Corporate Governance

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The Doctrine of Vicarious Liability of Auditors: Delhi HC Judgment in Deloitte v. Union of India

Background

India’s evolving financial reporting system has made robust corporate governance mechanisms indispensable. The need for heightened financial reporting mechanisms was first felt after the country was rocked by multiple corporate scandals, specifically 2009’s Satyam Computer scam. The scam exposed numerous auditing-related issues, namely, the manipulative practices of auditors, inadequacy of regulatory oversight in accounting and auditing standards, and the importance of accountability of the professional conduct of auditors. It also raised crucial questions related to the independence and effectiveness of auditors. Against this backdrop, there was a reverberating demand for stronger institutional frameworks to regulate and supervise accounting and auditing standards in the country. It became imperative to set up an autonomous body for financial reporting to attract foreign investment and elevate public confidence in the financials of investee companies, leading to the establishment of the National Financial Reporting Authority (“NFRA”).Continue Reading The Doctrine of Vicarious Liability of Auditors: Delhi HC Judgment in Deloitte v. Union of India

Global Capability Centers – Trends, Opportunities and Recent Learnings

Overview

With over 1,700 Global Capability Centers (“GCCs”), revenues at $64.6 billion (a 40% jump over FY23 numbers) and a 17% global share of the GCC capacity base, India is the GCC Capital of the World. The GCC market in India is projected to grow to $99-105 billion by 2030 with nearly 2,100-2,200 GCCs and a headcount of ~2.5-2.8 million.[1]Continue Reading Global Capability Centers – Trends, Opportunities and Recent Learnings

Managerial Remuneration – Should Promoters Be Disenfranchised?

Historical Context

The Government of India’s socialistic approach towards controlling managerial remuneration between 1960s and 1990s has been a painful chapter in the history of India’s company law. While the restriction applied only to those on the board of directors, the limits the then Department of Company Affairs had prescribed in its administrative guidelines under the Companies Act, 1956 in November 1969 was as low as INR 7,500 per month and further reduced to INR 5000 per month years later. Any payment beyond those limits required the Central Government’s approval, which was also a very cumbersome and time-consuming process. This led to the unhealthy practice of compensating Managing Directors and Executive Directors (“MD/EDs”) with cash reimbursements and many other inappropriate methods. Some MDs/ EDs also stepped down from the board to accept positions one level below the board. They were designated as presidents and vice presidents despite performing the role of the Managing Director.Continue Reading Managerial Remuneration – Should Promoters Be Disenfranchised?

Strategically building a workforce for Global Capability Centres (GCCs) in India

In part III of our series on key legal considerations for establishing global capability centres (“GCCs”) in India,[1] we discuss the various factors that need to be considered to engage workforce for the GCCs.Continue Reading Strategically building a workforce for Global Capability Centres (GCCs) in India

Increasing the role and relevance of ‘Proxy Advisory Firms’ in corporate governance

Until very recently, the recommendations of proxy advisory firms did not impact companies much, as it did not have the power to influence or fail/ stop a resolution from being passed. However now, the recommendations of proxy advisory firms are becoming increasingly relevant given that many institutional investors are basing their positions while voting on resolutions on such advice. This is evidenced from the fact that a proxy advisory firms have recently managed to prevent a resolution for granting employee stock options to employees of a group entity of a very large Indian bank from being passed due to the absence of “any compelling reasons”.[1] In another interesting case, a proxy advisory firm came very close to preventing a resolution pertaining to an increase in the remuneration of a director from being passed on account of this increase being “skewed” and “guaranteed”.[2]Continue Reading Impact of Proxy Advisory Firms: Turning tides and failing resolutions

SEBI

Background

SEBI has been progressively tightening the regulatory regime surrounding transactions impacting listed entities – beginning with the implementation of the Kotak Committee recommendations on related party transactions (RPTs) through amendments to the LODR Regulations on May 9, 2018. Shortly thereafter, in November, 2019, SEBI constituted a Working Group (WG) to re-examine the RPT provisions of LODR Regulations, which resulted in the markets regulator notifying amendments on November 9, 2021, which took effect from April 01, 2022. These amendments brought about a paradigm shift by making the RPT approval and disclosure requirements applicable to listed companies in India very expansive and stringent.Continue Reading Proposed Amendments to LODR on Agreements Affecting Listed Companies – Swatting Flies with a Sledgehammer?

Nomination and Remuneration Committee

Background

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR”), envisages a key role for the Nomination and Remuneration Committee of the Board of Directors (“NRC”) – in ensuring that the company attracts and retains the best talent – and there is transparency in the process of appointment/ re-appointment and payment of remuneration to directors, key managerial personnel (“KMPs”) and senior management[1].Continue Reading Gatekeepers of Governance – Nomination and Remuneration Committee

Context

The regulatory architecture under the Companies Act, 2013 (“Act”), and the SEBI (LODR) Regulations, 2015 (“LODR”), places independent directors (“IDs”) at the forefront of India’s quest for better corporate governance. Given that approximately 75% of listed companies in India are promoter-controlled, the MCA and SEBI have envisaged that the IDs will play a key role in safeguarding minority shareholders’ interest.Continue Reading Gatekeepers of Governance – Independent Directors