Written by: NAKSHATRA.S , 3RD YR BB.A.LL.B , CHRIST DEEMED TO BE UNIVERSITY , LAVASA ,PUNE
Corporate governance is crucial to ensure that companies conduct business with integrity, transparency and accountability and it also supports business development and integrity. It provides an environment for moral decision making , legal observation and economically sound practise. A case Sridhar Sundarajan v Ultramarine & Pigments Ltd brings to light of important concern around the director tenure and regulatory compliance.
CORPORATE GOVERNANCE
The term corporate governance describes the open , accountable and effective way that businesses are run . it helps with risk management, performance optimization and setting and achieving company objective. In order to balance conflict of interest among the stakeholders the board of directors and management , it establishes regulations, policies, and duties. Considering if a company’s objective and decision making align is another important function of corporate governance. In the end it safeguards the interest of all the shareholders by promoting transparency which strengthens stakeholders trust and promotes growth in the company
IMPORTANCE OF CORPORATE GOVERNANCE
The corporate governance promotes a culture of integrity , accountability, and efficiency to ensure long term business success. It aligns the interest of management with outside stakeholders, improving market trust and giving a competitive edge. Through simplification of processes , the corporate governance enhances operating efficiency and consistency , facilitating easy identification of errors and their rectification in time. This reduces the unnecessary cost by removing by deducting the inefficiencies. Moreover , effective governance reduces disruptions to a minimum , allowing business to run without any disputes. It also help in regulatory compliance , allowing the firms to achieve legal and industry requirements while keeping product quality and reliability intact. In general , a good corporate governance increases transparency, foster investor confidence and promotes growth of the company.
LEGAL FRAMEWORK FOR CORPORATE GOVERNANCE
In India corporate governance is governed by many laws and regulations some of them are as follows :
· Companies act 2013 , this is the main legislation that establish governance norms , outline the functions and duties of boards and require disclosures in order to maintain accountability and openness
· SEBI ( listing obligation and disclosure requirement ) 2015, this ensures that the companies follows the governance standards by preserving openness in the board decisions and financial reporting
· Clause 49 of the listing agreement : it established the governance standard for the business prior to SEBI. It established the groundwork for corporate governance compliance by placing a strong emphasis on audit board and independent directors.
· Corporate governance committee : various committees have played a very important role in corporate governance in India it includes
1. Kumar Mangalam Birla Committees 1999: this committee made recommendation for enhancement to financial reporting, audit committees and board composition.
2. Narayan Murthy Committee 2003: this committee worked to increase board duties and the role of independent directors.
Case Study: Sridhar Sundararajan v. Ultramarine & Pigments Ltd.
In terms of board composition , director tenure and regulatory compliance , the Sridhar Sundarajan v ultramarine and pigments Ltd this is a landmark decision in the field of corporate governance. The main concern of this case is wether the directors tenure can go beyond the age limit as mentioned in the companies act 2013. Section 196(3)(a) of the companies act mentions that a managing director, whole time director or the manager cannot remain beyond the age of 70 unless a special resolution is adopted by the shareholders. In this regard the subject director had remained in place beyond this threshold without securing the shareholders’ approval that was required. This was of concern to issue of compliance with governance regulations and the need for the shareholder involvement in critical corporate choices.
JUDGEMENT
The Bombay high court held that the director cannot continue his service post at the age of 70 unless and until he secure a special resolution of the shareholders, as mentioned under companies act ,2013. The judgement reiterated the tenet that strict legal adherence to governance rules is necessary, thereby ensuring that companies follow laid down frameworks instead of taking unilateral decision in the matter of board appointment. The court stressed the need for shareholder consent in extending the directors term beyond the specific age limit. Moreover the judgement clarified that the firms cannot circumvent governance legislation, thus enhancing regulatory control and avoiding the possible mismanagement . By enforcing the requirement of board independence the ruling highlighted the importance of the role played by the corporate governance in promoting ethical leadership , holding companies accountable and ensuring transparency in corporate conduct.
· Compliance with governance law : the decision brought to the fore compliance with governance rules, especially director tenure and board appointment rules. By enforcing the compliance with the section 196(3)(a) of the companies act 2013, the case established the precedent for adherence to governance standards.
· Enhancing shareholders right and transparency : Another important principle of good governance is keeping the board independent , governance laws limits the directors tenure to avert the emergence of undue dominance in management and create conflict interest. The judgement dissuaded board entrenchment and promoted decision making bias or inclination.
· Established precedents on compliance for corporate governance : this case is a reference for exercising governance standards, where the companies are not allowed to supersede governance legislation in favour of convenience . it also highlighted that the companies will be answerable for their governance conduct, practising accountability and leadership
CONCLUSION
In this modern corporate world , the corporate governance is a prerequisite and it is not a option. Corporate firms that advance governance values become long term successful, financially viable and solidly reputable within the market. By promoting culture based on good leadership and adhering to legal compliance, corporate entities can sustain value for various stakeholders while protecting long term existence. The case highlights the importance of governance in regulating the boards tenure and shareholders right.
REFERENCE
SpriggHR, The Importance of Corporate Governance, SpriggHR Blog, https://sprigghr.com/blog/board-management/the-importance-of-corporate-governance/ (last visited Feb. 23, 2025).
Daniel Chen, A Literature Review of Corporate Governance, 8 Edelweiss Applied Sci. & Tech. 8945, 8945-49 (2024),
The Companies Act, No. 18 of 2013, INDIA CODE (2013), available at https://www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf.
Sridhar Sundararajan v. Ultramarine & Pigments Ltd. & Anr., AIR 2016 (NOC) 335 (Bom.), (2016) 2 A.B.R. 273, (2016) 4 Mah. L.J. 590, (2017) 7 All M.R. 54 (Bom.), (2016) 4 Bom. C.R. 182 (India).
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