Insolvency & Bankruptcy Code, 2016, Section 12. 180 Supra note 14, at 15.

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WHITE COLLAR CRIMES: AN ISSUE SELDOM ADDRESSED

-Rishika Garg181

Abstract

The technological advancements that we see today are worth praising to the skies. However,

every good thing comes with a cost which here is the birth of a whole new category of crime

namely, ‘White Collar Crimes’. The definition of the same is debatable hence; a definition of

general acceptance is yet to be formed. White Collar Crimes are an outcome of the unethical

trade practices that result from the economic instability in the country. These include different

financial frauds, money laundering, tax evasion, etc. that invokes serious concern pertaining to

the Corporate Affairs of the economy. The term ‘White Collar Crime’ is often confused with the

term ‘Economic Crime’ and the two are generally considered synonymous to each other,

wherein fact, both the terms fall under separate umbrellas of crime. White Collar Crimes are

breeding at the drop of a hat in every corner of the Indian society; however, India is not home to

a score as high as the other nations around the globe. This perhaps does not negate the fact that

the resultant loss from such crimes is humongous that also contains in itself the inevitable and

irreversible damage to the public morality. Lack of awareness, however, keeps the common man

from acquainting himself with the nature and existence of such category of crimes and the

categorical complexities make the issue nothing but difficult to identify. The principal root of the

problem is trade competition where winning over the opponent requires shortcuts such as

forgery, corruption, manipulation, etc. Hence, the following research work aims at reading the

trends and shifts in the occurrence of White-Collar Crimes in India, what chain of reaction

causes the ill-effects of the nation’s economy and how exactly the issue needs immediate

attention of the country’s legislature.

Keywords: White Collar Crime, Legislation.

181B.Com. LL.B. (Hons.) Student, Institute of Law, Nirma University, Ahmedabad, Gujrat.

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BIRTH OF A DEBATE

The technological advancements that we see today are worth praising to the skies. However,

every good thing comes with a cost which here is the birth of a whole new category of crime

namely, ‘White Collar Crimes’. The newer form of criminality pertains to the upper and middle-

class people and is executed by them in the course of their occupation.182 Criminal law has been

one of the most engaging bifurcations of jurisprudence.183 Not every criminal is a devil in

disguise and not every crime glorifies violence. As the name puts forth, White Collar Crime is an

unlawful act frequently committed in enormous and complex organization.184 White-collar crime

is commonly referred and covered under the ambit of socio-economic crime185 because of the

direct effects which it embosses on our society and economy. These offenes are perpetrated by

the adept in the areas of management, finance, medicine, and so on. White-collar crime hold

within it, the following offences like corruption, embezzlement, tax evasion, fraud, money

laundering, insider trading, misrepresentation of financial statements that are committed mainly

by corporations, their owners, executives or employees as well as by government or municipal

officials and members of the professions.186

Brief history

Edwin Sutherland was the first to make an attempt to define the phrase “White Collar Crime” as

a crime performed by a person who has high esteem during the span of his occupation.187The

crimes arising out of acts of corporations and other legal entities were also inculcated under his

definition. Sutherland, also manifested that crimes were not perpetrated by lower-class offenders

exclusively.188 His study of white-collar crime was persuaded by the view that criminology had

erroneously concentrated social and economic determinants of crime.189 He put forth that the

ignorance of lawbreaking by the elite class was fundamentally due to the fact that there was no

exhibition of crimes committed by the upper class in the official criminal records.190 He went on

to explain the reason behind the same and said that people of the elite socio-economic class are

182

Judith M Collins & Frank L Schmidt, Personality, Integrity and White Collar Crime: A Construct Validity Study

Personnel Psychology, 46 SAGE PUBLICATIONS, 295 (1993).

183SnigdhaKuriyal&AnjumParvez, Depletion of our economy: a study on white collar crimes in India, 4 IJLDAI

327,326-338 (2018).

184Dr. Sanjay I. Solanki, A Critical Study on White-Collar Crimes in India, 6 IJBMI, 52, 52-58, (2017). 185

JupiGogoi, Socio-Economic Offences, Annual Survey of Indian Law, 49 INDIAN LAW INSTITUTE 1001, 1001-

1024, (2013).

186HartmutBerghoff& Uwe Spiekermann, Shady business: On the history of white-collar crime., 60 BUSINESS

HISTORY 289, 289-304, (2018).

187Edwin H. Sutherland, White Collar Crime, 59 Yale L. J. 581, 581-585, (1950).

188 Id. 189

G. Nagarajan& Dr. J. Khaja sheriff, White Collar Crimes in India, 1 IRJC 157, 157-164, (2012).

190ArjanReurink, From Elite Lawbreaking to Financial Crime: The Evolution of the Concept of White-Collar

Crime, MPlf Discussion Paper 16/10, 3 (2016).

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more powerful, both politically and financially and as a consequence, they escape arrest and

conviction to a substantial extent than the persons who do not possess such power.191 By coming

up with the concept of white-collar crime, Sutherland has made us realize that upper-class people

perpetuate their own forms of crime.192

Attributes

The white-collar crimes are separate from other crime because of their remarkable

attributes193which include a crime that is committed by a person of high esteem and social status,

during the course of his profession, resulting in the violation of trust. Ordinarily, the illegal act is

intentional and the modus operandi of such act is motivated by fraudulence and not by force. The

motive behind committing such acts is extreme greed of material White collar crime, particularly

violent crime, is our nation’s one-track mind.194 White-collar crime holds sway over the media,

public, the legislature, the judiciary and we look at it in a slightly different way than any other

crime. On one side of the coin, it perplexes us as to why the well-paid professionals commit it,

while on flipping the coin, the complicated financial course of action bothers us because they are

often cumbersome to understand. The agony caused by white-collar crimes is mostly self-

evident. For example, insider trading results in loss to investors, tax evasion results in reduction

of revenue, so on and so forth. These crimes cause revenue and foreign exchange loss and create

inequalities in the economy. White Collar Crimes consists of complexity and uncertainty, which

is prima facie not identifiable. As a bonus to this, recognizing the victims is tough as they are

themselves unaware of their victimization. The plethora of crimes come under the ambit of

White Collar Crime, yet all of them are committed with the same intention of having financial

gain through deceit. These include different financial frauds, money laundering, and tax evasion

and so on, that invokes serious concern pertaining to the Corporate Affairs of the economy. The

competitiveness in the market is essentially responsible for the commission of White Collar

Crime. The crooks in various professions tend to become unprincipled because of their

carelessness during their earlier stages of life when people gained training for building their

character.195

Historically, white-collar crime was not classified as a kind of wrong-doing under the umbrella

of crime. This is because people committing white-collar crimes were not perceived as ‘typical

191

ArjanReurink, “White Collar Crime” The Concept and its potential for the analysis of financial crime, 57(3) European Journal of Sociology,387, 385-415, (2016) doi:10.1017/S0003975616000163 192

Supra note 9 at 3. 193VijayanandPandeya, Social and Economic Offences in India, Resource Material Series No. 15, UNAFEI, Japan,

204, (1976). 194JM Olejarz, Understanding White Collar Crime, HARVARD BUSINESS REVIEW, 110, 110-111, (2016)

https://hbr.org/2016/11/understanding-white-collar-crime 195

Supra note 2.

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criminals’ who were engrossed in theft, or murder.196 These crimes have proved to have an

adverse impact on the social as well as economic framework of the state and have become a

stumbling block for future development.

PRINCIPAL ISSUES ASSOCIATED

Corporate criminals are not perceived as criminal identities, and are not really subjected to

criticism.197 A white collar criminal is a person of elite socio-economic class in the society,

whose acts in an illegal manner for financial gain. The criminal commits the illegal acts during

the course of his occupation in a professional setting, where these criminal activities are often

concealed. Further, the person committing white collar crime does not consider his action as

crime and has no feeling of guilt. In case the criminal is recognized, he hires a top white-collar

attorney. The punishment awarded to white collar criminals is mostly milder than that of street

criminals.198

The dynamic socio-economic scenario of the society along with expansion of wealth has given

open window for commission of these crimes. Keeping in mind, the growing instances of white

collar crimes, the Law Commission in its 29th

Report observed that technological advancements

and monopolistic behaviour in business world have led to situation of increased white collar

crimes.199 The principal root of the problem is competition in business community where

winning over the opponent requires shortcuts such as forgery, corruption, manipulation etc. In cases of White Collar Crime, one of the issues raised is, whether or not the accused actually

knew that he acted in an illegal way. This essentially means that the facts alone are just drop in

the ocean. In reality, it is the perception of the accused which needs attention for ascertaining his

or her intention.200 The accused tend to defend them by contending that they were uninformed

about violation of a law, in view of their actions.201 Determining the intention in a definite

manner becomes more ticklish when a person relies upon on the advice of an expert to make

decisions. For instance, if an accountant tells you that it is legal to show inflated profits to attract

more and more investors, when in reality this is illegal, so, should you now be sent behind the

bar for the same? The answer to this question remains ambiguous. This in turn provides room for

196

Supra note 2. 197Supra note 2 198

Petter Gottschalk, Investigating Fraud and Corruption: Characteristics of White-Collar Criminals, 1 J

FORENSIC SCI CRI INVES. 1, 2-7 (2016).

199Supra note 2

200Supra note 2

201Id.

~ 66 ~

the promotion of White Collar Crime, as the experts with eyes wide open take the shelter of their

uninformed clients to commit it.

Our country is in a developing stage, and there exists various unwelcomed issues like illiteracy,

starvation, poverty and ignorance which exert influence on the life of the people. In such a

scenario, white collar crimes are obligated to grow by leaps and bounds. Curbing these crimes

has become a critical issue for the criminal justice system of our country. White Collar Crimes

are an outcome of the unethical trade practices that result from the economic instability in the

country.202 The quantum of loss to life caused by corporate adversity such as testing of

pharmaceuticals in an inadequate way, go above and beyond those caused as a result of murder.

Despite being of non-violent in nature, the white collar crimes affect a number of people and the

monetary damage significantly. Any individual person can become a victim of white collar

crime. The principal root of the problem is trade competition where winning over the opponent

requires shortcut such as forgery, corruption, manipulation and so on.24There is an increase in the

number of white collar crimes due to economic upswing and technological advancement. Law

enforcement is sometimes hesitant to follow these cases because they are difficult to keep an eye

on and investigate.

SOME OTHER CAUSES

One of the paramount reasons for white collar crime, recognized at present, is criminal

opportunities. Without opportunity, there can be no crime.203 Opportunities are one of the

important causes of white-collar crime, where the opportunity structures may be different from

those of other kinds of crime. These differences create special difficulties for control, but they

also provide new openings for control.204

Globalization and liberalization remain yet other far-reaching reasons that are to be blamed for

white collar crime.205 The dynamic socio-economic fabric of the society combined with

increased wealth and prosperity has bestowed opportunities for such crimes. Out of the

abundance of the factors responsible for white collar crimes, the economic and industrial growth

has been the most potential cause for it. The Law Commission in its 29th

Report made the

following observation that technological advancements and monopolistic trends in business

202

Aashish Ahuja, “Analysis Of White Collar Crimes In India”, i Pleaders https://blog.ipleaders.in/analysis-white-

collar-crimes-india.

203Marcus Felson, Ronald V. Clarke, Opportunity Makes the Thief, Paper 98, Policy Research Paper Series

https://pdfs.semanticscholar.org/09db/dbce90b22357d58671c41a50c8c2f5dc1cf0.pdf 204

Benson Ml & Simpson Ss, White-Collar Crime: An Opportunity Perspective (2009).

205Supra note 2.

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world have provided a route to immense increase in white collar crimes.206 From every now and

then, these crimes are committed solely to hold on to the competitive business. For instance,

educational institutions, receiving public-aid or grants, present false account merely in view of

retaining their existence. Similarly, in order to claim tax exemption, the members of corporations

who enjoy high status in the society tend to conceal their actual gains and losses by producing

fabricated financial statements.The high socio-economic status of white-collar criminals is one of

the reasons responsible for the abundance of white-collar crime. These criminals are powerful

enough to handle their occupation in a judicious way. As a result, a person affected by it, hardly

knows that they are being victimized. Furthermore, the common man is also somewhat

indifferent towards such crimes, thus teething problems in prosecution and punishment of white-

collar criminals.

It is often alleged that Judges become supportive to the white collar criminal because they belong

to the upper class of the societal setup. But there is no available evidence to support the same.

But, if this allegation derives its basis form the large number of acquittals, it may be emphasized

that it is not because of distinction that exists between criminality and immorality pertaining to

white collar crimes.207

CONCERN

White collar crimes are responsible for abusing the position of trust and power. Officers in

corporation fix prices to wash out the competitors out of the business. White collar crime is often

difficult to detect, in comparison to other crimes. This is because loss caused to victim may not

be evident immediately after the illegal act is done, and further, the crime may have sophisticated

schemes and cover ups. The failure to characterize the correspondent offences into categories in

terms of its mode of operating, characteristics, impact on victims, has been proved to be one of

the major drawback of studies of white collar crime.208Even after having legislations for curbing

this serious problem of white collar crime, the white collar criminals go unpunished. Due to their

privileged position, the white collar criminals, the prosecution becomes difficult. This is because,

first of all, they can afford to hire the best lawyers to represent them and have a political

advantage, enabling them to influence legislative process in their favour.

White collar crimes cannot be recognized easily because the adverse impacts that follow are

stretched to a large number of people. For instance, bribery can lead to over imposing of

206

29th, Law Commission of India (1966).

207Supra note 2. 208Herbert A. Bloch, Gilbert Geis, "White-Collar Crime" in Man, Crime and Society: The Forms of Criminal

Behavior, New York Random House, 394-404 (1962)

~ 68 ~

payment for public projects which would, then result in higher taxes for all citizens of a country.

Such white collar crimes seem to be ones in which there is no injured party at first place, because

the facts of the crime are very often hidden. However in reality, a substantial harm is caused, yet

victimization is scattered.

A lot of people get away with white collar crimes. This is because; most of the crimes like

these are dependent on trust. People are often vested with certain roles and responsibilities,

but they take these responsibilities as advantageous in their favour and abuse the good-faith.

The case related to white collar crimes are not easy to understand. They are often complex

and complicated to be understood in one go. Over and above this, if a defendant does not

cooperate in some manner, a lot of time would be consumed to know about the extent of the

crime. It might take months or year to unravel. The law enforcement agencies and the

prosecutor’s office do not have enough people who have substantial backgrounds in

forensic accounting. Most law enforcement is geared towards prosecuting violent crimes,

like sex crimes, crimes related to bodily injury, so on and so forth. Another reason

responsible for getting away with white collar crime is hiring good attorneys. If one can

afford an exceptional legal counsel, the prosecution is likely to cut a deal with you rather

than risk losing So long as the defendant receives some punishment and pays some

restitution, it’s often deemed better than nothing happen at all.

Because of the complex nature of these crimes, it becomes difficult to determine their

nature, i.e., whether they are if criminal nature or of civil nature. In cases, when there is

doubt as to the nature of the white collar crime, it is often declared to be one of civil nature.

Police plays a major role in determining the nature of these crimes. The limited knowledge

related to business affairs which might be insufficient to assess the correct nature, may lead

to wrong judgment by the police. The confusion regarding the civil and criminal nature of

crime may allow the offender to flee the investigation, resulting in no action against him.

PERCEIVED HARM

Commentators have noticed the enormous consequences of white collar crime on the economy

and have concluded that white collar crime result in greater total harm than other crime.209 The

recognized harm from white collar crime is subject to two conditions. The debate whether the

criminal activities result in any harm continues, in light of criminal enforcement of some

209J. Kelly Strader, The Judicial Politics of White Collar Crime, 50 HASTING L. J. 1266, 1199-1273 (1999).

~ 69 ~

economic regulations. For instance, it has been long debated that whether the securities market

and the investors are harmed, or benefitted by the insider trading.210 Second, it is difficult to

identify a particular victim, especially when it is generally agreed that the act of few other white

collar crime is toxic.211 For example, violating the provision of law relating to currency, causes

little harm, i.e., only one party, the Government is affected in a minor way. Similarly, in case of

the offence of bribery, the defendant violates large public trust, and hence the victims are

included in this manner.212

Assessment of the overall economic impact of white collar crimes supersedes the complicated

problem to define and to draw its connection to moral categories. Undoubtedly, it is the people

belonging to weaker strata of society, who have to suffer massive damage.213 Social Conflict

theory envisages that the one with power and wealth of society determine what is right and what

is wrong, i.e., the rich can behave like financial magnate, just because they make laws.214 So,

there arises a question as to why would the people in power punish their own elite members?

The severity of the punishment for the offence is highly dependent on the superiority of the

offender. However, it remains unclear whether or not the superior offenders be punishes more or

less severely.215 In general, the superiors set example for their juniors, therefore, considering this

fact, the senior executives who commit any sort of white collar crimes should receive harsher

penalties than juniors. This sets an example and the company sends a powerful message to other

employees regarding the compliances, restraining the employees from committing wrong doing

in the future.

Every coin has two sides, and both the sides cannot be favourable. Applying this analogy, it is

seen that, though the company, by severely punishing the senior executives, set an example for

future, but at the same time it can cause loss to the company. This is because, litigation risks and

media coverage of senior offenders are likely to become severe, thus hurting the company’s

reputation among its stakeholders. In addition to this, the executives at the company may decide

not to disclose, crucial information related to the crime, because of the fear of losing its client

coverage and over all reputation in the market. Further, it is costlier to recruit a senior executive

in replacement, than a junior, thus adding to the company’s cost. As a result, the company

210

Richard W. Painter, Don’t Ask, Just Tell: Insider Trading After United States v. Oo’Hagan, 84 VIRGINIA L.

REV. 153,168 (1998).

211Supra note 17.

212Leo Katz, Criminal Law In A Companion To Philosophy Of Law And Legal Theory 90-93 (1996). 213

Supra note 5.

214Id. 215

Paul Healy, George Serafeim, “Who Pays for White Collar Crime?Working Paper 16-148 HARVARD

BUSINESS SCHOOL, 11, 1-48 (2016).

~ 70 ~

wouldpunish the high-performing senior offenders less severely, even when they have

committed a wrong.

LIMITED MEDIA COVERAGE

Corporate criminals do not receive the title of criminal identities. In comparison to the number of

its incidents, arrest for white collar crimes is rarely made. Socio-economic crimes, today, have

become as a crime of strict and absolute liability. Thus, if not completely, but as such relevance

of mens rea or guilty mind has been decreased to a large extent, in relation to white collar

crimes.216 It is mostly encountered that the white collar criminals do away with the punishment

primarily because of the faulty investigation and prolonged prosecution and trial. Therefore, it is

need of the hour to ponder upon the investigation and trial procedure of white collar crimes. It is

true that certain efforts have been undertaken to address on this aspect of the concern. Creation

of special courts or tribunals for the trial and punishment of white collar crimes is quite often

suggested. It is not the creation of such institutions which matter more, but the men who run

these institutions. Once the special courts or tribunals are created, it does not mean that the white

collar crimes would be handled with more efficacies or that these crimes would be wiped out.

Criminal law is part and parcel of society and not only the enforcement agency is responsible for

its success or failure but also the investigating and prosecution agencies. While remaining self-

reliant from the influence of any criminal law and its agencies, the acts of these agencies need a

combined coordinated effort.217

The Law Commission of India quotes the Santhanam Committee’s Report as under which talks

about the advent and progress of white collar criminality in India218 “The advance of

technological and scientific development is contributing to the emergence of 'Mass Society' with

a large rank and file and a small controlling 'Elite' encouraging the growth of monopolies, the

rise of a managerial class and intricate institutional mechanisms. Strict adherence to a high

standard of ethical behaviour is necessary for the honest functioning of the new social, political

and economic processes. The inability of all sections of society to appreciate in full this need

results in the emergence and growth of white-collar and economic crimes” and the consumers

should be provided with enough information in order to make a ration purchasing, keeping in

mind the complexities in today’s market.

THE AFTERMATH (SOLUTIONS)

216

Dr. Sanjay I. Solanki, A Critical Study on White-Collar Crimes in India, 6 IJBMI, 54, 52-58, (2017).

217Id. 218

Supra note 28.

~ 71 ~

The white collar criminality erodes the moral and ethical values. It is through education that we

can combat and control these crimes and this would be possible only by undertaking certain

measures, as a result of which, the welfare of the future generation can be secured. The higher

section of the society and the public services is in much more need for reinforcement of the

morals, as compared to the weaker sections. Further, to achieve national welfare, it is necessary

for us to develop group norms and ethics which will derive their basis from national honesty and

integrity. This is possible only when the character of the person is built at grass-root level with

the intention of feeling of genuine concern for the nation among the youth, in order to make them

ready to lead an honest and ethical life. The common man is generally not familiar with the

complexities of white collar crime, and hence fails to understand them. The media plays a major

role in spreading awareness about any issue prevailing in the society. Hence, public awareness

should be created against the white collar crimes through various modes of media, including

audio-visuals, press clippings, etc. Awareness camps should be organized and the people should

be imparted with legal literacy. However, it is often noticed that, the media also refrains from

showing the real side of white collar crime, as they are themselves involved in it. The whole

story comes and revolves around the same discussion, i.e., the powerful sections of the society

have charge over everything, and thus they become successful in hiding their deeds by bribing,

committing yet another crime.

Our criminal justice system does not have umbrella legislation for white collar crimes. It is well

accepted fact that, a completely new legislation would definitely take huge time and effort to

come into force, but a change is needed at this hour. This will ensure that those who are

prosecuted for white collar crimes do not flee from the punishment because of their high status.

Tribunals that shall only deal with cases of white collar crimes should be created and authority of

final decision shall also be given to them. This will not only reduce litigation burden on the

courts, but, it will also ensure that fair justice is imparted, because the head of such tribunals will

have expertise in business affairs. Some stringent regulatory laws and rigid punishment for white

collar crimes may also help in reducing the number of such crimes, as it will set an example for

the future. Another way out could be, constitution of a White Collar Crime Commission

nationwide, which would look after the crimes and all its facets. This would ensure that the

crimes do not go unreported and that they are properly investigated.Criminal deterrence uses

severe penalties which includes prison sentences for a long period of time and heavy fines to

deter white collar crimes. However, it is unclear as to how effective this is at reducing white

collar crime. One of the problems associated with criminal deterrence is that it is responsive

~ 72 ~

instead of proactive. In simple words, the damage has been done and it cannot be undone. Thus,

there is a need to change this dynamic. These changes include training those included in the

financial activity to help in preventing white collar crime.

Business ethics training is another way in which the white collar crime can be combated. In this,

the business professionals are provided education on different dimensions of business activities.

Its major aim is to enable the employees to identify and tackle the ethical problems and develop

their moral feeling, which are implied in day to day actions and choices. Most of the businesses

provide training and workshops to their employees. Many of these are comprehensive and cover

a wide variety of situations that includes white collar crime. A number of companies are

instituting more concentrated training in the area of white collar crime. This education helps in

the identification of white collar criminal activity by training key personnel to spot activities

generally associated with white collar crimes. Many of these training sessions are given by ex-

cons who were once business professionals themselves but lost everything by getting caught and

convicted of white collar crime.

CONCLUSION

White collar crimes might have been ignored earlier, but they have continued to exist in the

society from a long time. It is clear from the above discussion that the technological

advancements that we see today have led to the birth of a whole new category of crime namely,

‘White Collar Crimes’ The Indian penal code was enacted in 1860, and the word White Collar

Crime is not mentioned anywhere in the code. However, the aspect of white collar crimes are

very wide and there are certain white collar crimes such as corruption, bribery, counterfeiting of

coins and government stamps, offences relating weight and measures, adulteration of foods and

drugs, misappropriation of property, criminal breach of trust, cheating and dishonestly inducing

delivery of property, forgery etc that are closely related to offences defined under Indian penal

code. But, the extent of the white collar crimes has gone so far, that there is an urgent need to

create umbrella legislation to address the problem of the same. The effects of white collar

crimes, which look victimless at first place, have made the victims all over India. They need to

be looked at immediately in order to address these not so visible crimes. The common man is

unaware about the complexities of the white collar crimes and hence cannot assess whether or

not, they are one of its victim. In order to solve this problem, the media can play a major role by

educating the masses and influencing their opinion on white collar crime. However, it is believed

~ 73 ~

that media is controlled by the elites which lead to lesser reporting of white collar crimes on

media, but in reality it is the invisible nature of the crime itself, which is responsible for the

same. After analysing the problem of white collar crime thoroughly, it has been noticed that this

type of crime takes birth from within the organization by those who are in powerful positions and

the ones who have been entrusted with some authority. Such people take advantage of their

positions and act in an illegal manner for their own financial gain. Our country is in a developing

stage, and there exists various unwelcomed issues like illiteracy, starvation, poverty. In such a

scenario, white collar crimes are obligated to grow by leaps and bounds. Curbing these crimes

has become a critical issue for the criminal justice system of our country. Therefore, the

constitution of Tribunals and a Commission, as suggested in the above discussion would solve

the problem to a great extent. Every big change takes huge time and efforts, but the change has to

come sometime, and this should not be delayed anymore, otherwise, this problem will continue

to grow and would cause greater harm.

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GOOD GOVERNANCE: THE SYNONYM OF CORPORATE

GOVERNANCE IN INDIA

-Anuja L. Parulekar, Sahil S. Kadam219

'As an alcoholic, you will violate your standards quicker than you can lower them'.

-Robin Williams

Abstract

In the context of corporate governance, when the above quote is made applicable to the money-

minded, intemperate possessors are the alcoholics who tend to violate corporate ethics to attain

their avarice. The concept of governance is as old as human civilization. Corporate governance

refers to the way a corporation is governed. It is the system of rules, practices, and processes by

which a firm is directed and controlled. Good governance is inherent to the very being of the

company. Corporate governance is about corporate decency, lucidity, and responsibility.

According to Adrian Cadbury, Corporate governance is concerned with holding the balance

between economic and social goals and between individual and communal goals. The

governance framework is there to encourage the efficient use of resources and equally to require

accountability for the stewardship of those resources. The aim is to align as nearly as possible

the interests of individuals, corporations, and society. The need for good corporate governance

has stemmed as a result of the growing concern about the non-compliance of standards of

reporting and otherwise by board of directors and management imposing heavy losses to the

investors. Needless to say, the country at large is also affected by this degree of mismanagement.

This paper tries to summarize the importance of Good Corporate Governance along with

situations that deliberate the role of Good Corporate Governance. It also highlights the role of

government in good corporate governance, accountability of corporate decisions, significance of

corporate behavior, corporate governance and corporate social responsibility amongst others.

As the concept of good corporate governance revolves around the age-old saying 'A stitch in

time saves nine'.

Key Words- Accountability, Good corporate governance, Mismanagement

INTRODUCTION

219 Students, 5th Year B.B.A- LL.B (Hons) School of law, University of Mumbai.

~ 75 ~

"The real mechanism for corporate governance is the active involvement of the owners".

-Lou Gerstner

Corporate Governance is a comprehensive revelation of information and an account of an

organization's pecuniary position, performance, ownership, and governance, relationship with

shareholders and adherence to business ethics and values. The term governance is a wholesome

term meaning the act of managing a corporate entity. Efficiency, as well as globalization, are

significant factors urging corporate governance.Corporate Governance is the soul of the

organization and must be clinged onto while getting into any business activity. A Corporation is

produced to address objectives that are much more than generating products and services, it has

to serve the larger purpose of satisfying multi-level needs of the society. Healthy Corporate

Governance practices are no longer the need of the law but have become pivotal for the very

survival of the organizations; the current economic calamity has proven that beyond doubt.

Good Corporate Governance is the skill of administering and controlling the organization by

balancing the needs of various stakeholders. Stakeholders would include everyone ranging from

the Board of directors, Management, Shareholders to Customers, Employees and Society. One of

the aspects of Corporate Governance is that the notion of economic efficiency must be followed

when directing, managing and controlling organizations. For instance, it is truism that

corporations exist to make profits and hence the profitability and proceed generation ought to be

the aim for which the corporate must aspire for. Good Corporate Governance means that the

processes of disclosure and transparency are followed so as to provide regulators and

shareholders as well as the general public with precise and accurate information about the

financial, operational and other aspects of the company.220 Corporate Governance is a term that

means many things and the bottom line for good corporate governance is a dual aim of pursuing

profits and doing so in a transparent and accountable manner. Corporate Governance provides

guidelines to a company as to how it can be directed or controlled such that it can fulfill its goals

and objectives in a manner that adds value to the company and is beneficial for the stakeholders

in the long term. Corporate governance is a multidisciplinary field of study which covers a wide

range of disciplines – accounting, consulting, economics, ethics, finance, law, and

management221The main function of corporate governance is to make agreements that describe

the privileges and tasks of shareholders and the organization. In case of disagreements because

220

https://www.managementstudyguide.com/what-is-good-corporate-governance.htm 221

S. Li and A. Nair, “Asian corporate governance or corporate governance in Asia?” Corporate Governance: An

International Review, vol. 17, no. 4, pp. 407-410, 2009.

~ 76 ~

of conflict of interest, it is the responsibility of corporate governance to bring everyone together.

It also has the function of setting standards against which corporations work can be managed and

administered222.Corporate governance has played a very important role in the present economic

condition of India. India successfully started its move towards an open and welcoming economy

in

1991. From then onwards it has seen an amazing upward trend in the size of its stock market,

that is, the number of listed firms was increasing proportionately.223

NEED AND IMPORTANCE OF GOOD CORPORATE GOVERNANCE:

The last decade has witnessed Corporate Fraud and governance failure frequently which is why

we require good corporate governance in the country. Our country provides proper norms and

laws which meet the international standards to govern a corporation. The need for good

corporate governance can be analyzed from the given points:

1. Corporate has a lot of shareholders with different perspectives towards corporate affairs,

corporate governance shields the shareholder's democracy by executing it through its

code of conduct.

2. Large corporate lenders are becoming a challenge to the management of companies as

they influence the decision making the power of the companies. Corporate governance

proves to be a code in such situations.

3. Past years have seen a number of frauds when it comes to corporate, corporate

governance helps to revive that confidence in the investors again which was shaken due

to such frauds.

4. Corporates give ray of hope and increase expectations of the general public and the

society in which they operate. Sensitivity towards the environment, pollution, quality,

and quantity of goods and services are some of them. Takeovers and Acquisitions also

have a big role to play in affecting the trust of stakeholders. Corporate Governance is

needed to manage these circumstances.

222

R. V. Aguilera and G. Jackson, “Comparative and international corporate governance,” Academy of Management

Annals, vol. 4, no. 1, pp. 485-556, 2010. 223

L. Som, “Corporate Governance Codes in India,” Economic and Political Weekly, vol. 41, no. 39, pp. 4153-

4160, 2006.

~ 77 ~

5. Globalization has made Indian market a home to many international investors which has

also resulted in Indian companies being listed on international stock exchanges and thus

making a proper code of conduct mandatory for a smooth-running economy.

Basically, there is often a level of confidence that is analogous to a company that is known to

have Good Corporate Governance. The existence of an active group of independent directors on

the board accords a great deal towards ensuring confidence in the market. Corporate governance

is one of the criteria that foreign institutional investors are progressively dependent on when

deciding on which companies to invest in. It also has a positive influence on the share price.

Some points to summaries its importance are given below:

1. Risk mitigation and compliance:

There is a direct relationship between compliance, governance and risk mitigation. If a company

is ruled on the basis of good principles, it will naturally work efficiently, and shelter compliance

with every statutory law and guideline. Being in consonance with the policies and law states that

the company is prepared for uncertainty and thus has risk mitigation mechanisms in place. Better

the governance strategies; less is the risk of disruption arising out of uncertain events.

2. Magnify Shareholder's worth:

There is no definite relation between corporate governance and market value of a company but

its role in enhancing shareholder's satisfaction cannot be understated. In India, corporate

governance plays an important role in safeguarding the value of the company as the ultimate goal

of any company is to maximize its stakeholder's value. All the value and reputation which a

company builds over years can be wiped off in a single unfortunate incident and hence good

control system is a must.If India wants to attract more countries for foreign direct investments,

Indian companies have to be more focused on transparency and "Shareholders value

maximization"224

3. The benefit of Goodwill during corporate breakdowns :

Many stories relating to banking fraud and financial malpractices have done news in the recent

past. It is natural for the masses to believe that all corporate are involves in such frauds which are

224

R. Ramakrishnan. (2007). Inter-relationship between business ethics and corporate governance among Indian

companies. [Online].Available: http://ssrn.com/abstract=1751657

~ 78 ~

not always true. Only when organizations ensure people about their core and transparent

governance practices will they actually believe them. Trustworthy nature which has been

established over the years plays a vital role in upholding the company's image during tough

situations.

4. Enhanced Organizational Efficiency:

Corporate Governance is a key determinant of industrial competitiveness. Many questions are

raised on how a company is governed. Good governance assures enhanced corporate

performance and boosts economic results.

5. Key Factor during Mergers and Acquisition:

A critical role is played by corporate governance while restructuring events such as mergers and

acquisitions. Corporate governance not only helps a company to differentiate between good deals

from bad ones but also Mergers and Acquisitions activity by a company with good corporate

governance is better received by stakeholders in the market. Mergers and Acquisitions have the

power to improve the quality of Corporate Governance in an organization.

6. Crucial for shareholder's wealth:

In order to protect investors and shareholders of a corporate company needs protection for their

interest due to inefficient standards financial reporting and accountability. Companies in India

raise their capital from the market at a high valuation of their shares by projecting the wrong

picture of the company's performance and profitability. “Bad governance was also exemplified

by allotment of promoters’ share at preferential prices disproportionate to market value affecting

minority holders interest”.225 Indians are becoming increasingly aware and conscious of

investing in companies having good corporate governance practices.

7. Means to pay heed to Investor's grievances:

All investors are entitled to full and complete disclosure by companies in which they invest their

hard-earned money. Committees like Kumar Manglam Birla Committee reported that companies

225

Article on "Corporate Governance in India: Need, Importance and Conclusion" by SubhoMukher available at

http://www.economicsdiscussion.net/business-environment/corporate-governance/corporate-governance-in-india-

need-importance-and-conclusion/10145

~ 79 ~

were not paying adequate attention to timely dissemination of information to the investors.

Regulators like SEBI and RBI are enforcing measures to ensure transparency in activities this is

not enough. Much more regulations are required and what can be achieved with a good corporate

governance system.

8. Global Perspective:

The basic principles of good corporate governance have now become an important factor in

attracting foreign investment. In this era of globalization quantitative limitations have been

removed and trade barriers are dismantled, the relationship between corporate governance and

flows of foreign investment has become increasingly important.

9. Indispensable for healthy vibrant stock markets:

A striking feature of good corporate governance is that it is imperative for a vibrant stock

market. Companies take undue advantage at the expense of investors in general through insider

trading. Insider trading is a kind of fraud committed by the officials of the company by using the

Unpublished Price Sensitive Information. It is a way used by companies to signal the market that

proper regulations are under check and that the stakeholders are secured with their investments.

PRINCIPLES AND FRAMEWORK OF CORPORATE GOVERNANCE IN INDIA:

Corporate Governance describes the processes, practices, and structures through which a

company manages its business and affairs and works to meet its financial, operational and

strategic objectives and achieve long term stability. Corporate Governance is a matter of law

based on corporate legislation, securities laws and policies, and decisions of the courts and

security regulators. Directors have a fiduciary relationship with the company they work for and

owe loyalty towards their company in its best interest.

Corporate Governance has developed three key parameters to be its guidelines as given:

1. Transparency:

Disclosing the relevant information in time is an important task corporate are expected to

complete. It facilitates the stakeholders' knowledge of their wealth and returns.

2. Accountability:

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A person's liability is dependent on how he takes decisions for the interest of others. Hence

people like managers, chairman, directors, and other officers are to be held accountable for the

stakeholders' benefit.

3. Independence:

The independent functioning of top managerial personnel is crucial for the smooth functioning of

the corporate. No interference of any person in their functions helps the company take neutral

and unbiased decisions. Independence is a quality that can be possessed by individuals and is an

essential component of professionalism and professional behavior. It refers to the avoidance of

being unduly influenced by a vested interest and to be free from any constraints that would

prevent a correct course of action being taken. It is an ability to ‘stand apart’ from inappropriate

influences and to be free of managerial capture, to be able to make the correct and

uncontaminated decision on a given issue226

In order to ensure that the entire above are attained it is of primary importance that corporate

develop strong and independent code of conduct which forms the base and pillar or good

corporate governance practice. A corporate governance framework needs to be developed by

providing a broad overview of recent corporate governance research. All aspects of corporate

governance are important from board structure to ownership structure.227The Indian framework

on Corporate Governance has been enormously in consonance with international standards.

Broadly, it can be given as:

1. The Companies Acts 2013 has provisions concerning Independent Directors, Board

Constitution, General meetings, Board meetings, Board processes, Related Party

Transactions, Audit Committees, etc.

2. SEBI (Securities and Exchange Board of India) Guidelines ensure the protection of

investors and have mandated the companies to adhere to the best practices mentioned in

the guidelines.

3. Accounting Standards issued by the ICAI (Institute of Chartered Accountants of India)

wherein the ICAI is an autonomous body and issues accounting standards. The disclosure

226 Article on Indepedence of Corporate Governance available at https://www.accaglobal.com/content/dam/acca

global/pdf/sa_sept11_independence.pdf 227

S. L. Gillan, “Recent developments in corporate governance: An overview,” Journal of Corporate Finance, vol.

12, pp. 381-402, 2006.

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of financial statements is also made mandatory by the ICAI backed by the Companies

Act 2013, Sec. 129.

4. Standard Listing Agreement of Stock Exchanges applies to the companies whose shares

are listed on various stock exchanges.

5. Secretarial Standards issued by the ICSI (Institute of Company Secretaries of India)

issues standards on ‘Meetings of the board of Directors’, General Meetings’, etc.. The

companies Act 2013 empowers this autonomous body to provide standards which each

and every company is required to adhere to so that they are not punished under the

Companies Act itself.228

DEMAND FOR GOOD CORPORATE GOVERNANCE AT ALL LEVELS

Our past has seen some major scandals relating to corporate governance. From the IT giant,

Infosys to popular startup Unicorn (essentially who has high value in market) and the ever-so-

famous TATA group amongst the other. Corporate Governance has become a bone of contention

with the leaders of these organizations and stakeholders. There is a quite noticeable cultural

incompatibility which leads us to question Corporate Governance. If for reference Infosys is

considered then, the owners gave up control to the new Executive Board and delivered the

company to an outsider, have been in conflict with the later over the issues connected to

executive compensation and severance pay. This indicates the importance of Corporate

governance policies at all levels since they create a uniform base for all the employees to follow

which leads to minimum disputes and maximum profits.

The most popular personal cab service UBER went from being one of the least known to now as

the most convenient and accessible mode of travel for the commuters. This Corporate found

itself in the soup when the founder was accused of gross ethical violation as well as serious

charges of sexual misconduct and the unprofessional way in which UBER dealt with outbreak

regarding ethical and gender-related partisanship. So here is a firm who took pride in claiming

itself to be the force shaking the world of personal cab services finding itself in hot water

primarily because it is now discerned to be rot at all levels of organizational hierarchy thus

giving another example regarding the impact of bad governance and shaken rules of conduct.229

228 Article on 'Corporate Governance in India' by Pratiksha Ravi available at https://blog.ipleaders.in/corporate-

governance-india 229

Article on Uber's 'Uber breach: A Stunning Failure in Corporate Governance and Culture' by Heidi Shey

available at https://www.forbes.com/sites/forrester/2017/12/05/ubers-uber-breach-a-stunning-failure-in-corporate-

governance-and-culture/#5da7db5459fc

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Firms like Fidelity and TATA have been accused of breaching corporate governance norms

predominantly because the top management does not let their vision reach the lower classes in an

amicable way. This creates a drift between the levels of organization which in turn affects

it'sworking. The main problem in these firms is that they are dispersed across the world and

being large organizations, the employees down the hierarchy and have an inclination to

misinterpret and misjudge the rules.

What has to be learned from this desperate and different organization is that corporate

governance is something that has to be hatched at the top, and permeate at all levels and infuses

in the corporate DNA.

It is of utmost importance that all the levels are on the same page and it is evident that the

executive management has to come up with strong vision and mission policies and they have to

ensure that it is percolated down the chart wherein all the employees agree to the same rules as

far as mutual agreements and code of conduct is concerned. One of the most effective techniques

of Corporate Governance is to 'walk the talk' which means the top management is expected to

practice what they preach. This will make sure the employees below in the hierarchy follow the

same path and have good role models in place.

Thus, another lesson that one can learn is that a rational approach to corporate governance will

do wonders instead of one single star attempting to mold the organization in their own way. That

being said, it has to be noted that a practical approach to corporate governance does not mean a

“Wink and Nod” attitude towards ethical and normative rules of conduct. Rather, what is needed

is an approach that combines the soaring vision with that of pragmatic realities and on the ground

requirements so that corporate governance is practiced at all levels of the organizational

hierarchy.

Business advisory firm PricewaterhouseCoopers (PwC) calls corporate governance “a

performance issue,” because it provides a framework for how the company operates. According

to PwC, corporate governance should encompass the following:

• The company’s performance and the performance of the board

• The relationship between the board and executive management

• The appointment and assessment of the board’s directors

• Board membership and responsibilities

• The “ethical tone” of the company, and how the company conducts itself

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• Risk management, corporate compliance, and internal controls

• Communication between the board and the C-suite

• Communication with the shareholders

• Financial reporting

This list provides a bird’s-eye view of corporate governance in action and conveys the extent to

which it can influence business. To help organizations navigate corporate governance, Deloitte

offers a Governance Framework that outlines the board’s objectives and responsibilities, and

how they relate to the corporate governance infrastructure.230

There is not one particular approach to corporate governance, and the way in which it is

preached differs from organization to organization and is dependent as much on the leaders as it

is on the middle and lower levels.

CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY:

All of us live and operate in a society and we owe certain responsibilities back to the society in

which we function. Corporate Social Responsibility (CSR) is an important and basic principle of

good corporate governance. At the crossroads of corporate self-regulation and meta-regulation,

scholars have recently pointed to an evolving interplay between corporate governance

And CSR.231CSR essentially means that the corporations have to consider the society and the

environment to cater to their needs in place of just usurping profits at the cost of everything else.

Including CSR we can hope that the corporate would govern themselves and be accountable for

their social and environmental costs. Disclosing the CSR policy and expenditure is considered to

be a good corporate governance practice.

Indian laws are in favor of this concept. Companies Act, 2013 under section 135 describes and

provides for CSR. The CSR Rules appear to widen the ambit for compliance obligations to

include the holding and subsidiary companies as well as foreign companies whose branches or

project offices in India fulfill the specified criteria. There is a need for clarity with respect to the

compliance obligations of a company as well as its holding and subsidiary companies. The

activities that can be undertaken by a company to fulfill its CSR obligations include eradicating

230 Article on 'Importance of Corporate Governance in an organization' by Nichloas J. Prince available on

https://diligent.com/blog/importance-corporate-governance-organization 231

Lawrence E. Mitchell, The Board as a Path Toward Corporate Social Responsibility,

inNEW CORPORATE ACCOUNTABILITY, supra note 4, at 279. See also Ruth V. Aguilera, Cynthia

A. Williams, John M. Conley, & Deborah E. Rupp, Corporate Governance and Social Responsibility:

A Comparative Analysis of the UK and the US, 14 CORP. GOVERNANCE: AN INT'L REV. 147

(2006).

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hunger, poverty and malnutrition, promoting preventive healthcare, promoting education and

promoting gender equality, setting up homes for women, orphans and the senior citizens,

measures for reducing inequalities faced by socially and economically backward groups,

ensuring environmental sustainability and ecological balance, animal welfare, protection of

national heritage and art and culture, measures for the benefit of armed forces veterans, war

widows and their dependents, training to promote rural, nationally recognized, Paralympics or

Olympic sports, contribution to the prime minister's national relief fund or any other fund set up

by the Central Government for socio-economic development and relief and welfare of SC, ST,

OBCs, minorities and women, contributions or funds provided to technology incubators located

within academic institutions approved by the Central Government and rural development

projects.232

Some considerations need to be made in the provisions of the Act. For instance, the act

composites CSR activities to be undertaken only in the area in which the company operates. But

in reality, there can be such cases where the surroundings of the company would not need help

and upliftment as the other parts would need. So corporates must be at liberty to exercise their

responsibility in any area they feel needs that help and care. Companies can consider

collaborating with their fellow competitors in such a way as to each company is able to report it

individually as well. CSR capabilities can be built by a company by implementing through

agencies that have established track record of at least 3 years. Provided the expenditures for such

activities does not exceed 5% of the total CSR expenditure of the company in a single financial

year. Proper reasons must be given in case of failure to comply. CSR activities are based on the

'Comply or Explain' principle.

India has many examples of responsible corporate doing their duty right to inspire others. Some

of them are:

• TATA group is known to have the best CSR projects implemented all over India. They

have tied up with and implemented projects in the Government of India, Udaan India

Foundation, Tata Medical Centre, National Confederation of Dalit and Adivasi, Cancer

Institutes and more. Their thematic areas include Eradication of hunger, malnutrition,

poverty, preventive healthcare, water, and sanitation.

232

Article by EktaBahl on 'An Overview of CSR rules under Companies Act, 2013' available at

https://www.business-standard.com/article/companies/an-overview-of-csr-rules-under-companies-act-2013-

114031000385_1.html

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• HDFC also has numerous projects in line. They have implemented projects with and in

Magic Bus Foundation, Shri Aurobindo Society, Aroh Foundation and more.

• Infosys has implemented projects with and in Indraprastha Institute of Technology, IIT

Dharwad, IIT Bangalore, ShishuShikshaSamiti and the Infosys Foundation and more.

• ITC is one of the corporate giants of India and they have implemented projects with and in

Welcome group Graduate School of Hotel Administration (WGSHA), ITC Rural

Development Trust, ITC Sangeet Research Academy (ITC SRA) and more.

• WIPRO has implemented projects with and in the National Centre for Promotion of

Employment for Disabled People ( NCPEDP), ASHA Foundation, Rural Literacy and

Health Programme (RLHP), BITS PILANI Goa Campus and more.

Corporate governance and corporate social responsibility have become difficult to distinguish in

the global economic landscape. Their conjunction in the face of regulatory, business, and social

changes in transnational markets has given rise to debates and controversies over both the

advantages and disadvantages of corporate accountability mechanisms. Scholars and

practitioners have looked beyond their traditional perceptions to explore how amalgamating

governance and responsibility would affect existing practices in business and social advocacy.

ISSUES:

Every coin has two sides. With the advantages of Corporate Governance, there also comes

certain issues it has to face. They can be broadly stated as under:

• Board Performance:

The Board requires a healthy mix of executive and non-executive directors and appointment of at

least one woman director. A capable, diverse and active board would, to a large extent,

improvise the standards of a company. Companies in India tend to comply only on paper; board

appointments are considered only as "word of mouth" or recommendations made by fellow

board members. Because evaluation is not performed on a timely basis, transparency is lost

somewhere. The performance is not always result-oriented and so some requirements are not

always met with.

• Performance evaluation of Independent Directors:

Independent directors are chosen for a definite reason which seems blur in the current scenario.

In January 2017, SEBI published guidance notes for evaluating the directors which included

different aspects of performance evaluation. Evaluation is however very subjective and may

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catch itself in the trap of counter-arguments. But to have strong corporate governance in place,

this is a must.

• Accountability to Stakeholders:

Responsibility to be realized has to be accompanied by certain mandatory disclosures. These

disclosures may not only be to the corporation but like what the Company law states are towards

the stakeholders as well. It is considered a good idea to make directors directly accountable to

the stakeholders so there are transparency and accountability both in one go. The directors are

expected not only to bear in mind their own interests but also to the interest of the community.

• Executive Compensation:

The Contentious issue faced by the company is subject to shareholder accountability is executive

compensation. In order to search talent, companies have to offer competitive compensation. The

policy is framed by a company under the Indian Law for the remuneration of key employees (a

committee of board comprising of a majority of independent Directors).

• Founder's Control and Succession Planning:

The capacity of the founders to have a controlling hand over their corporation is the matter

derailing corporate governance from its track. The identity of the founder is often merged with

that of the corporate whereby without regards to their legal positions they continue to enjoy a

dominant influence in their organization. In some cases, if this is not controlled, it may have a

negative impact on the functioning of the company which might not be in adherence to the

corporate governance principles.

• Risk Management:

Efficient and pragmatic risk assessment policies are the need of the hour. The world is only

becoming a difficult place to survive without having a Plan B. Risk assessment does not only

mean analyzing the risk or identifying it but on the contrary, also includes the ways to overcome

unfortunate situations.

CONCLUSION

Corporate governance is integral to the existence of the company. Corporate Governance is

needed to create a corporate culture of transparency, accountability, and disclosure. Good

governance practices must be effectively implemented and enforced preferably by self-

regulation and voluntary adoption of an ethical code of business conduct. Indian companies still

have the scope to paint a bright future for them. They have to acknowledge and continue the

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corporate governance reforms and bear in mind that this bright future will have its own set of

challenges. The future of corporate governance is becoming apparent now, as in the future the

investors would be promoted to behave like owners rather than just traders. Independent

directors will have more defined roles and responsibilities. And the incentives said to be given

out to others will be distributed to the shareholders.

In the long run, a market-oriented and shareholder-centered system will develop into a new

emerged system as stakeholder-oriented system making finance itself accountable to the public

interest.233 We can very well conclude that, "As legal rules are, to a significant degree,

endogenous to the political economy context of the systems in which they operate and so are the

corporate governance practices."234Kautilya’sArthashastra gave four-fold duties of a king which

included Raksha, Vridhi, Palana, and Yogakshema which is protection, growth, maintenance,

and social security respectively. It is amusing how these principles are so relevant to date and a

must for good corporate governance to prevail. Corporate Governance extends beyond corporate

law, its fundamental objective is not mere fulfillment of the requirements of law but in ensuring

commitment of the board in managing the company in a transparent manner maximizing the

value for shareholders. The real onus of achieving desired levels of corporate governance lies

with corporates themselves and not the external measures.

We are living through times that are very demanding for all as the convergence of several waves

of change and the resistance to such change are all bouncing into each other and hence, it is

indeed the case that corporate governance must change with the times to ensure that it does not

fall into the trap of short-termism and at the same time, does not shy away from being aggressive

in the marketplace.

To conclude, as we grapple with change and continuity, risk and passivity, corporate governance

must reflect the contemporary realities and at the same time, not lose sight of its history.235

233 Article on 'Corporate Governance- Indian Perspective' by RuchiKulkani and BalasundramManiam 234

R. V. Aguilera and G. Jackson, “Comparative and international corporate governance,” Academy of Management

Annals, vol. 4, no. 1,

pp. 485-556, 2010. 235 Article by Management study guide available on https://www.managementstudyguide.com/

~ 88 ~

CASE ANALYSIS: DARIUS RUTTON KAVASMANECK V. GHARDA

CHEMICALS LTD.

-Shalini236

Abstract

History speaks of combatant between individual liberty and institutional wielding power.

Corporate entities disseminate opportunities for individuals to exhibit their talent, however, it’s

not charity on part of them and the society along with individuals has to pay a cost for it. The

question of worry is to mitigate the costs and to strive individual development with societal

welfare. Corporate governance has come into play as a key to unlock this paradoxical scenario.

Related party transactions, overseeing practices of management personnel’s, disclosures and

accounting standards are quadrant of corporate governance. The thread of human ingenuity

weaves around these four corners. Developing countries like India have not yet touched the

cornerstone of corporate governance. The derivative actions are one such half-baked arena of

corporate governance in India. Derivative suits provide a sword to individual against director of

the company provided such action must be for the beneficial interest of the company. The Indian

legal framework does not recognize the principles of derivative actions and often the judiciary

has negated its application in its verdicts. However, it is well recognized principle in common

law. The author rubbernecking the emerging pitfalls that are popping due to non-applicability of

the derivation suits dissects the case of Darius RuttonKavasmaneck v. Gharda Chemicals Ltd.

The author attempts to critically analyse the judgment as the court failed in pioneering to begin

a new era of corporate governance by planting derivative suits as part of Indian legal system.

The court overlooked the necessity of derivative actions in coeval time and in the present

pronouncement reiterated the archaic view.

Keywords: Corporate Governance, Derivative Suits, Indian legal system and common

law.

2365th Year Student, Symbiosis Law School, Hyderabad.

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INTRODUCTION

History speaks of combatant between individual liberty and institutional wielding power.

Corporate entities disseminate opportunities for individuals to exhibit their talent, however, it’s

not charity on part of them and the society along with individuals has to pay a cost for it. The

question of worry is to mitigate the costs and to strive individual development with societal

welfare. Corporate governance has come into play as a key to unlock this paradoxical scenario.

Related party transactions, overseeing practices of management personnel’s, disclosures and

accounting standards are quadrant of corporate governance.237 The thread of human ingenuity

weaves around these four corners. Developing countries like India have not yet touched the

cornerstone of corporate governance. The derivative actions are one such half-baked arena of

corporate governance in India. Derivative suits provide a sword to individual against director of

the company provided such action must be for the beneficial interest of the company. The Indian

legal framework does not recognize the principles of derivative actions and often the judiciary

has negated its application in its verdicts. However, it is well recognized principle in common

law. The question of worry is whether the court in absence of legislature guidelines should take

the step to elaborate the derivative actions in Indian jurisprudence.

When a corporation fails to defend the rights of its shareholder, in such unfavorable

circumstances the shareholder himself can bring action to protect his rights. A suit can be file,

known as Stockholder’s Derivative Suit, in order to seek redressal. However, the jurisprudence

of derivative action is yet to be recognized by the policymakers in India. In absence of any such

legislation it is the judiciary which has taken up the sword to guard the minority interests against

deprivation of their rights by majority shareholders of the company.DariusRuttonKavasmaneck

v. Gharda Chemicals Ltd238 marks an elevation point in corporate governance. In this case the

Bombay High Court has taken an affirmative step towards developing the derivative suits in

India. The substance of the present case is intersection of two issues of law; patent law and

company law. Although, the court had not accepted the claims of the plaintiff regarding

derivative actions, it has elaborated the grounds and conditions when such claims can be

admitted in the court of law in India.

In the present paper, the author rubbernecking the emerging pitfalls that are popping due to non-

applicability of the derivation suits dissects the case of Darius RuttonKavasmaneck v. Gharda

237India CSR Network, Getting a measure of corporate governance, Indiacsr (August 14, 2017)

http://indiacsr.in/getting-a-measure-of-corporate-governance/ (Nov. 12, 2017). 238Darius RuttonKavasmaneck v. Gharda Chemicals Ltd, (2015) 191 Comp Cas 52.

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Chemicals Ltd. The author attempts to critically analyse the judgment as the court failed in

pioneering to begin a new era of corporate governance by planting derivative suits as part of

Indian legal system. The court overlooked the necessity of derivative actions in coeval time and

in the present pronouncement reiterated the archaic view.For the purpose of comparative

understanding of the corporate principle the author elucidates the applicability of the principle in

other nations. Also, the author highlights the limitation of the application of the principle in

Indian context.

POSITION OF DERIVATIVE SUITS IN OTHER COUNTRIES

The derivative action, also known as the derivative suit (in the United States), Aktionärsklage

(Germany), kabunushidaihyōsoshō (Japan), action socialeutsinguli (France) and paishengsusong

(PRC) (among others), is a global phenomenon.239 Although often derided in some countries as

being methods of extorting money from corporations by disgruntled shareholders or

entrepreneurial attorneys, they are lauded in others as being important weapons of accountability

and corporate governance that may serve other important social goals as well.240 The principle of

Derivative actions can be traced from common law as an exception to Foss v. Harbottle241 which

established that it is the company which has to bring suit, not the shareholders. If the majority

rule principle (the majority members of the company runs the company) along with derivative

actions can holistically protect the interest of the company. The courts have taken the initiative

and had affirmed exceptions that in instances of fraud on minority and wrong against company,

the minority shareholders should be entitled to bring action in the form of Derivative Actions. In

2006 this right was given a statutory status as it was enumerated in the Companies act 2006. This

statute also provided the procedure to bring such claim and mandated that it is the court which

will allow for it. The permission was required from court to prevent frivolous litigations.242

In the United States, due to variation in the laws with states the position of derivatives suits also

differs, however, some states like New York, California, Nevada, etc. are major centres where

companies are incorporated and these states provide certain barricades to derivatives actions. It is

239 Harald Baum and Dan W. Puchniak,The derivative action: an economic, historical and practice-oriented

approach, at 1, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2695599 (Nov. 11, 2017). 240Vikramaditya Khanna &UmakanthVarottil, THE RARITY OF DERIVATIVE ACTIONS IN INDIA: REASONS

AND CONSEQUENCES, file:///C:/Users/user/Downloads/SSRN-id2695599.pdf (Nov. 11, 2017). 241Foss v. Harbottle, (1843) 67 ER 189. 242 Gareth Baker and Samantha Hacking, UK: Statutory Derivative Claim Regime: Ten Years On,

http://www.mondaq.com/uk/x/610366/Shareholders/Statutory+Derivative+Claim+Regime+Ten+Years+On (Dec.

15, 2017)

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the American Bar Association which provides the guidelines pertaining to derivative actions. It

states that the shareholders seeking the suit have to file the demand to the board. It will be

discretionary power of the board to either accept or reject the same. On rejection, after a certain

period of time the shareholder can institute the suit, however, on acceptance of the demand the

corporation itself will file the suit. The board also assist by appointing a special litigation

committee. The landmark case of Shaffer v. Heitner243 heard by Supreme Court of US is an

example of derivative suit.

In continental Europe, a different scenario of derivative suit can be witnessed as the statutes does

not allow small shareholder to bring suit in the court. There is a threshold of shares set by the

legislature to institute a derivative suit by the shareholder. New Zealand has given statutory

recognition to the derivative suits subject to permission of the court. They are ramified sets of

permutation and combinations in various countries for derivative suits and the changing saw may

influence India to bring this right within the purview of the legislation.

FACTS AND ALLEGATIONS RAISED

In the present case the plaintiff is a minority shareholder holding 12% of the share of the M/s.

Gharda Chemicals Industries (hereinafter ‘the company’). There are five defendants but the

major dissension is between the Plaintiff and Defendant No. 2. Defendant No. 1 is the company

whose chairman and managing director is Defendant No. 2. The case was brought up after the

plaintiffs received a notice informing them about an agreement that has been entered between the

company and ‘A’ under which the company acknowledges that the A owns and shall continue to

own any invention that he has invented /conceptualized during his tenure as the Managing

Director of the company and the company shall not claim any ownership over such

inventions.244Plaintiff tried to establish that he is not the beneficiary to the suit and has filed the

case on behalf of Defendant No. 1 who is unable to bring any action. Defendant No. 2 is having

60% of the shares and is estranged uncle of plaintiff and other defendants are the directors of the

company. The plaintiff has filed number of suits against the defendants and the present suit is

one among them. Defendant No. 2 is holding some patents in his own name and is registered

owner of the same. He also enjoys free royalties. However, plaintiff claims that patents should be

in the name of Defendant No. 1 and the conduct of the Defendant No. 2 is resulting in breach of

243Shaffer v. Heitner, 433 U.S. 186 (1977). 244 Nikhil Issar &AkshayGoel, A Critique of Indian Patent Assignments Regime: Pre- Invention Assignments and

Employees’s Inventions, 18 J INTELLEC PROP RIGHTS 83, 87 (2017).

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fiduciary relationship of him with the company. Plaintiff sought injunction against the utilisation

of patent by the Defendant.

PLAINTIFF’S ARGUMENTS

• Defendant No. 2 ought to obtain a patent in the name of Defendant No. 1 as he has

utilised the R&D facilities, team, and aid by the company.

• The defendant is the promoter, director, majority shareholder and the Research Head of

the company and therefore is in fiduciary relationship with the company and the patent

ought to be in the name of company.

• The defendant is required to comply with Section 88 of Indian Trust Actwhich provides

that a person in fiduciary relationship with a company if acquiring any pecuniary benefit

adverse to the company has to be held for such unjust benefit incurred.

• Arguendo, Defendant is under an obligation as an employee to work for the prerequisite

of the company.

• Defendant’s conduct should not be competing with the company’s interest or divert the

assets of it.

DEFENDANT’S ARGUMENTS

• Defendants argued that plaintiff does not have locus standi in the present matter because

similar suits have been filed and courts have decided against the plaintiff.

• Under the garb of derivative action, defendant has filed the suit which is not bonafide and

similar issues have been earlier raised between the same parties.

• The patent in question is developed by the defendant in his individual capacity and not in

trust of the company. So it is not required to register the patents in the name of the

company, consequently, there is no breach of fiduciary duty.

• The defendant is the managing director of the company and has no duty to invent patents

for the company. In addition, there is no such law which states that employees developed

patents should belong to their employer.

• The competitors of the defendant if apply for revocation of the patent under Section

64(1)(b) of the Patents Act, it would be adverse to the interest of the company.

DETERMINATION BY THE COURT

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The Bombay High Court in the present suit dismissed the notice of motion of the Plaintiff. The

court rejected the plaintiff’s argument that a prima facie case is required to be shown and

categorize the suit as full-fledged trial substantiating that injunction sought by the plaintiff is in

form of final relief. In determining the conditions whether plaintiff can avail the benefit of

derivative action suit, the court emphasized mainly on three factors: Whether the intent of the

plaintiff was bonfire, Whether it is in best interest of the company and What are the views of

independent members. For the determination of first question it is required that plaintiff has

come to the court with clean hands. For this purpose they relied on Nurcombe v. Nurcombe245

which stated that the person bringing the suit should be proper and the benefit should be of

company. The court rejecting the claim of plaintiff observed that he instituted the suit out of

hatred and he had personal interest in bringing this suit. Further, the plaintiff has ulterior motive

and it is found that he had sold his shares to the competing business company. Also, other

independent directors of the company who are minority shareholders did not support the said

action of the plaintiff. The court placed its reliance on Smith v. Croft246, the court held that

independent directors bringing derivative action which is not in the benefit of the company such

action would be dismissed. Furthermore, the court observed that acceptance of plaintiff

contentions would not benefit the company. Therefore, the court disallowed the derivative action

of the plaintiff. The court concluded with certain remarks which exhibited the disappointing

position of derivative actions in India. The court made the following remark: “The Courts should

be alert in dealing with such speculative suits and shoot down such bogus litigation at an early

stage.”247

CRITIQUE

In common law derivative actions has to pass through the dual test. Existence of prima facie case

is the first requirement for establishing a derivative action. However, this test is not stringently

applied as it would result in a trial before trial. The present case has ignored the above-

mentioned principle established in Prudential Assurance Co. Ltd. v. Newman Industries

Ltd248and stated the prima facie case as requisite for bringing any such action. The court further

applied the doctrine of clean hands. But for actions which are brought on behalf of the company

by plaintiff in interest of company, the plaintiff’s previous conducts should not be of much

245Nurcombe v. Nurcombe, (1985) 1 All ER 65. 246Smith v. Croft, [1998] Ch. 114. 247Darius RuttonKavasmaneck v. Gharda Chemicals Ltd, (2015) 191 Comp Cas 52, at para 63. 248Prudential Assurance Co. Ltd. v. Newman Industries Ltd., (1982) 2 WLR 31 : (1982) 1 All ER 354.

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relevance in deciding the suit of this nature. Additionally, in United Kingdom the doctrine of

clean hands is superseded by doctrine of good faith. Nevertheless, the good faith principle is not

substantive but it would have assisted in growth of new principles of law in India. The court took

consideration of the fact that if the patent denied to Defendant No. 2 it would not be in interest of

the company. If the ownership of patent is denied to the Defendant No. 2 the company would be

in loss and on this premise the court denied the claim of plaintiff that patent ought to be

registered in the name of Defendant No. 2 who is the rightful owner of the patent. This reason

does not seem to deny the plaintiff’s claim if the court is satisfied on one hand that patents

belong to the company. In fact, dismissal of the action by the court in the present case is

grounded on a pre-trial which was done by the court before a full-trial. Generally, in dealing with

such claims courts make application of Order 1 Rule 8 of the Civil Procedure Code, 1908. While

in present case no reference is made of this provision.

LIMITATIONS OF DERIVATIVE ACTIONS IN THE INDIAN LEGAL SYSTEM

In spite of the positive implications of the application of the principal, India is susceptive to

adopt the principle in toto. Through derivative actions a shareholding even having one share in

the company can bring a suit in court of law against the misconduct of the management of the

company. The principle of proper plaintiff laid in Foss v. Harbottle249 is defeated. Now, any

person can bring derivative action in company’s interest in court and this has led to filing of

vexatious litigations. Pendency of cases is a serious problem faced by Indian judiciary and this

provision will foster more filing of bogus cases and burden the legal system. Nations where such

actions are prevalent, it is seen that “many such suits are "misguided because they produce small

awards to their plaintiffs, and are, at worst, frivolous claims designed to extort an award of

attorneys' fees”.250Institutions of these actions are mostly inefficient. Even small investors can

coerce the company to pay heavy costs of litigation and this money is paid out of the profit of

company which in turn will affect the shareholder’s interest. It was conclusively found that (1)

there was little evidence of specific deterrence, with only increased top management turnover in

sued firms; (2) general deterrence is probably weak; and (3) there was mixed evidence of indirect

benefits, in particular advantages for block-shareholders.251 Lastly, there are no guidelines and

provisions laid by the legislature for prevention of vexatious cases and to regulate the effect of

249Foss v. Harbottle, (1843) 2 Hare 461. 250 Dr. Gyanendra Kumar Sahu, Investors protection: The derivative action, 3 International Journal of Law 101, 103

(2017). 251Id.

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derivative actions, therefore, the courts should not step forward to lay down by their own set of

guidelines in this regard.

CONCLUSION

Derivative actions are intermittent in India and only a few numbers of cases are instituted on this

premise. Among them very few are accepted by the courts on speculations. Courts do not have

any legislation and primarily resides on English precedents for adjudicating such matters. Lack

of legislative policies on the subject has rendered discretionary powers to the judiciary to decide

the fate of minority shareholders rights in India. Also, courts while applying common law

principles pretermit recent developments of laws in United Kingdom. Even the recent legislation

on company’s law in India i.e., Companies Act, 2013 is inarticulate on providing laws on the

subject of derivative actions. Although, class action suits are new development in India it does

not expressly incorporate derivative actions. Insufficient local laws have left minority

shareholder’s rights in India directionless and transient. However, we find that, at present, the

use of derivative actions in India is extremely limited and the current legal, judicial, economic

and cultural landscapes in India make it highly unlikely that derivative actions would be

commenced.252 Until there are statutory provisions, courts in India would continue to decide the

derivative claims with speculations and trepid in allowing derivative claims. Corporate

governance principles in India are in developing stage and statutory recognition of derivative

actions could form a major development in the field of company laws. The present case would

have formed a salutary precedent if all corners of principles and provisions of common laws

would have considered by the court.

252Vikramaditya Khanna &UmakanthVarottil, THE RARITY OF DERIVATIVE ACTIONS IN INDIA: REASONS

AND CONSEQUENCES, file:///C:/Users/user/Downloads/SSRN-id2695599.pdf (Nov. 11, 2017).

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EPILOGUE

Last but not least…..

“Every End is the Beginning of Something New” and this one is surely the commencement

of new thoughts that provoke critics, appreciation, and passion towards the corporate world.

The plethora of opportunities we aim to achieve through this journal can be fulfilled only

through the support of all the contributors including students, teachers, academicians,

practitioners and the Advisory expertise of the journal.

Research has always been the key to every practical aspect but the problem arises when the

difference between effective research and plagiarism is not understood. The Journal of

Corporate Governance and Transparency aims at achieving a unique thought-provoking end

to the subject matter with possible solutions to it. We aim to be enhancing quality and

quantity with every issue and provide our readers with the maximum food for thought.

“What you seek, is seeking you” is the most basic principle of the law of attraction and we

abide by it and thereby are extremely delighted to launch the first issue of this journal.

Learning is not what rather what’s in the courts and case laws is in the books or library. True

knowledge lies in experience and therefore the practical exposure of Corporate Governance

and Transparency that is not available to students in their libraries is brought to the search

terms of the students. With this edition of the Journal, we aim to curtail the gap between the

legal education sector by bringing in handy the application of the corporate law in articles

and notes.

We strive to excel in the subject chosen and wish to invite and include guest lectures and

their opinions in the next issue onwards. We wish that all our thoughts come to life in black

and white on the pages of this journal with the help, support, and encouragement from the

audience along with the Editorial and Advisory Board Members.

Till then, we wish you a period of effective research and growth in your professional careers!

Editorial Board,

C-FACT, 2018-19