Taking stock

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As Vandana Shroff and Surya Kiran Banerjee explain, the new Companies Act will change governance norms

After much delay and debate the Companies Act, 2013, was enacted in August 2013 with a view to overhauling the corporate governance regime in India by increasing transparency and accountability, enabling better decision-making and empowering minority shareholders. As the specific provisions of the act have been well analysed and are now familiar to most, this article briefly examines how its most vaunted provisions have played out in practice and where the corporate governance regime is heading.

Vandana Shroff
Vandana Shroff

A key objective of the act was to increase accountability through better decision-making at the level of the board of directors. This was to be achieved through measures such as the codification of the common law duties of directors, which although well intended has led to significant confusion. The duties of directors, for example to the environment and the shareholders, are often conflicting and there is no statutory clarity on how these conflicts should be reconciled. That having been said, it is likely that the courts will lay down a test of what is reasonable in this regard when called upon to do so. A similar conundrum is also likely with respect to duties that are too broad. For example, the duty of the directors to certify compliance with the law. Questions such as this will also need to be deliberated by the courts.

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Vandana Shroff is a partner at Cyril Amarchand Mangaldas, where Surya Kiran Banerjee is an associate.

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Email: vandana.shroff@cyrilshroff.com

surya.banerjee@cyrilshroff.com