Module-V

Legal and Regulatory Framework of Corporate

Governance
Faculty: Dr. KANIKA TYAGI
 INTRODUCTION
Companies Act,2013 encompasses key
institutions like the Registrar of
Multifarious Companies (ROC) and the National
Regulatory Company Law Tribunal (NCLT), both of
which play pivotal roles in regulating and
Framework: adjudicating corporate matters. The ROC
ROC & oversees the registration, compliance, and
governance of companies, ensuring
Tribunal under adherence to the Companies Act, 2013, while
Companies Law the NCLT functions as a quasi-judicial body
resolving corporate disputes, overseeing
mergers, insolvency proceedings, and
winding-up cases. Together, these bodies
maintain corporate transparency, enforce
legal compliance, and protect stakeholder
rights in the corporate sector.
1. Registrar of Companies (ROC)

The ROC operates under

Filing of Documents:
the Ministry of Corporate
Registration of Companies must file
Affairs (MCA) and is
Companies: The ROC is various statutory
responsible for the
responsible for the documents with the ROC,
administration of the
incorporation of including annual returns,
Companies Act, 2013. It Key Functions of ROC:
companies, whether financial statements, and
acts as a custodian of
public or private, limited changes in the
corporate records and
by shares or by company's structure
ensures that companies
guarantee. (e.g., directors, auditors,
comply with legal
etc.).
requirements.

Compliance Monitoring: Inspection and Role in Corporate

Ensures that companies Investigation: The ROC Governance: The ROC
follow the legal has the power to inspect acts as a regulatory body
requirements laid out in and investigate the to safeguard
the Companies Act. Non- records of any company stakeholders, ensuring
compliance may lead to under its jurisdiction if transparency in the
penalties, legal action, or there is suspicion of functioning of companies,
deregistration of the misconduct or failure to and maintaining accurate
company. comply with the law. corporate records.
2. National Company Law Tribunal (NCLT)

The NCLT is a quasi-judicial body established under the Companies Act, 2013 to resolve corporate disputes and administer
matters related to corporate law. It replaced the Company Law Board (CLB) and some functions of the Board for Industrial
and Financial Reconstruction (BIFR).

Key Functions of NCLT:

Corporate Disputes: The NCLT adjudicates disputes related to company law matters, including mismanagement and
oppression of shareholders, breaches of corporate governance norms, and issues related to the alteration of memorandum
and articles of association.
Mergers and Acquisitions: It has jurisdiction over the approval of schemes of mergers, amalgamations, and corporate
restructuring.

Winding-Up of Companies: The NCLT handles cases involving the winding-up of companies, whether voluntary or by order
of the tribunal.

Insolvency and Bankruptcy: The NCLT plays a pivotal role under the Insolvency and Bankruptcy Code, 2016, where it
handles corporate insolvency resolution processes (CIRP), insolvency proceedings, and liquidation of companies.

Class Actions and Shareholder Rights: Shareholders can file class action suits under the NCLT if their rights are infringed
by the company or its management.

Restoration and Revival: NCLT can order the revival or restoration of a company’s name if it has been struck off from the
ROC’s register due to non-compliance or other reasons.

Appeals: Decisions of the NCLT can be appealed to the National Company Law Appellate Tribunal (NCLAT) and, in some
cases, to the Supreme Court of India.
 The ROC and
NCLT work
closely together
in the
multifarious
regulatory
framework:

Compliance and
Company Penalties: If a Striking Off and
Incorporation company fails to Restoration: The ROC
Issues: If the ROC meet ROC filing or can strike off
rejects an application compliance companies that fail to
for company requirements, the comply with
incorporation, the ROC may impose regulations, while the
aggrieved party can penalties. The NCLT has the power to
appeal to the NCLT. company may seek restore such companies
relief from the NCLT. to the register.
SEBI & ITS
REPORT ON
CORPORATE
GOVERNANCE
 • On April 12, 1988, the Securities and Exchange Board
of India (SEBI)was established with the dual objective
of protecting the rights of small investors and
regulating and developing the stock markets in India.
• Following the liberalization of the Indian economy in
1991, stock market reforms became essential to
unlock the full potential of liberalization and attract
substantial investments from foreign institutional
investors (FIIs).

SEBI • In 1992, the Bombay Stock Exchange (BSE) witnessed

a major scam orchestrated by Harshad Mehta. Analysts
argued that if SEBI had been empowered with more
authority, such a scam might have been prevented. In
response, the Government of India enacted the SEBI
Act of 1992, granting SEBI statutory powers.
• Since then, SEBI has introduced numerous stock
market reforms that have transformed the landscape
of Indian capital markets, fostering transparency,
investor protection, and efficiency.
SEBI and Clause 49 of Listing
Agreement
• Since its establishment, the Securities and Exchange
Board of India (SEBI) has undertaken measures to align
Indian corporate governance practices with the
international standards observed by developed countries.
• The amendments to Clauses 35B and 49 of the listing
agreement have enhanced the effectiveness of
governance frameworks, thereby reinforcing the
protection of the interests of all stakeholders.
• The updated Listing Agreement Clause 49 is in
accordance with the provisions of the Companies Act of
2013. Furthermore, as clarified by SEBI, this regulation
will now extend to non-listed companies, which were
previously exempt, thereby broadening its applicability.
The Securities and Exchange Board of India (SEBI) has mandated that
Indian companies meeting a specified size threshold implement Clause
49, a regulation aimed at enhancing the role of independent directors on
corporate boards.

On August 26, 2003, SEBI announced the amended Clause 49 of the listing
agreement, which must be adhered to by every public company listed on an
Indian stock exchange. These amended clauses are effective immediately for
companies seeking a new listing.
 [Link] 2. Non-Executive
Directors —1/3 to Directors ----The total
The major ½depending whether term of office of non-
changes to the chairman of the executive directors is
Clause 49… board is a non- now limited to three
executive or terms of three years
executive position. each.

[Link] Committee----Financial
statements and the draft audit 3. Board of
Whistleblower Policy report /reports of management
--This policy has to Directors-----The board
discussion and analysis of financial is required to frame a
be communicated to condition and result of
all employees and code of conduct for all
operations/reports of compliance with
board members and
whistleblowers laws and risk
senior management
should be protected management/management letters and
letters of weaknesses in internal and each of them
from unfair have to annually
controls issued by statutory and
treatment and internal auditors/appointment, affirm compliance with
termination. removal, and terms of remuneration of the code.
the chief internal auditor
 [Link] 7. Disclosures----
The major Companies-----50% non- Contingent liabilities/Basis
changes to executive directors & 1/3 & of related party
½independent directors transactions/Risk
Clause 49 depending on whether the management/ Proceeds
continued…. chairman is non-executive from initial public offering/
or executive. Remuneration of directors.

8. Certifications----reviewed the
Conclusion: SEBI's proposed amendments
to Clause 49 aim to balance statutory and necessary financial statements and
regulatory reforms to enhance Corporate Directors' report; established and
growth and attract foreign investment. maintained internal controls,
These rules promote shareholder disclosed to the auditors, and
involvement in decision-making and informed the auditors and audit
enhance transparency in corporate committee of any significant changes
governance, thereby protecting the interests in internal control and/or accounting
of both society and shareholders. policies during the year.
COMPETITION
COMMISSION/
TRIBUNAL
 The Competition Act, 2002

The Competition Act, 2002 was enacted by the Parliament of India and
governs Indian competition law

The Competition bill, 2001 was introduced in Lok Sabha by Finance Minister Arun
Jaitley on 6 August 2001.

It replaced the archaic The Monopolies and Restrictive Trade Practices Act(MRTP
Act), 1969.

Under this legislation, the Competition Commission of India was established to

prevent the activities that have an adverse effect on competition in India.

It is a tool to implement and enforce competition policy and to prevent and punish
anti-competitive business practices by firms and unnecessary Government
interference in the market.
 •It is an act to establish a commission, protect
the interest of the consumers and ensure
freedom of trade in markets in India. The other
objectives of the act are: -
• To prohibit the agreements or practices that
restricts free trading and the competition
between two business entities.

Objectives • To ban the abusive situation of the market

monopoly.
of the Act • To prevent the interests of the smaller
companies or prevent the abuse of dominant
position in the market.
• To provide the opportunity to the
entrepreneur for the competition in the
market.
• To prevent from anti-competition practices
and to promote a fair and healthy
competition in the market.
 Competition Commission of India (CCI)
● The Competition Commission of India is a statutory body of the
Government of India.
● CCI are authorized to pass the law and make the decision on behalf
of the state or country.
● CCI is an expert body regulating anti-competitive practices in the
country. That is when companies were found or accused of unfair
trade practices.
● CCI has been given the authority to direct any enterprise or person to modify,
discontinue, and not re-enter into an anti-competitive agreement and impose
a penalty, which can be 10% of the average turnover for the last three years.
● CCI was established under the Competition Act of 2002, which was
later amended in 2007.
● CCI was established for administration, implementation and
enforcement of the act.
 CCI Members
• CCI consists of a Chairperson and, not
less than 2 and not more than 6
Members appointed by the Central
Government.
• Ravneet Kaur is the current
Chairperson of the CCI, and
Dhanendra Kumar is the first.
• The chairperson and every other
member shall hold office for a term of
five years or until they reach the age
of 65, whichever is earlier. Chairperson
and other Members of the commission
shall be whole time members.
 Objectives of CCI
• To regulate the Competition Act and ensure freedom of trade.
• To prevent practices having an adverse effect on competition.
• To promote and sustain competition in markets.
• To protect the interests of consumers.

• Some Notable Cases by CCI

• On Feb 2013, CCI imposed a fine of INR 52.2 crores on the
BCCI for misusing it dominant position. The CCI found that IPL
team ownership agreements were unfair and discriminatory
and that the terms of the IPL franchise agreements were
loaded in favor of BCCI and franchises had no say in the terms
of the contract.
• In May 2017, CCI ordered a probe into the functioning of the
Cellular Operators Association of India following a complaint
filed by Reliance Jio against the cartelization by its rivals
Bharati Airtel, Vodafone India and Idea cellular.
 Duties of
CCI
•To achieve its objectives, the Competition
Commission of India attempts to do the
following:
• Make the markets work for the benefit
and welfare of consumers.
• Ensure fair and healthy competition in
economic activities in the country for
faster and inclusive growth and
development of the economy.
• Implement competition policies with an
aim to operate the most efficient
utilization of economic resources.
• Effectively carry out competition
advocacy and spread the information on
benefits of competition among all
stakeholders to establish and nurture
competition culture in Indian economy.
 COMPETITION
APPELLATE
TRIBUNAL (CAT)
• Statutory Organization formed under the
Competition Act 2002.

• To hear & dispose appeals against any direction

issued or decision made, or order passed by CCI. It
also adjudicates on claims for compensation that
may arise from the findings of CCI or the Tribunal.

• Chairperson- Person who is or has been a judge of SC

or the Chief Justice of a High court + Maximum of 2
other members
• A person preferring an appeal to the tribunal may
appear in personal or authorize any CA/ CS / Cost
Accountant / Legal practitioners/ officers to
represent the case.
The tribunal holds the same power as exercised by a high court in case of its
contempt under the provision of Contempt of Courts Act 1971.

The CAT has now conferred to National Company Law Appellate Tribunal
(NCLAT).
NCLAT(National Company Law Appellate
Tribunal)

NCLAT was constituted under Section 410 of the Companies

Act, 2013 .

• To hear appeals against the orders of the National Company Law

Tribunal with effect from 1st June 2016.
• To hear appeals against the orders passed of the Insolvency and
Functions of Bankruptcy Code with effect from 1st December 2016.
NCLAT • It became the Appellate Tribunal to hear and dispose of appeals
against the Competition Commission of India under the Finance
Act 2017, with effect from 26th May 2017.
Case filed by MCX Stock Exchange Limited on NSE
(2014)
NSE announced a transaction fee waiver in respect of all
Currency Derivatives executed on its platform .
Due to this MCX- SX the other player also had to waive
transaction fee in CD segment and thus suffered huge
losses.
Therefore MCX-SX filed a case against NSE for abusing its
dominant position by indulging in predatory pricing .
The CAT found NSE guilty and upheld the decision of
Competition Commission of India to impose a penalty of
Rs 55.50 crores.
It rejected the NSE argument that the relevant market
was “ Stock Exchange services for only CD segment ."
The Penalty imposed can be up to 10 percent of average annual
turnover of the enterprise found guilty. Maximum
Penalty

So, if the relevant market would have been only CD

segment the Penalty that NSE had to pay would have
been much less.

The Tribunal declared “ The relevant market should

consider entire stock exchange services .” as NSE does TOTAL
not deals with a specific product . It deals with an entire
range of services . TURNOVER

It is one of the iconic cases of CAT as it led to the

determination of relevant product market in similar cases heard
by CCI .
 Regulation by CCI (Limiting Merger &
Acquisition)
The CCI will consider a few criteria[3] before sanctioning or approving a
combination. These criteria are:

What will be the actual level of imports in the market after the combination
takes place.
The total market share of the new entity formed through the combination the
concentration of market share in the entity.

Whether other competitors will make any unilateral effort to remain in the
competition after the combination takes place, or will all efforts stop.
Whether the resulting entity from the combination will create barriers to
entry in the relevant market. Or even if they will stop other competitors’
expansions.
In case of horizontal mergers, whether there is any overlap in the markets
and other factors.
Whether or not there is a chance of alternative suppliers and if there are substitute
products existing in the market.
The likelihood under which it is possible for the combination of getting a
substantially large profit after combination.
Whether or not the benefits of the combination outweigh the adverse effects of it.

If the mere existence of the combination will curb other competition.

The nature and extent of innovation coming into the market after the combination.

If the mere existence of the combination will curb other competition.

These are just some of the factors which have to be very carefully
considered by the CCI before approving any combination. This is
because it falls on to the CCI to ensure that no one exploits or tries
to control the economy to suit their needs.
 Competition Act Can’t restrict these Act’s

The Geographical The Semi-

The Trade and Indication of Good conductor
The Copyright Act, The Patent Act, The Design Act,
Merchandise Marks (Registration and Integrated Circuits
1957 1970 2000
Act, 1958 Protection) Act, Layout-design Act,
1999 2000

The right of any person to export good From India

to the extent to which the agreement exclusively
to the production, supply, distribution or Control of
good or provision of services of such exports
Cases where CCI
Allowed Merger &
Acquisition
Vodafone - Idea Merger-After the advent of the
telecommunication service of Reliance Jio, many telecom
companies have been forced to slash their prices and to bring
about new offers.

Along with this is comes the merger of telecom giants Vodafone

and Idea. Individually both these companies had dominant position
in the market. Thus, the question that arises is why this
combination was allowed by the Competition Commission of India.
The answer to this lies within the analysis of the industry. After
looking at the position of the industry after Jio, it could be seen that
Jio was also in a position to abuse dominant position in the market.
The merger was allowed to ensure that competition continues
 Tata Steel - Bhushan Steel Takeover-
Tata is already a giant in the steel industry
and has a near monopoly in most sectors of
the steel market. Bhushan Steel was the
leading company in the field of auto-grade
steel.

Though having stable operations, it was a non-

performing asset. It was up for takeover. Tata
Steel won the bid and then this has become
known as Tata Steel BSL. This takeover has
allowed Tata Steel to gain a dominant position
in the one steel field where it was not a leader.
This opens the avenue for a near monopoly in
the steel market. Yet, the CCI allowed this
takeover, because not only did it allow the
economy to continue, but increased revenue in
the market.
Need for Competition Commission for
regulating malpractices
[Link] (MMT)-GoIbibo
and OYO:
• CCI found that the merger of MMT and
GoIbibo had led to its dominance in the
relevant market of online travel agency,
which had empowered MMT-Go to
operate independent of the competitive
forces prevailing in the relevant market.
• MMT-Go had imposed a term in the
contract with hotels, whereby the latter
was not allowed to sell its room at any
other platform or on its own online portal
at a price below which it was being
offered on MMT-Go’s platform.
• OYO facilitates and markets budget
accommodation on its platform.
 • CCI ordered a probe against
Amazon and Flipkart for
[Link], including deep discounting
and tie-ups with preferred
Flipkart seller
• engaging in predatory
pricing

This is why • to promote freedom of

trade and competition in
there is a the market
need of • to protect interest of
Competitio consumers.
n • to regulate and stop
Commissio malpractices in the
n markets.
 IMPORTANT JUDGEMENTS:

• Manu Jain v. Hiranandani Hospital Mumbai

• Coal India Ltd. v. Sponge Iron Manufactures Association (SIMA)
• M/s Santuka Associates Pvt. Ltd. v. All India Organisation of Chemists and
Druggists
• Builders Association of India v. Cement Manufacturer’s Association and Ors.
• Hindustan Lever Ltd. v. Competition Commission of India
• Belaire Owners’ Association v. DLF Ltd.
Compliances under various
Laws, including Competition
Laws, SEBI Laws, Taxation
Laws, Money Laundering Laws
1. Compliances under Competition Laws
• The Competition Act of 2002 governs competition
in India and seeks to prevent anti-competitive
agreements, abuse of dominant positions, and regulate
mergers and acquisitions.
•Corporate compliance obligations:
• Prohibition of anti-competitive practices:
Companies must avoid agreements or practices
that restrict competition sec.3 and 4 (e.g., cartels,
price-fixing).
• Merger control regulations: Companies
engaging in mergers, acquisitions, or
amalgamations must notify the Competition
Commission of India (CCI) and seek approval if
they cross certain thresholds to ensure these
deals do not harm market competition. (Section
6)
• Compliance programs: Organizations must
implement internal policies to avoid anti-
competitive behavior and ensure that employees
are aware of and comply with competition laws.
Compliances under SEBI Laws
Listing Obligations and Disclosure
Requirements (LODR), 2015: Companies
listed on stock exchanges must adhere to
SEBI’s LODR regulations, which ensure timely
and accurate disclosure of financial
information and material events.
Securities and Exchange Board of
India (SEBI) Act, 1992 regulates the
securities market and ensures investor
protection and corporate accountability.
Corporate governance norms: Listed
companies must comply with SEBI-mandated
governance standards, such as board
composition (including independent directors),
audit committees, and the role of
stakeholders.
Key corporate compliance
obligations:
Prohibition of Insider Trading: The SEBI
(Prohibition of Insider Trading) Regulations,
2015 mandate that companies maintain
stringent measures to prevent the misuse of
unpublished price-sensitive information (UPSI).

SEBI Takeover Regulations: Companies

must adhere to SEBI’s takeover rules when
acquiring a substantial stake in another
company.
Compliances under Taxation Laws
The Income Tax Act, 1961, and Goods and
Services Tax (GST) laws impose various tax-related
compliances on companies.
•Corporate tax compliances:
• Filing of returns: Companies must file
timely income tax and GST returns, ensuring
accurate reporting of income and
goods/services transactions.
• Transfer pricing regulations: Companies
involved in international transactions with
related parties must comply with transfer
pricing regulations, ensuring transactions are
conducted at arm’s length.
• Tax audits: Companies crossing certain
thresholds are required to undergo tax audits
and submit audited financial statements to
tax authorities.
• TDS (Tax Deducted at Source)
compliances: Companies must deduct tax at
source on salaries, interest, and other
payments, and file TDS returns with the
authorities.
• Corporate Social Responsibility (CSR):
Companies are required to comply with CSR
provisions under Section 135 of the
Compliances under Money Laundering Laws
Prevention of Money Laundering Act (PMLA), 2002:
This law aims to combat money laundering and requires
certain businesses, including financial institutions, to
maintain compliance programs.
Corporate compliance requirements:
• KYC (Know Your Customer) norms: Companies,
especially financial institutions and intermediaries,
must adhere to strict KYC requirements to prevent
money laundering and fraud.
• Reporting obligations: Companies must report
suspicious transactions to the Financial
Intelligence Unit (FIU) under the PMLA. These
include large cash transactions, unusual financial
activities, and money transfers that appear
suspicious.
• Record maintenance: Businesses must maintain
records of all transactions for a minimum of five
years to ensure transparency and assist in
investigations if required.
• Appointment of compliance officers:
Companies are often required to appoint officers
responsible for ensuring compliance with anti-
money laundering (AML) laws.
Disclosure of information mandated
by Law & consequence for non-
compliance

Disclosure of information is a critical aspect of corporate

governance, ensuring transparency, accountability, and
trust among stakeholders, including shareholders,
regulators, and the public. Various laws mandate companies
to disclose specific information at different stages of their
operations, and non-compliance with these disclosure
requirements can result in penalties and other legal
consequences.
 Annual Financial
Statements: Companies
Board Reports: A detailed
must file their financial
report from the board of
The Companies Act, 2013 statements, including
directors, including
Disclosure mandates several balance sheets, profit &
performance highlights,
Requirements under disclosures to ensure loss statements, and cash
risk factors, details on CSR
Company Law transparency in corporate flow statements, with the
activities, related party
(Companies Act, 2013) operations. Key disclosures Registrar of Companies
transactions, and director
include: (ROC). These statements
remuneration, must be
must be audited and
filed annually.
approved by the board of
directors.

Corporate Social
Annual Return:
Responsibility (CSR):
Companies are required to
Companies covered under
file an annual return
Section 135 must disclose
disclosing shareholder Consequences of Non-
their CSR policy,
details, directors’ Compliance:
expenditure on CSR
information, share capital
activities, and reasons for
structure, and other
any non-compliance with
governance information.
mandatory CSR spending.

Penalties for Non-Filing of Financial Disqualification of

Statements and Annual Returns: Section 92 and Directors: Continuous non-
Fines and Imprisonment: In
Section 137 of the Companies Act provide penalties compliance may lead to
severe cases of non-disclosure or
for failure to file annual returns or financial disqualification of directors
fraudulent filing, companies and
statements with the ROC. Penalties may include under Section 164 of the
officers in default may face
fines on the company and its directors, ranging from Companies Act, prohibiting
imprisonment and significant fines.
INR 50,000 to INR 5 lakh or more, depending on the them from holding directorship
nature of the default. in other companies.
 Under the SEBI (Listing
Obligations and Disclosure
Listed companies must comply Requirements) Regulations,
Quarterly Financial Results:
with stringent disclosure norms 2015, companies must disclose
Listed companies must disclose
Disclosure Requirements set by the Securities and any material information that
their quarterly and annual
under SEBI Laws Exchange Board of India to affects the financial health or
financial results within specified
protect investors and maintain performance of the company,
timeframes.
market integrity. such as mergers, acquisitions,
significant contracts, or legal
proceedings.

Insider Trading Regulations:

Monetary Penalties: SEBI
SEBI mandates the disclosure of
Shareholding Patterns: imposes fines for non-
dealings by insiders under the
Companies are required to compliance with its disclosure
SEBI (Prohibition of Insider
disclose their shareholding requirements. Penalties for
Trading) Regulations, 2015. Consequences of Non-
patterns, including the holdings failure to disclose material
Insiders must disclose trades Compliance:
of promoters, institutional information can range from INR
involving the company’s
investors, and public 1 lakh to INR 25 crore or three
securities to prevent unlawful
shareholders. times the amount of profits
use of price-sensitive
made due to non-disclosure.
information.

Criminal Liability: In cases

Delisting: Repeated violations involving fraudulent disclosures
of disclosure requirements can or suppression of material
lead to the delisting of a information, companies and
company’s securities from stock their directors may face criminal
exchanges. charges, including
imprisonment.
 Merger and Acquisition
Notifications: Companies
The Competition Act, must notify the Competition
Disclosure Requirements 2002 requires disclosures Commission of India (CCI)
under Competition Law related to mergers and about mergers,
(Competition Act, 2002) acquisitions that cross acquisitions, and
specific thresholds. amalgamations that may
affect competition in the
market.

Disclosure of Anti-
Competitive
Penalties for Failure to
Agreements: Companies
Notify: If a company fails
must refrain from engaging
to notify the CCI about a
in anti-competitive Consequences of Non-
merger or acquisition, it can
practices like cartels, price- Compliance:
be fined up to 1% of the
fixing, or abuse of
total turnover or assets of
dominance and disclose
the involved enterprises.
information related to such
agreements.

Fines for Anti-

Competitive Practices:
Companies engaging in
anti-competitive practices
may be fined up to 10% of
their average turnover for
each year of the violation.