Professional Documents
Culture Documents
Corporate Governance
Corporate Governance
ON CORPORATE GOVERNANCE –
Continued…
12. Offences and Penalties
12.1 The Law should encourage compliance through self-
regulation. It should clearly define the rights of stakeholders and
means of redressal of their grievances. State to discharge an
important responsibility not only in framing the Law but also in its
effective implementation, enforcement and administration.
12.2 There is need for a regime of penalties commensurate
with the offences. Penalties regime for corporate should be in the
nature of monetary fine since company being an artificial economic
person cannot be imprisoned.
12.3 The liability of the Board of directors to be clear and absolute. A
clear regime for identification of Officers-in-default also to be
necessary. Specific rules for fixing criminal liability in appropriate
cases should be framed. The liability of CEOs/CFOs/Company
Secretaries as well as other officers of the company who are in default
to be specifically provided for. The professionals advising the
companies on various matters also to be held liable if found not to be
diligent or law compliant.
Continued…
12.4 The Company Law to provide for an in-house structure for
levying non-discretionary monetary penalties only (i.e. in respect of
offences not involving imprisonment). Central Government (and its
officers) to be vested with powers to levy such monetary penalties.
Mechanism to transfer eligible proceedings from courts to in-house
structure to be suitably provided for.
12.5 The penalties may be classified in the form of two self-
contained schedules –one for monetary penalties and the other for
those involving imprisonment, with or without fine. The Law to lay
down the maximum as well as minimum quantum of penalty for
each offence. The Law to provide for suitable deliverance in
respect of repeats offences.
12.6 In case of fraudulent activities/actions, provisions for
recovery and disgorgement to be suitably provided for. The issue of
“Phoenix problem” to be suitably addressed through a combination
of disclosures, insolvency processes and disqualification of
delinquent directors. The Law to provide for lifting of the corporate
veil to check any fraudulent activity.
12.7Law to provide for special powers to compel filing of documents,
with enhanced penalties for persistent default.
Continued…
13. Restructuring and Liquidation
13.1 An effective insolvency system is an important
element of financial system stability. There is a need for
an effective Insolvency framework, which enables
resolution of insolvency in a timely and efficient manner.
Corporate insolvency may be addressed through
Companies Act. A separate Insolvency law is not
necessary at present.
13.2 A definitive and predictable time frame is
needed for rehabilitation and liquidation process.
13.3 The law should strike a balance between
rehabilitation and liquidation process. It should provide
an opportunity for genuine efforts towards revival. Only
where revival/rehabilitation is not feasible, winding up
should be resorted to.
Continued…
13.4 Both debtors and creditors should have fair
access to insolvency system. Rather than net worth
erosion principle, test for insolvency should be default in
payment of matured debt on demand within a
prescribed time [liquidity test]. Debtors seeking
rehabilitation should be able to approach Tribunal only
with a draft scheme. Creditors being at least 3/4th in
value may also file scheme.
13.5 A limited standstill period is essential for
genuine business restructuring to be regulated through
Tribunal‟s Orders during which there is prohibition on
unauthorized disposition of debtors‟ assets and
suspension of actions by creditors to enforce their
rights. The law should provide for appropriate
prohibitions on certain Debtors‟ rights [transfer, sale or
disposing of assets etc.] subject to certain exemptions
on initiations of insolvency.
Continued…
13.6 There should be duty on companies to convene
creditors and shareholders meeting on default in
payments to creditors to consider suitable steps to
protect interest of stakeholders, preserve assets and
adopt necessary steps to contain Insolvency.
13.7 The debtor assets should be subjected to
supervision or management of impartial, independent,
and effective Administrator.
13.8 Provisions should be made for setting up of
Committee of secured creditors to safeguard their
interest and provide a suitable platform for creditors‟
participation in the process. The law should also
provide for mechanism to recognize and record claims
of unsecured creditors.
Continued…
13.9 A Panel of Administrators and liquidators should
be prepared and maintained by an independent body
out of experienced and knowledgeable Insolvency
Practitioners. Private professionals should play a
meaningful role in all aspects of insolvency process.
The law should encourage and recognize concept of
Insolvency Practitioners.
13.10 The law should prescribe a flexible but
transparent system for disposal of assets efficiently and
at maximum value. Secured creditors‟ claim should
rank pari passu with workmen. Public interests,
Government claims should not get precedence over
private rights. Revival plan should be required to be
approved by secured creditors holding 3/4th of total
value to be binding on all creditors.
Continued…
13.11 Establishment of NCLT would provide a major initiative for
insolvency system reforms in the country and should be enabled
quickly. NCLT should have general, non intrusive and supervisory
role. The Tribunal should adopt a commercial approach to dispute
resolution observing the established legal principles of fairness in
the process. Selection of President and Members of the Tribunal
should be such so as to enable a wide mix of expertise for conduct
of its work.
13.12 Provisions relating to rehabilitation cess should be
replaced by the concept of “Insolvency Fund” [Fund] with optional
contributions by companies. Government may make grants for the
Fund and provide incentives to encourage contributions by
companies to the Fund. Companies which make contributions to
the Fund should be entitled to certain drawing rights in the event of
insolvency. Administration of the Fund should be by an
Independent Administrator. Insolvency Fund should not be
linked/credited to Consolidated Fund of India.
Continued…
13.13 A suitable framework for Cross
Border Insolvency which provides for
rules of jurisdiction, recognitions of foreign
judgments, co-operation and assistance
among courts in different countries and
choice of law is required. The
Government may consider adoption of
UNCITRAL Model Law on Cross Border
Insolvency with suitable modifications at
an appropriate time.