New Delhi: The corporate affairs ministry has underscored the importance of sound corporate governance mechanisms in its latest monthly report, stating that they prevent fraudulent activities, safeguard investor rights, and maintain market confidence.
When these mechanisms fail, the ministry said, it can lead to "instances of oppression and mismanagement" at a company.
While the communication doesn't flag any specific lapse, it comes at a time when the ministry has ordered a probe into the alleged corporate governance failure at Gensol Engineering and its related party BluSmart Mobility amid allegations of fraud there.
In 2023, the ministry had also ordered an investigation into the books of Byju's, the report of which is yet to be finalised and made public.
The communication is part of the April monthly newsletter published by the ministry.
"Corporate governance serves as the backbone of a well-functioning corporate structure, ensuring accountability, transparency, and fairness in business operations," the ministry said in the communication. "It establishes a system of rules and practices through which companies are directed and controlled, balancing the interests of various stakeholders," it added.
Last month, Securities and Exchange Board of India (Sebi) had barred Gensol's promoters-brothers Anmol and Puneet Jaggi-from accessing stock markets and ordered a forensic probe into their listed renewable energy firm. An interim report of the market regulator pointed to fund diversion by the brothers and governance failures within the company. The brothers face allegation of misutilisation of term loans availed of by Gensol from state-run IREDA and PFC.
Legal safeguards
The ministry's communication highlights various legal safeguards under the Companies Act that can be used by stakeholders, including the minority ones, to ensure sound corporate governance and curb oppression and mismanagement. Oppression typically occurs when a company's affairs are conducted in a manner prejudicial to any member or group by disregarding their rights.
Sections 241 to 246 of the Companies Act, for instance, establish a framework to promote fairness and transparency and offer remedies when affairs of a company are conducted in a manner detrimental to its shareholders or the firm itself.
Under section 241, members of a company can apply to the National Company Law Tribunal (NCLT) if they believe the company's affairs are being conducted in a manner prejudicial to the company's or the broader public interest.
Moreover, the government also has power to approach the NCLT if it reckons that a company's affairs are being conducted against the public interest, the communication said, stressing the need for upholding corporate governance for everyone's benefit.
When these mechanisms fail, the ministry said, it can lead to "instances of oppression and mismanagement" at a company.
While the communication doesn't flag any specific lapse, it comes at a time when the ministry has ordered a probe into the alleged corporate governance failure at Gensol Engineering and its related party BluSmart Mobility amid allegations of fraud there.
In 2023, the ministry had also ordered an investigation into the books of Byju's, the report of which is yet to be finalised and made public.
The communication is part of the April monthly newsletter published by the ministry.
"Corporate governance serves as the backbone of a well-functioning corporate structure, ensuring accountability, transparency, and fairness in business operations," the ministry said in the communication. "It establishes a system of rules and practices through which companies are directed and controlled, balancing the interests of various stakeholders," it added.
Last month, Securities and Exchange Board of India (Sebi) had barred Gensol's promoters-brothers Anmol and Puneet Jaggi-from accessing stock markets and ordered a forensic probe into their listed renewable energy firm. An interim report of the market regulator pointed to fund diversion by the brothers and governance failures within the company. The brothers face allegation of misutilisation of term loans availed of by Gensol from state-run IREDA and PFC.
Legal safeguards
The ministry's communication highlights various legal safeguards under the Companies Act that can be used by stakeholders, including the minority ones, to ensure sound corporate governance and curb oppression and mismanagement. Oppression typically occurs when a company's affairs are conducted in a manner prejudicial to any member or group by disregarding their rights.
Sections 241 to 246 of the Companies Act, for instance, establish a framework to promote fairness and transparency and offer remedies when affairs of a company are conducted in a manner detrimental to its shareholders or the firm itself.
Under section 241, members of a company can apply to the National Company Law Tribunal (NCLT) if they believe the company's affairs are being conducted in a manner prejudicial to the company's or the broader public interest.
Moreover, the government also has power to approach the NCLT if it reckons that a company's affairs are being conducted against the public interest, the communication said, stressing the need for upholding corporate governance for everyone's benefit.
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