UNIT 3

DEFINITION OF DIVIDEND

A dividend is a payment made by a corporation to its shareholders, usually as a distribution

of profits. When a corporation earns a profit or surplus, it can either re-invest it in the business

(called retained earnings), or it can distribute it to shareholders. A corporation may retain a

portion of its earnings and pay the remainder as a dividend. Distribution to shareholders can be

in cash (usually a deposit into a bank account) or, if the corporation has a dividend reinvestment

plan, the amount can be paid by the issue of further shares or share repurchase.

A dividend is allocated as a fixed amount per share, with shareholders receiving a dividend in

proportion to their shareholding. For the joint stock company, paying dividends is not

an expense; rather, it is the division of after tax profits among shareholders. Retained earnings

(profits that have not been distributed as dividends) are shown in the shareholders' equity section

on the company's balance sheet - the same as its issued share capital. Public companies usually

pay dividends on a fixed schedule, but may declare a dividend at any time, sometimes called

a special dividend to distinguish it from the fixed schedule dividends. Cooperatives, on the other

hand, allocate dividends according to members' activity, so their dividends are often considered

to be a pre-tax expense.

The word "dividend" comes from the Latin word "dividendum" ("thing to be divided").

LEGAL REGIME OF DIVIDEND

Section 205 of the Act regulates the declaration and distribution of dividend. All the companies

which have share capital other than section 25 companies and make profit are bound by law to

declare and distribute dividends. As per Section 205 of the Companies Act, 1956, a dividend

(including interim dividend) can be paid out of current profits or profits accumulated of earlier

years. However, depreciation for the entire year has to be provided before a dividend is declared

or paid. For this purpose, the Board needs to approve the provisional financial results (unaudited)

and a working of the profits available for distribution as dividend, post providing for

depreciation for the full year and amount required to be transferred to reserves as per the

Companies.[1] Sections 205 A, B and C deal with some other aspects of distribution of dividend

such as establishment of Investor Education and Protection Fund, Payment of unpaid and

unclaimed dividend etc.

Separate bank account needs to be opened and the amount of dividend will have to be transferred

to that account. Dividend will have to be remitted within 30 days of declaration. The other

procedure of record date/book closure, payment of tax on dividend within 7 days of declaration,

etc. will have to be complied with.Dividend is also payable out of divisible profits or out of

moneys provided by the Central or any State Government for the payment of dividend in

pursuance of a guarantee given by that Government.

Meaning of Interim dividend

Dividend is said to be an interim dividend, if it is declared by the Board of directors

between two annual general meetings of the company. However, all the provisions relating to the payment of dividend shall be applicable on interim dividend also.

Meaning of Final dividend

Dividend is said to be a final dividend if it is declared at the annual general meeting of the company. Final dividend once declared becomes a debt enforceable against the company

Section 205 in The Companies Act, 1956

Dividend to be paid only out of profits.

(1) No dividend shall be declared or paid by a company for any financial year except out of

the profits of the company for that year arrived at after providing for depreciation in

accordance with the provisions of sub- section (2) or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation in

accordance with those provisions and remaining undistributed or out of both or out of moneys provided by the Central Government or a State Government for the payment of dividend in pursuance of a guarantee given by that Government:

Provided that-

(a) if the company has not provided for depreciation for any previous financial year or years

which falls or fall after the commencement of the Companies (Amendment) Act, 1960 ,

(65 of 1960 .) it shall, before declaring or paying dividend for any financial year provide for such depreciation out of the profits of that financial year or out of the profits of any

other previous financial year or years;

(b) if the company has incurred any loss in any previous financial year or years, which falls

or fall after the commencement of the Companies (Amendment) Act, 1960 , (65 of 1960 .) then, the amount of the loss or an amount which is equal to the amount provided for

depreciation for that year or those years whichever is less, shall be set off against the profits of the company for the year for which dividend is proposed to be declared or paid or against the profits of the company for any previous financial year or years, arrived at

in both cases after providing for depreciation in accordance with the provisions of subsection (2) or against both;

(c) the Central Government may, if it thinks necessary so to do in the public interest, allow

any company to declare or pay dividend for any financial year out of the profits of the

company for that year or any previous financial year or years without providing for depreciation: Provided further that it shall not be necessary for a company to provide for

depreciation as aforesaid where dividend for any financial year is declared or paid out of the profits of any previous financial year or years which falls or fall before the

commencement of the companies (Amendment) Act, 1960 . (65 of 1960 .)

PERCENTAGE OF PROFITS TO BE TRANSFERRED TO RESERVES.-

No dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the

provisions of sub-section (2) of section 205 of the Act, except after the transfer to the reserves of the company of a percentage of its profits for that year as specified below : -

1. Where the dividend proposed exceeds 10 per cent but not 12.5 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less than 2.5 per cent

of the current profits ;

2. Where the dividend proposed exceeds 12.5 per cent but does not exceed 15 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less than 5 per cent of the current profits ;

3. Where the dividend proposed exceeds 15 per cent, but does not exceed 20 per cent of the paid-up capital, the amount to be transferred to the reserves shall not be less

than 7.5 per cent of the current profits ; and

4. Where the dividend proposed exceeds 20 per cent of the paid-up capital, the amount to be transferred to reserves shall not be less than 10 per cent of the current profits.

PRINCIPLES OF DIVISIBLE PROFIT (1) Depreciation:

While deciding divisible profit, it is necessary to have provision of depreciation of assets according to section 205 of Companies Act. If there is no provision for depreciation, accounts

will not show true and fair economic condition and once the life of assets is over, in order to get new asset in Place of that, replacing the asset is not possible because of lack of financial funds. Of course, Central Government can permit any public company to distribute a dividend without

having provision for depreciation in public interest. Here is the example of one judgement regarding this:

(2) Capital profit:

In business, capital profit is different from current profit. The profit earned from regular activities is common or revenue profit. Dividend can be allocated from it, but dividend cannot be

allocated out of capital profit. Received premium while issuing shares – debentures, amount of forfeiture, profit received from the sale of fixed assets, profit before the registration of the

company etc. are examples of capital profit. Generally, dividend can’t be distributed from capital profit but if such profit has been really received, and if there is provision for articles on assets and if any such profit remains after re-valuation of liability, dividend can be allocated from

capital profit. Here is the example of a judgement regarding this

(3) Capital Loss:

Capital loss is different from the ordinary or revenue loss in business. Discount on share-debenture, premium loss in the sale of fixed assets etc. are examples of capital loss. On the basis

of certain judgments, it can be said that even without adjusting capital loss, company can allocate dividend from the current profit but without adjusting capital loss, dividend cannot be distributed

from capital profit. Here is the reference to a judgment regarding it (4) Past Loss, Past Profit:

According to principles, before allocating dividend to shareholders, past loss should be adjusted.

It has been informed in section-205 of Companies Act that without adjusting past loss, dividend cannot be distributed. But certain judgments have been given contrary to these provisions of

Companies Act. Foreign judgments which are contrary to the provision of Indian Companies Act are not binding in India. Like past loss, if there is profit of the past year and if the company has suffered loss in the current year, before distributing dividend from the profit of the past year

current loss should be adjusted. Here is the example of such judgment regarding this (5) Transfer to reserves:

According to Table – A, Management can transfer any amount of profit to reserves for future problem. Such amount can be invested in the company or other outside companies. Management can transfer certain amount of the profit to reserves instead of distributing it as dividend.

According to the amendment of Companies Act, from the profit of that year out of which dividend is to be distributed, the percentage decided by the Central Government but not more

than 10% of profit has to be transferred to reserves before the company announces dividend.

UNPAID OR UNCLAIMED DIVIDEND

Section 205A(1), inter alia, provides that where dividend has been declared by a company but has not been paid or unclaimed or which remains unpaid within thirty days from the date of the declaration to any shareholder entitled thereto, such dividend is

called unpaid or unclaimed dividend. Explanation to section 205A(1) states that the expression "dividend which remains unpaid" means any dividend the warrant in respect

thereof has not been encashed or which has otherwise not been paid or claimed. It has been further clarified by the Department that the two expressions 'has not been paid' and 'the warrant in respect thereof has not been posted' used therein are used to denote two

separate contingencies and hence the provisions thereof do not apply to a case where company has posted dividend warrant within 30 days from the date of declaration of

dividend but the dividend warrant has not been encashed within the period of 7 days after the expiry of the 30 days. [Circular No. 28/76, dated 1-9-1976]. Time-limit for transfer of unpaid dividend to special dividend account

Section 205A(1) provides that the company shall, within seven days of the date of expiry of period of thirty days from the date of declaration of dividend, transfer such unpaid or

unclaimed dividend to a special account. The special account will be called as unpaid dividend account of M/s. ................... Co. Ltd./Pvt. Ltd. and is to be opened by the company in a scheduled bank.

Penalty for failure in transferring unpaid dividend to unpaid dividend account

Section 205A(4) contains provisions as to penalty for default in transferring unpaid or

unclaimed dividend to unpaid dividend account. Accordingly, the company shall pay interest @ 12% p.a. on so much of amount of unpaid or unclaimed dividend which has

not been transferred to unpaid dividend account. Such interest shall be paid from the date of the default and benefit of such interest shall accrue to shareholders in proportion to the

amount remaining unpaid to them. Transfer of unpaid dividend to Investor Education and Protection Fund

As per sub-section (5) of section 205A any money transferred to unpaid dividend account of a Company which remains unpaid or unclaimed in the said account for a period of seven years from the date of such transfer is required to be transferred by the company to

Investor Education and Protection Fund which has been established under section 205C. Therefore, any shareholder who has not claimed the unpaid dividend may approach the

company to issue duplicate dividend warrants and get their dividend within the period of seven years plus 37 days only.

INTERIM DIVIDEND –WHETHER A STATUTORY

DEBT

The declaration of an interim dividend does not create a debt against the company. Dividends can be declared only by a resolution of the shareholders in accordance with the Directors’ recommendation at a general meeting. But, if so permitted by the Articles of Association of the

company, the Directors can declare an interim dividend between two Annual General Meetings. While declaring interim dividend, the Board should carefully assess and examine the financial statements and should ensure that the company has adequate profits. However, it does not create

a debt enforceable against the company, because, the Directors can very well rescind the resolution before payment. Thus, the shareholders do not get any vested right under a Directors’

resolution declaring an interim dividend. It is to be noted that Section 207 of the Companies Act which applies to interim dividend also, stipulates penalty for failure to distribute dividend to the shareholders within 30 days of its declaration. The penalty prescribed under the Act is that the

directors shall be punishable with simple imprisonment of three years along with a fine of Rs.1000 for every day during which such default continues and the company shall be liable to

pay simple interest at the rate of 18% p.a. during the period for which such default continues. Further, since the penalty prescribed is by way of both fine and imprisonment, the offence is also not compoundable under Section 621A of the Companies Act. Thus, going by the principle, in

law one cannot take advantage of his own default, the Board of Directors have got power to rescind the payment of dividend only upto the 29th day of its declaration and not thereafter. It is

because, after the 30th day, it becomes a statutory default.

PROCEDURE FOR DECLARATION OF DIVIDEND A company which intends to declare and pay dividend should adopt the following procedures. Further, in case the company’s shares are listed on the Stock Exchanges, additional requirements relating to Listing Agreements are to be followed.

1) RECOMMENDATION BY BOARD OF DIRECTORS:-

Dividend can be declared only on the recommendation of the Board of Directors of the Company. The shareholders do not have any power to declare any dividend. The Board of

Directors after considering and approval of the financial statements of the Company, determines the rate of dividend to be declared and then recommends the same to the shareholders. For this

purpose, a Board Meeting shall be convened to pass the resolution for a) rate of dividend and the amount of dividend to be paid. b) book closure date for dividend purposes c) date of annual

general meeting d) Bank with which the account shall be opened for the purpose of remittance of dividend.

2) APPROVAL BY THE SHAREHOLDERS:-

The dividend recommended by the Board of Directors is declared by a resolution passed at the Annual General Meeting by the shareholders. The declaration of dividend should form part of an ordinary business item to be transacted in the notice of the Annual General Meeting. While

approving the rate of dividend at the Annual General Meeting, the shareholders have power to declare a lower rate of dividend than what is recommended by the Board but they have no power

to increase the amount or the rate of dividend so recommended by the Board of Directors. Dividend when declared becomes debt against the company.

3) DIVIDEND NOW INCLUDES INTERIM DIVIDEND:-

After the Companies (Amendment) Act, 2000, interim dividend is now recognised as a part of final dividend (clause 14A of Section 2). Interim dividend can be declared by the Board of Directors and they have authority to do so. Further, the provisions contained in Section 205,

205A, 205C, 206, 206A and 207 shall apply to interim dividend.

4) DIVIDEND TO BE DEPOSITED IN A SEPARATE BANK ACCOUNT:- The Company should deposit the dividend amount ( including interim dividend) within 5 days of

its declaration in the separate bank account opened for this purpose. It means that the interim dividend will have to be deposited in a bank account within 5 days of the Board Meeting

whereas final dividend will have to be deposited within 5 days from the date of Annual General Meeting in which it was approved by the shareholders. Also Section 205 (1B) stipulates that the amount so deposited shall be used only for the purpose of payment of dividend ( whether interim

or final).

5) DIVIDEND TO BE PAID BY CHEQUE OR WARRANT Section 205(5)(b) of the Companies Act, 1956 provides that the dividend payable in cash may be

paid either by cheque or warrant.

6) TIME FRAME FOR PAYMENT OF DIVIDEND As per Section 207 of the Companies Act, 1956, the dividend warrants shall be despatched

within 30 days of declaration of dividend.

7) TRANSFER OF UNPAID DIVIDEND

As per Section 205A of the Act, where a dividend has been declared by a company but has not been paid (or claimed) within 30 days from the date of declaration to any shareholder entitled to

the said payment of dividend, the Company shall within 7 days from the expiry of the said period of 30 days transfer the total amount of dividend which remains unpaid or unclaimed within the

said period of 30 days to a special account to be opened by the Company in that behalf with any Scheduled Bank which is called “unpaid Dividend Account of ----- company Limited. Interest at the rate of 12% p.a. is payable by the Company for delay in making the above transfer.

8) TRANSFER OF UNPAID OR UNCLAIMED DIVIDEND TO THE INVESTOR

EDUCATION AND PROTECTION FUND:- Any amount of dividend which remains unpaid or unclaimed for a period of 7 years from the

date it became due for payment shall be transferred by the company to the Investor Education and Protection Fund. When making a transfer to the Fund, the Company shall furnish to the

authority appointed by the Central Government, the details relating to a) all sums included in such transfer b) nature of the sums, c) names and last known addresses of the persons entitled to receive the sum. D) the amount to which each person is entitled and such other particular as the

case may be prescribed. The said fund shall be utilised for promotion of investor awareness and protection of the interests of investors in accordance with the Investor Education and Protection

Fund Rules, 2001. Further as per Section 205B of the Act, once any amount on account of unpaid / unclaimed

dividend has been transferred to the Investor Education and Protection Fund in pursuance of Section 205C, no claim, for payment for any sum, from any person shall be entertained by the

Fund. Thus, any person claiming to be entitled to any dividend Clause 113 of the Companies Bill 2009 stipulates that the amount lying in the Investor Education

and Protection Fund established under section 205C of the Companies Act, 1956 shall stand credited to the Investor Education Protection Fund established under sub section (1) of Section

112 of the said Bill. Further Clause 112 of the Bill stipulates that the fund shall be utilised for the refund in respect of unclaimed dividends, application monies due for refund and interest thereon etc. which is different from the present provisions. Also, the said fund shall be used for

protection of investors’ education, awareness and protection in accordance with the Rules as may be prescribed.

9) DIRECTORS REPORT

Section 217(1)(c) of the Companies Act, 1956 requires that the report of the Board of directors shall state the amount, if any, which it recommends should be paid by way of dividend. The

Board may choose not to declare any dividend even though the company has made profit and the same be captured in the Directors Report with reasons.

CONDITIONS FOR BONUS ISSUE.

Subject to the provisions of the Companies Act, 1956 or any other applicable law for the time

being in force, a listed issuer may issue bonus shares to its members if:

(a) it is authorised by its articles of association for issue of bonus shares, capitalisation of reserves, etc.:

Provided that if there is no such provision in the articles of association, the issuer shall pass a resolution at its general body meeting making provisions in the articles of associations for

capitalisation of reserve; (b) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt

securities issued by it;

(c) it has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity and bonus;

(d) the partly paid shares, if any outstanding on the date of allotment, are made fully paid up

Restriction on bonus issue.

(1) No issuer shall make a bonus issue of equity shares if it has outstanding fully or partly

convertible debt instruments at the time of making the bonus issue, unless it has made reservation of equity shares of the same class in favour of the holders of such outstanding

convertible debt instruments in proportion to the convertible part thereof. (2) The equity shares reserved for the holders of fully or partly convertible debt instruments shall

be issued at the time of conversion of such convertible debt instruments on the same terms or same proportion on which the bonus shares were issued.

Bonus shares only against reserves, etc. if capitalised in cash.

(1) The bonus issue shall be made out of free reserves built out of the genuine profits or securities premium collected in cash only and reserves created by revaluation of fixed assets

shall not be capitalised for the purpose of issuing bonus shares. (2) Without prejudice to the provisions of sub-regulation (1), the bonus share shall not be issued

in lieu of dividend.

OBJECTS OF BONUS ISSUE MAY INCLUDE ONE OR MORE OF THE

FOLLOWING, NAMELY,

1. Bridges the gap between capital and fixed assets.

2. Increase the market price of its shares.

3. Creates confidence for the investors/shareholders in the company.

4. Good market reputation.

5. Increases liquidity of shares.

SOURCES ON BONUS ISSUE – SECURITIES PREMIUM AND

OR CAPITAL REDEMPTION RESERVE

As per section 205(3) of the Companies Act, 1956 there is no prohibition on a company to

capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares or paying

up any amount, for the time being unpaid, on any shares held by the members of the company.

However the following points have to be borne in mind while determining the profits or reserves

which may be capitalized, namely,

1. The securities premium account may be applied by the company in paying up unissued

securities of the company to be issued to members of the company as fully paid bonus securities

[Section 78(2) of the Companies Act, 1956]

2. The capital redemption reserve account may, be applied by the company, in paying up

unissued shares of the company to be issued to members of the company as fully paid bonus

shares.

[Section 80(5) of the Companies Act, 1956]

3.If the company has adopted regulation 96 of Table A in Schedule I to the Companies Act, 1956

only the share premium account and capital redemption reserve account shall be applied in the

paying up of unissued shares to be issued to members of the company as fully paid bonus

shares.

PAYMENT OF INTEREST OUT OF CAPITAL Where any shares in a company are issued for the purpose of raising money to defray the expenses of the

construction of any work or building, or the provision of any plant, which cannot be made profitable for a

lengthy period, the company may-

(a) pay interest on so much of that share capital as is for the time being paid up, for the period and subject

to the conditions and restrictions mentioned in sub- sections (2) to (7); and

(b) charge the sum so paid by way of interest, to capital as part of the cost of construction of the work or

building or the provision of the plant.

(2) No such payment shall be made unless it is authorised by the articles or by a special resolution.

(3) No such payment, whether authorised by the articles or by special resolution, shall be made without

the previous sanction of the Central Government. The grant of such sanction shall be conclusive evidence,

for the purposes of this section, that the shares of the company, in respect of which such sanction is given,

have been issued for a purpose specified in this section.

(4) Before sanctioning any such payment, the Central Government may, at the expense of the company,

appoint a person to inquire into, and report to the Central Government on, the circumstances of the case;

and may, before making the appointment, require the company to give security for the payment of the

costs of the inquiry.

(5) The payment of interest shall be made only for such period as may be determined by the Central

Government; and that period shall in no case extend beyond the close of the half year next after the half-

year during which the work or building has been actually completed or the plant provided.

(6) The rate of interest shall in no case exceed four per cent. per annum or such other rate as the Central

Government may, by notification in the Official Gazette, direct.

UNIT 3

MEANING AND DEFINITION

In law, liquidation is the process by which a company (or part of a company) is brought to an end, and the assets and property of the company are redistributed. Liquidation is also sometimes

referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in

a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

A company is an artificial person created by law and the law alone can dissolve it. The legal procedure by which the corporate life of a company brought to an end is known as liquidation.

The liquidation of company may be defined as " the termination of legal existence of company by closing its business". Liquidation is also termed as winding-up a company. The process of winding-up of a company is completed by selling all its assets and paying all

creditors in preferential orders. For this purpose, a liquidator is appointed by the court to complete the liquidation process.The duties of the liquidator are to realize the assets, discharge

the liabilities and distribute the surplus, if any, to the shareholders of the company. One thing here should be noted that liquidation and bankrupt of a company is not the same thing. A company which is liquidated need not necessarily bankrupt. Sometimes even in terms of sound

financial position, a company may be proposed to be liquidation. Thus, for liquidation, it is not necessary to be bankrupt. But bankrupt will certainly lead to liquidation.

TYPES OF WINDING UP Section 425 (1) of the Companies Act, 1956 lays down that the winding up of a company may be done by either of the following modes:

(A) Compulsory winding up by the National Company Law Tribunal. (B) Voluntary winding up, which is of two kinds, namely :

(i) Members’ voluntary winding up; and (ii) Creditors’ voluntary winding up. Winding up by the National Company Law Tribunal is a compulsory winding up which is

initiated on an application made to the Tribunal for a winding up order under Section 433 of the Companies Act, 1956. A winding up by the Tribunal is also called compulsory winding up.

The following are the circumstances in which a company may be wound up by the Tribunal:

(a) Special resolution: If the company has, by special resolution, resolved that the company be wound up by the Tribunal;

(b) Default in delivering the statutory report/holding statutory meeting: If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;

(c) Failure to commence business/carry on business: If the company does not commence its

business within a year from its incorporation, or suspends its business for a whole year; (d) Reduction in membership : If the number of members is reduced, in the case of a public

company, below seven, and in the case of a private company, below two; (e) Inability to pay debts: If the company is unable to pay its debts;

(f ) Just and equitable: If the Tribunal is of the opinion that it is just and equitable that the company should be wound up;

GROUNDS FOR COMPULSORY WINDING UP OR

WINDING UP BY THE TRIBUNAL: 1. If the company has, by a Special Resolution, resolved that the company be wound up by the

Tribunal.

2. If default is made in delivering the statutory report to the Registrar or in holding the statutory

meeting. A petition on this ground may be filed by the Registrar or a contributory before the

expiry of 14 days after the last day on which the meeting ought to have been held. The Tribunal

may instead of winding up, order the holding of statutory meeting or the delivery of statutory

report.

3. If the company fails to commence its business within one year of its incorporation, or

suspends its business for a whole year. The winding up on this ground is ordered only if there is

no intention to carry on the business and the Tribunal's power in this situation is discretionary.

4. If the number of members is reduced below the statutory minimum i.e. below seven in case of

a public company and two in the case of a private company.

5. If the company is unable to pay its debts.

6. If the tribunal is of the opinion that it is just and equitable that the company should be wound

up.

THE PETITION FOR WINDING UP TO THE

TRIBUNAL MAY BE MADE BY :- 1. The company, in case of passing a special resolution for winding up.

2. A creditor, in case of a company's inability to pay debts.

3. A contributory or contributories, in case of a failure to hold a statutory meeting or to file a

statutory report or in case of reduction of members below the statutory minimum.

4. The Registrar, on any ground provided prior approval of the Central Government has been

obtained.

5. A person authorised by the Central Government, in case of investigation into the business of

the company where it appears from the report of the inspector that the affairs of the company

have been conducted with intent to defraud its creditors, members or any other person.

6. The Central or State Government, if the company has acted against the sovereignty, integrity

or security of India or against public order, decency, morality, etc.

GROUNDS FOR VOLUNTARY WINDING UP

A company may be wound up voluntarily--

(a) when the period, if any, fixed for the duration of the company by the articles has expired, or

the event, if any, has occurred, on the occurrence of which the articles provide that the company

is to be dissolved, and the company in general meeting passes a resolution requiring the company

to be wound up voluntarily;

(b) if the company passes a special resolution that the company be wound up voluntarily.

PROVISION AND REQUIREMENTS OF MEMBERS

VOLUNTARY LIQUIDATION

1. DECLARATION OF SOLVENCY

(1) Where it is proposed to wind-up a company voluntarily, its directors, or in case the company

has more than two directors, the majority of the directors, may, at a meeting of the Board, make a

declaration verified by an affidavit, to the effect that they have made a full inquiry into the affairs

of the company, and that, having done so, they have formed the opinion that the company has no

debts, or that it will be able to pay its debts in full within such period not exceeding three years

from the commencement of the winding up as may be specified in the declaration.

(2) A declaration made as aforesaid shall have no effect for the purposes of this Act, unless

(a) it is made within the five weeks immediately preceding the date of the passing of the

resolution for winding up the company and is delivered to the Registrar for registration

before that date; and

[2][(b) it is accompanied by a copy of the report of the auditors of the company (prepared, as far

as circumstances admit, in accordance with the provisions of this Act) on the profit and

loss account of the company for the period commencing from the date up to which the

last such account was prepared and ending with the latest practicable date immediately

before the making of the declaration and the balance sheet of the company made out as

on the last-mentioned date and also embodies a statement of the company's assets and

liabilities as at that date.]

(3) Any director of a company making a declaration under this section without having reasonable

grounds for the opinion that the company will be able to pay its debts in full within the period

specified in the declaration, shall be punishable with imprisonment for a term which may extend

to six months, or with fine which may extend to [3][fifty thousand rupees], or with both.

(4) If the company is wound-up in pursuance of a resolution passed within the period of five

weeks after the making of the declaration, but its debts are not paid or provided for in full within

the period specified in the declaration, it shall be presumed, until the contrary is shown, that the

director did not have reasonable grounds for his opinion.

(5) A winding up in the case of which a declaration has been made and delivered in accordance

with this section is in this Act referred to as "a members' voluntary winding up"; and a winding

up in the case of which a declaration has not been so made and delivered is in this Act referred to

as "a creditors' voluntary winding up".

2. LIQUIDATOR APPOINTMENT

(1) The company in general meeting shall

(a) appoint one or more liquidators for the purpose of winding up the affairs and distributing

the assets of the company; and

(b) fix the remuneration, if any, to be paid to the liquidator or liquidators.

(2) Any remuneration so fixed shall not be increased in any circumstances whatever, whether

with or without the sanction of the [1][Tribunal].

(3) Before the remuneration of the liquidator or liquidators is fixed as aforesaid, the liquidator, or

any of the liquidators, as the case may be, shall not take charge of his office.

3. CESSATION OF POWERS OF BOARD

On the appointment of a liquidator, all the powers of the Board of directors and of the managing

or whole-time directors and manager, if there be any of these, shall cease, except for the purpose

of giving notice of such appointment to the Registrar in pursuance of section 493 or in so far as

the company in general meeting or the liquidator may sanction the continuance thereof.

4.NOTICE OF APPOINTMENT OF LIQUIDATOR TO THE

REGISTRAR

(1) The company shall give notice to the Registrar of the appointment of a liquidator or

liquidators made by it, under section 490, of every vacancy occurring in the office of liquidator,

and of the name of the liquidator or liquidators appointed to fill every such vacancy under

section 492.

(2) The notice aforesaid shall be given by the company within ten days of the event to which it

relates.

(3) If default is made in complying with sub-section (1) or (2), the company, and every officer of

the company (including every liquidator or continuing liquidator) who is in default, shall be

punishable with fine which may extend to one thousand rupees for every day during which the default continues.

5. CREDITORS MEETING IN CASE OF INSOLVENCY

(1) If, in the case of a winding up commenced after the commencement of this Act, the liquidator

is at any time of opinion that the company will not be able to pay its debts in full within the period stated in the declaration under section 488, or that period has expired without the debts

having been paid in full, he shall forthwith summon a meeting of the creditors, and shall lay before the meeting a statement of the assets and liabilities of the company.

(2) If the liquidator fails to comply with sub-section (1), he shall be punishable with fine which may extend to [five thousand rupees].

(1) Subject to the provisions of section 498, in the event of the winding up continuing for more than one year, the liquidator shall

(a) call a general meeting of the company at the end of the first year from the commencement of the winding up, and at the end of each succeeding year, or as soon thereafter as may be

convenient within three months from the end of the year or such longer period as the Central Government may allow; and

(b) lay before the meeting an account of his acts and dealings and of the conduct of the

winding up during the preceding year, together with a statement in the prescribed form and containing the prescribed particulars with respect to the proceedings in, and position of, the

liquidation.

(2) If the liquidator fails to comply with sub-section (1), he shall be punishable, in respect of each failure, with fine which may extend to [one thousand rupees].

(1) Subject to the provisions of section 498, as soon as the affairs of the company are fully

wound-up, the liquidator shall

(a) make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of; and

(b) call a general meeting of the company for the purpose of laying the account before it, and

giving any explanation thereof.

(2) The meeting shall be called by advertisement

(a) specifying the time, place and object of the meeting; and

(b) published not less than one month before the meeting in the Official Gazette, and also in

some newspapers circulating in the district where the registered office of the company is

situate.

(3) Within one week after the meeting, the liquidator shall send to the [Registrar and the Official Liquidator [referred to in clause (c) of sub-section (1) of section 448] a copy each of the account and shall make a return to each of them] of the holding of the meeting and of the date thereof.If

the copy is not so sent or the return is not so made, the liquidator shall be punishable with fine which may extend t [five hundred rupees] for every day during which the default continues.

(4) If a quorum is not present at the meeting aforesaid, the liquidator shall, in lieu of the return

referred to in sub-section (3), make a return that the meeting was duly called and that no quorum was present thereat.Upon such a return being made within one week after the date fixed for the meeting the provisions of sub-section (3) as to the making of the return shall be deemed to have

been complied with.

(5) The Registrar, on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall forthwith register them.

SECTION 499 - PROVISIONS APPLICABLE TO A

CREDITOR'S VOLUNTARY WINDING UP

The provisions contained in sections 500 to 509, both inclusive, shall apply in relation to a creditor's voluntary winding up.

SECTION 500 - MEETING OF CREDITORS

(1) The company shall cause a meeting of the creditors of the company to be called for the day, or the day next following the day, on which there is to be held the general meeting of the company at

which the resolution for voluntary winding up is to be proposed, and shall cause notices of the meeting of creditors to be sent by post to the creditors simultaneously with the sending of the notices of the meeting of the company.

(2) The company shall cause notice of the meeting of the creditors to be advertised once at least in the Official Gazette and once at least in two newspapers circulating in the district where the registered office or principal place of business of the company is situate.

(3) The Board of directors of the company shall

(a) cause a full statement of the position of the company's affairs together with a list of the

creditors of the company and the estimated amount of their claims to be laid before the meeting of the creditors to be held as aforesaid; and

(b) appoint one of their number to preside at the said meeting.

(4) It shall be the duty of the director appointed to preside at the meeting of creditors to attend the meeting and preside thereat.

(5) If the meeting of the company at which the resolution for voluntary winding up is to be proposed is adjourned and the resolution is passed at an adjourned meeting, any resolution passed at the

meeting of the creditors held in pursuance of sub-section (1) shall have effect as if it had been passed immediately after the passing of the resolution for winding up the company.

(6) If default is made

(a) by the company, in complying with sub-sections (1) and (2);

(b) by its Board of directors, in complying with sub-section (3);

(c) by any director of the company, in complying with sub-section (4);

the company, each of the directors, or the director, as the case may be, shall be punishable with fine

which may extend to [ten thousand rupees] and, in the case of default by the company, every officer of the company who is in default, shall be liable to the like punishment.

SECTION 501 - NOTICE OF RESOLUTIONS PASSED BY

CREDITORS' MEETING TO BE GIVEN TO REGISTRAR

(1) Notice of any resolution passed at a creditors' meeting in pursuance of section 500 shall be given

by the company to the Registrar within ten days of the passing thereof.

(2) If default is made in complying with sub-section (1), the company, and every officer of the

company who is in default, shall be punishable with fine which may extend to [five hundred rupees]

for every day during which the default continues.

For the purposes of this section, a liquidator of the company shall be deemed to be an officer of the

company.

SECTION 502 - APPOINTMENT OF LIQUIDATOR

(1) The creditors and the company at their respective meetings mentioned in section 500 may nominate a person to be liquidator for the purpose of winding up the affairs and distributing the assets of the company.

(2) If the creditors and the company nominate different persons the person nominated by the

creditors shall be liquidator:

Provided that any director, member or creditor of the company may, within seven days after the date on which the nomination was made by the creditors, apply to the [Tribunal] for an order either

directing that the person nominated as liquidator by the company shall be liquidator instead of or jointly with the person nominated by the creditors, or appointing the Official Liquidator or some

other person to be liquidator instead of the person appointed by the creditors.

(3) If no person is nominated by the creditors, the person, if any, nominated by the company shall be liquidator.

(4) If no person is nominated by the company, the person, if any, nominated by the creditors shall be liquidator.

SECTION 503 - APPOINTMENT OF COMMITTEE OF

INSPECTION

(1) The creditors at the meeting to be held in pursuance of section 500 or at any subsequent meeting may, if they think fit, appoint a committee of inspection consisting of not more than five persons.

(2) If such a committee is appointed, the company may, either at the meeting at which the resolution for voluntary winding up is passed or at any subsequent general meeting, appoint such number of

persons (not exceeding five) as they think fit to act as members of the committee: Provided that the creditors may, if they think fit, resolve that all or any of the persons so appointed by the company

ought not to be members of the committee of inspection.

(3) If the creditors so resolve, the persons mentioned in the resolution shall not, unless the 1[Tribunal] otherwise directs, be qualified to act as members of the committee.

(4) On any application to the 1[Tribunal] for a direction under sub-section (3), the 1[Tribunal] may,

if it thinks fit, appoint other persons to act as members of the committee of inspection in the place of the persons mentioned in the creditors' resolution.

(5) Subject to the provisions of sub-sections (1) to (4) and to such rules as may be made by the Central Government, the provisions of section 465 [except sub-section (1) thereof] shall apply with

respect to a committee of inspection appointed under this section as they apply with respect to a committee of inspection appointed in a winding up by the 1[Tribunal].

SECTION 504 - FIXING OF LIQUIDATORS'

REMUNERATION

(1) The committee of inspection, or if there is no such committee, the creditors, may fix the

remuneration to be paid to the liquidator or liquidators.

(2) Where the remuneration is not so fixed, it shall be determined by the 1[Tribunal].

(3) Any remuneration fixed under sub-section (1) or (2) shall not be increased in any circumstances whatever, whether with or without the sanction of the 1[Tribunal].

SECTION 505 - BOARD'S POWERS TO CEASE ON

APPOINTMENT OF LIQUIDATOR

On the appointment of a liquidator, all the powers of the Board of directors shall cease, except in so far as the committee of inspection, or if there is no such committee, the creditors in general meeting, may sanction the continuance thereof.

SECTION 506 - POWER TO FILL VACANCY IN OFFICE

OF LIQUIDATOR

If a vacancy occurs by death, resignation or otherwise, in the office of a liquidator (other than a

liquidator appointed by, or by the direction of the [Tribunal]), the creditors in general meeting, may fill the vacancy.

SECTION 507 - APPLICATION OF SECTION 494 TO A

CREDITORS VOLUNTARY WINDING UP

The provisions of section 494 shall apply in the case of a creditors' voluntary winding up as in the case of a members' voluntary winding up, with the modification that the powers of the liquidator

under that section shall not be exercised except with the sanction either of the 1[Tribunal] or of the committee of inspection.

SECTION 508 - DUTY OF LIQUIDATOR TO CALL

MEETINGS OF COMPANY AND OF CREDITORS

AT END OF EACH YEAR

(1) In the event of the winding up continuing for more than one year, the liquidator shall

(a) call a general meeting of the company and a meeting of the creditors at the end of the first

year from the commencement of the winding up and at the end of each succeeding year, or as soon thereafter as may be convenient within three months from the end of the year or such

longer period as the Central Government may allow; and

(b) lay before the meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year, together with a statement in the prescribed form and

containing the prescribed particulars with respect to the proceedings in, and position of, the winding up.

(2) If the liquidator fails to comply with sub-section (1), he shall be punishable, in respect of each failure, with fine which may extend to [one thousand rupees].

SECTION 509 - FINAL MEETING AND

DISSOLUTION

(1) As soon as the affairs of the company are fully wound-up, the liquidator shall

(a) make up an account of the winding up, showing how the winding up has been conducted and

the property of the company has been disposed of; and

(b) call a general meeting of the company and a meeting of the creditors for the purpose of

laying the account before the meetings and giving any explanation thereof.

(2) Each such meeting shall be called by advertisement

(a) specifying the time, place and object thereof; and

(b) published not less than one month before the meeting in the Official Gazette and also in some newspaper circulating in the district where the registered office of the company is

situate.

(3) Within one week after the date of the meeting, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator shall send to the [Registrar and the Official Liquidator [referred to in clause (c) of sub-section (1) of section 448] a copy each of the account

and shall make a return to each of them] of the holding of the meetings and of the date or dates on which they were held.If the copy is not so sent or the return is not so made, the liquidator shall be

punishable with fine which may extend to [five hundred rupees] for every day during which the default continues.

(4) If a quorum (which for the purposes of this section shall be two persons) is not present at either

of such meetings, the liquidator shall, in lieu of the return referred to in sub-section (3), make a return that the meeting was duly called and that no quorum was present thereat.Upon such a return being made within one week after the date fixed for the meeting, the provisions of sub-section (3) as

to the making of the return shall, in respect of that meeting, be deemed to have been complied with.

(5) The Registrar, on receiving the account and also, in respect of each such meeting, either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall forthwith

register them.

(6) The Official Liquidator [referred to in clause (c) of sub-section (1) of section 448], on receiving the account and either the return mentioned in sub-section (3) or the return mentioned in sub-section (4), shall, as soon as may be, make, and the liquidator and all officers, past or present of the

company shall give the Official Liquidator [referred to in clause (c) of sub-section (1) of section 448] all reasonable facilities to make, a scrutiny of the books and papers of the company and if on

such scrutiny the Official Liquidator [referred to in clause (c) of sub-section (1) of section 448] makes a report to the [Tribunal] that the affairs of the company have not been conducted in a

manner prejudicial to the interests of its members or to public interest, then, from the date of the submission of the report to the [Tribunal] the company shall be deemed to be dissolved.

(6A) If on such scrutiny the Official Liquidator [referred to in clause (c) of sub-section (1) of

section 448] makes a report to the [Tribunal] that the affairs of the company have been conducted in a manner prejudicial as aforesaid, the [Tribunal] shall by order direct the Official

Liquidator [referred to in clause (c) of sub-section (1) of section 448] to make a further investigation of the affairs of the company and for that purpose shall invest him with all such powers as the 1[Tribunal] may deem fit.

(6B) On the receipt of the report of the Official Liquidator [referred to in clause (c) of sub-section (1) of section 448] on such further investigation the 1[Tribunal] may either make an order that the company shall stand dissolved with effect from the date to be specified by the 1[Tribunal]

therein or make such other order as the circumstances of the case brought out in the report permit.]

(7) If the liquidator fails to call a general meeting of the company or a meeting of the creditors as required by this section, he shall be punishable, in respect of each such failure, with fine which may

extend to [five thousand rupees].

UNIT 5

Meaning , concept and Definition of Corporate Governance

In a narrow sense, corporate governance involves a set of relationships amongst the

company’s management, its board of directors, its shareholders, its auditors and other stakeholders. These relationships, which involve various rules and incentives, provide the structure through which the objectives of the company are set, and the means of attaining

these objectives as well as monitoring performance are determined. Thus, the key aspects of good corporate governance include transparency of corporate structures and

operations; the accountability of managers and the boards to shareholders; and corporate responsibility towards stakeholders.

Corporate governance includes ‘the structures, processes, cultures and systems that

engender the successful operation of organizations’

Corporate Governance consist of two elements

1. Long term relationship which has to deal with checks and balances, incentives

for managers and communications between management and investors.

2. The transactional relationship which involves dealing with disclosure and

authority.

OBJECTS OF THE CORPORATE GOVERNANCE:

1. Transparency and Full Disclosure

2. Accountability

3. Equitable Treatment of Shareholder

4. Self Evaluation

5. Increasing Shareholder’s Wealth

Principles of Corporate Governance

Rights and equitable treatment of shareholders : Organizations should respect the rights of

shareholders and help shareholders to exercise those rights. They can help shareholders exercise

their rights by openly and effectively communicating information and by encouraging shareholders

to participate in general meetings.

Interests of other stakeholders: Organizations should recognize that they have legal, contractual,

social, and market driven obligations to non-shareholder stakeholders, including employees,

investors, creditors, suppliers, local communities, customers, and policy makers.

Role and responsibilities of the board : The board needs sufficient relevant skills and

understanding to review and challenge management performance. It also needs adequate size and

appropriate levels of independence and commitment.

Integrity and ethical behavior : Integrity should be a fundamental requirement in choosing

corporate officers and board members. Organizations should develop a code of conduct for thei r

directors and executives that promotes ethical and responsible decision making.

Disclosure and transparency: Organizations should clarify and make publicly known the roles and

responsibilities of board and management to provide stakeholders with a level of accountability.

They should also implement procedures to independently verify and safeguard the integrity of the

company's financial reporting. Disclosure of material matters concerning the organization should be

timely and balanced to ensure that all investors have access to clear, factual information.

Cadbury committee report

The committee on the financial aspect of corporate governance, forever after known as the Cadbury

committee was established in May 1991 by the financial reporting council, the London stock exchange. and

the Accountancy profession. The spur for the committee’s creation was an increasing lack of investor

confidence in the honesty and accountability of listed companies, occasioned in particular by the sudden

financial collapses of two companies, wallpaper group coloroll and asil nadir’s polly peck consortium:

neither of these sudden failures was at all foreshadowed in their apparently healthy published accounts.

Cadbury committee is called the mother of recent debate on corporate governance. After this committee,

there were major discussions and decisions were taken on corporate governance by many countries by

forming a committee of their own. All the countries became aware of the deep need of having good

corporate governance norms to avoid the collapses of the companies and risk of investment of

shareholders.

MATTERS INCLUDED IN THE CORPORATE GOVERNANCE:

All that requires to manage the company successfully comes under the purview of corporate governance.

The main three elements of corporate governance is as under:

CORPORATE GOVERNANCE

Composition of board of directors

A. 1. nomination committee 2. remuneration committee 3. audit committee

B. Presentation of financial statement

C. Rights of shareholder

THREE PILLARS OF BORAD OF DIRECTORS

1. Nomination committee: The nomination committee provides important assessment of board

effectiveness and directing the process of renewing and replacing board members. When a

nominee of the institution is appointed as a director of the company, he should have the same

responsibility, be subject to the same discipline and be accountable to the shareholders in the same

manner as any other director of the company.

2. Remuneration committee: The remuneration committee shall determine on behalf of the board

and on behalf of the shareholders policy of the company on specific remuneration packages for

executive directors included pension rights and any compensation payment. As per schedule XIII of

the company’s act, 1956, where the company has no profits or profit is insufficient then the

remuneration must be paid as per the provision of the schedule.

3. Audit committee: The audit committee (the “committee”) of the board of directors provides

assistance to the board in fulfilling its responsibilities with respect to its oversight of the following.

THREE PILLARS OF BOARD OF DIRECTORS

CORPORATE GOVERNANCE

NOMINATION

COMMITTEE

REMUNARATION

COMMITTEE

AUDIT

COMMITTEE

BOARD OF DIRECTORS

The quality and integrity of the company’s accounting and reporting practices; the company’s

compliance with legal and regulatory requirements; the independent auditor’s qualification and

independence; and; the performance of the company’s internal audit function and independent

auditors.

(a.) Presentation of financial statement: one of the major responsibilities of the board of the directors

is to ensure that shareholders of the company are provided with high-quality disclosures on the

financial and operating results of the entity that the boards of directors have been entrusted with.

The corporate governance will create a value addition in the market about the company’s

performance and overall integrity. The investor must feel secured while investing in the funds of

the company through transparency and accuracy in the accounting related disclosure and financial

statements of the company.

(b.) Rights of shareholders: as per the recommendation of the kumar mangalam birla committee, the

basic rights of the shareholders included rights to transfer and registration of shares. Obtaining

relevant information on the company on a timely and regular basis, participating and voting in

shareholder meetings, electing members of the board and sharing in the residual profits of the

corporation.

The committee further recommended that information like quarterly results. Presentation made by

companies to analysts may be put on company’s web-site or may be sent in such a form so as to enable the

stock exchange on which the company is listed to put it on its own web-site. Half-yearly declaration of

financial performance including summary of the significant events in last six-months, should be sent to each

household of shareholders.

CORPPORATE GOVERNANCE MODEL

Corporate governance in any organization strives for maximizing the shareholder value in a company, wh ile

ensuring fairness to all stakeholder, customers, employees, investors, and other stakeholders.

PRINCIPLES OF CORPORATE GOVERNANCE: A Well-defined and enforced corporate governance provides a

structure that, works for the benefit of everyone concerned by ensuring that the enterprise adheres to

accepted ethical standards and best practices as well as to formal laws. To that end, organizations have

been formed at the regional, national, and global levels.

Basic principles of the corporate governance:

1. Board of directors- powers and responsibilities

2. Laws of the country

3. Management environment

4. Appointment of directors

5. Specialization by directors

6. Training to board of directors

7. Independence of the board

8. Board meetings

9. Corporate social responsibility

10. Annual review of future solvency

11. Board performance assessment

12. Risk-assessment

CORPORATE GOVERNANCE AS PER CLAUSE 49:

As per SBI, listing agreement clause- 49, it is mandatory to give annual corporate governance report by all

listed companies in India. The annual report of the company shall include a separate section on report on

corporate governance. This report shall give detailed specified in clause 49 of listing agreement. The detail

to be disclosed under clause 49 of listing agreement. The detail to be disclosed under clause 49 of listing

agreement is as under:

(1) Compulsory detail of corporate governance

(2) Voluntary detail on corporate governance

(1) Compulsory details on corporate governance:

Following details are to be presented compulsorily in the corporate governance report:

(a) Philosophy of corporate governance: company must share through annual report, its corporate

governance philosophy defined for the company, to all its shareholders.

(b) Composition of board: composition and category of directors, for example, promoter, executive,

non-executive, independent non-executive, nominee director, alternate director etc. and

attendance of each director at the board meetings, meeting of members i.e. annual general

meeting or extra ordinary one.

(c) Remuneration of directors: all the pecuniary relationship or transaction of the directors related to

payment of remuneration or sitting fees etc. must be disclosed in the annual report. The details of

remuneration on fixed basis or on the basis of profits of the company must also be disclosed.

(d) Disclosure by the directors of their interest in the transactions: disclosure shall be made by

directors to the board and in the annual report, Relating to all the material, financial, and

commercial transactions where they have personal interest that may have potential conflict with

interest of the company -- e.g. dealing in company’s shares, commercial dealings with bodies which

have shareholding or management of their relatives etc.

(e) Audit committee: a qualified and independent audit committee shall be set up by board having

minimum three members out of which two thirds shall be independent. The chairman of the audit

committee must be in independent director and be present as per clause 49 of the listing

agreement of SEBI.

(2) Voluntary details on corporate governance: non-mandatory requirements have been suggested in

annexure 1D of listing agreement. even if these are not mandatory, company has to state its

adoptions/non-adoption in the “corporate governance” section of the annual report, as per clause

49VII(2) of the listing agreement.

(i) The members of remuneration committee should attend the general meetings to answer

the queries of the shareholders.

(ii) One of the non-executive directors has a right to establish and operate the office in the

name of the company.

(iii) The committee should be formed with minimum three members for the payment of

remuneration to any executive director.

(iv) Company generally publishes its quarterly and half yearly results in the news papers and on

the website for the benefit of shareholders.

(v) Company shall train its board members in the business model of the company as well as

risk profile of the business parameters of the company, their responsibilities as directors,

and best ways to discharge them.

(vi) To check the qualities of auditor before appointing him.

(vii) The employees of the company shall disclose any fraud, or misrepresentation about any

transaction of the company, or oppression or mismanagement in the company without any

fear.

(viii) The audit committee should review such whistle blower policy mechanism, and its

functioning within the organization.

(ix) If the chairman is non-executive, he should be given chairman’s office at company’s

expenses and reimbursement of expenses incurred in performance of his duties.

(x) Independent director may have a tenure not exceeding a period of nine years on the board.

ROLE OF INDEPENDENT DIRECTOR FOR GOOD GOVERNANCE:-

The key role of independent director is as under:

(a) To balance the board structure and objectivity of the board

(b) To build up the shareholder’s confidence in the company.

(c) To improve relations wit

(d) Protection of minorities

(e) To resolve the conflicts

(f) To enhancement management transparency

(g) To make coordinated strategic decisions

(h) To add value to the company’s reputation

(i) Supervise the auditors and control their conduct

(j) effectiveness supervision and enforcement by regulator

ICSI – INSTITUTE OF COMPANY SECRETARIES OF INDIA AND CORPORATE GOVERNANCE

Corporate governance is about transparency and raising the trust and confidence of stakeholders i n the way

the company is run. It is about owners and the managers operating as the trustees on behalf of every

shareholder – large or small.

The participant companies are given the rating as per below norms of governance:

(1) independent of the board of directors

(2) management and performance of the board

(3) increase in the shareholder’s wealth

(4) corporate social responsibility and its contribution by the company

(5) ratings by stock holders

(6) existence and going concern approach

(7) transparency and disclosures by the company