Legislative Framework of Corporate Governance in India – Governance, Risk Management, Compliances and Ethics Important Questions
Question 1.
In Indian context, there is no single apex regulatory body which can be said to be the regulator of corporate but there exists a coordination mechanism among various functional regulators. Explain by providing examples.
OR
“Indian legislative framework supports transparency and disclosure by corporate” explain.
Answer:
In India there are different regulators for different areas. There is no single apex regulatory body which can be said to be the regulator of corporate. Following are the regulatory authorities which function in coordination with each other:
- Companies Act and Rules : Ministry of Corporate Affairs (MCA)
- Capital Market and Stock Exchange : Securities and Exchange Board of India (SEBI)
- Insurance : Insurance Regulatory and Development Authority (IRDA)
- Foreign Business : Foreign Investment Promotion Board (FIPB)
- Imports and Exports : Foreign Exchange Management Act (FEMA)
- Foreign investment : Reserve Bank of India
- Intermediaries, Banking Companies and Insurance Business : Financial Intelligence Unit (FIU)
- Communication : Tele-com Regulatory Authority of India (TRAI)
- Professions : (Profes-sional Institutes like ICSI, ICAI, ICAI (CMA) etc.)
Common law system in India
Companies Act, 2013:
Entities are incorporated as companies in terms of the Companies Act, 2013 and governed by the Companies Act, 2013 (as amended from time to time). The Companies Act is administered by the Ministry of Corporate Affairs.
Securities and Exchange Board of India (SEBI):
The Securities and Exchange Board of India (SEBI) is the prime regulatory authority which regulates all aspects of securities market enforces the Securities Contracts (Regulation) Act including the stock exchanges. Companies that are listed on the stock exchanges are required to comply with SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015.
Applicability of SEBI (LODR) Regulations, 2015: SEBI is the prime regulatory authority which regulates all aspects of securities market and listed entities. In order to ensure good corporate governance SEBI had issued detailed Corporate Governance Norms in form of Clause 49 of Listing Agreement which has since been repealed and notified as a separate regulation being the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
Question 2.
India has been flooded with various Ponzi schemes that take advantage of suspicious investors looking for alternate banking options. Lacking access to formal banks, low income Indians often rely on informal banking. These informal banks invariably consist or money lenders who charge interest at inflated rates and are soon replaced by more sophisticated methods of cunning people through disguised Ponzi schemes.
Fund raising is done through legal activities such as collective investment schemes, non-convertible debentures and preference shares, as well as illegally through hoax financial instruments such as fictitious ventures in construction and tourism. The rapid spread of Ponzi schemes, especially in North India has various causes, not the least of which, include the lack of awareness about banking norms, steadily falling interest rates, lack of legal action against such activities and the security of political patronage.
The Ponzi scheme run by Saradha Group, collected money from investors by issuing redeemable bonds and secured debentures and promising in-credulously high profits from reasonable investments. Local agents were hired throughout the State of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglom¬erate of more than 200 companies.
SEBI first detected something suspicious in the group’s activities in 2009. It challenged Saradha because the company had not complied with the provisions of Indian Companies Act, which requires any company raising money from more than 50 investors to have a formal prospectus; and categorical permission from SEBI, the market regulator. The Saradha Group sought to evade prosecution by expanding the number of companies, thus creating a convoluted web of interconnected players. This created innumerable complications for SEBI, which laboured to investigate Sarad- ha in spite of them.
In 2012, Saradha decided to switch it up by resorting to different fund raising activities, such as collective investment schemes (CIS) that were disguised as tourism packages, real estate projects, and the like. Many investors were duped into investing in what they thought was a chit fund. This too, was an attempt to get SEBI off its back, as chit funds fall under the jurisdiction of the State Government, not SEBI. However, SEBI managed to identify that group was not, in fact, raising capital through a chit fund scheme and ordered Saradha to immediately stop its activities until cleared by SEBI. SEBI had previously warned the State Government of West Bengal about Saradha Group’s hoax chit fund activities in 2011 but to no avail. Both, the Government as well as Saradha, generally ignored SEBI until the company finally went bust in 2013.
After the scandal broke, an inquiry commission investigated the group, j and a relief fund of approximately US $90 million was created to protect I low-income investors. In 2014, the Supreme Court transferred all investi- [ gations in the Saradha case to the Central Bureau of Investigation (CBI) amid allegations of political interference in the state-ordered investigation.
In the light of the above, you are required to answer the following questions Explain Ponzi scheme run by Saradha Group. Why chit funds or Ponzi schemes still persists in India inspite of many scams? Comment.
Answer:
Facts of Ponzi scheme of Saradha Group : The Ponzi scheme run by Saradha Group collected money from investors by issuing redeemable bonds and secured debentures and promising high returns from reasonable investments. Local agents were hired throughout the state of West Bengal and given huge cash payouts from investor deposits to expand quickly, eventually forming a conglomerate of more than 200 companies.
Potential investors : Ponzi schemes are when investors are promised huge returns which are unrealistic and at very low risk. The Ponzi schemes generally targets low income individuals luring them by high returns in short span of time. Rural poor have very few options available to invest and often end up falling prey to dubious investment schemes.
Reasons for survival of such schemes : A combination of widespread corruption, low financial literacy, greed of investors demanding high returns and a weak banking sector in rural areas results in the survival of Ponzi schemes in India. There is also an urgent need for regulatory system that quickly spots any scheme seeking to raise money from large numbers of people by promising exceptional returns, and treats it as prima facie suspect and fit for quick investigation and regulatory action.
Provisions to curb Ponzi schemes : SEBI challenged Saradha Group for not complying with the provisions of the Companies Act but the group escaped prosecution by expanding the number of companies creating a web of interconnected players. In April 2013, the scheme collapsed completely causing a loss of approximately US $5 billion and bankrupting many of its low-income investors.
Question 3.
Discuss Indian legislations and provisions to curb Ponzi schemes.
Answer:
Following are the laws applicable to schemes like Ponzi schemes:
Chit Funds Act, 1982 : Chit funds in India are governed by the Chit Funds Act, 1982 and other State laws. Under the Act, the Central Government can choose to notify the Act in different states on different dates. States are responsible for notifying rules and have the power to exempt certain chit funds from the provisions of the Act.
SEBI (Collective Investment Schemes) Regulations, 1999 : It provides details of compulsory registration, business activities and obligations, trustees and their obligations, collective investment scheme, general obligations, inspection and audit, etc., of Collective Investment Management Company.
SEBI Act made it mandatory for money pooling schemes collecting in excess of X 100 crore to register with SEBI unless already registered with another regulatory agency and also prescribes penalties where such schemes operate without SEBI registration.
The expanded definition of “collective investment scheme “now enables SEBI to curb, control and prevent such schemes.
Protection of Interests of Depositors (In Financial Establishments) Act, 2018 : Other than the above, most of the States in India have enacted Protec-tion of Interest of Depositors in Financial Establishments Act. Many States have also started State level co-ordination for exchange of information on fraudulent fund raising.
Question 4.
Discuss the rights of shareholder under SEBI (Listing Obligations and Disclosure Requirement (LODR)) Regulations, 2015.
Answer:
Following are the rights of shareholder under SEBI Listing Obligations and Disclosure Requirement (LODR) Regulations, 2015:
| Components: | Meaning: |
| Corporate Performance | The listed entity shall seek to protect and facilitate the exercise of the following rights of shareholders:
a. Right to participate in, and to be sufficiently informed of, decisions concerning fundamental corporate changes. b. Opportunity to participate effectively and vote in general shareholder meetings. c. Being informed of the rules, including voting procedures that govern general shareholder meetings. d. Opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations. e. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors. f. Exercise of ownership rights by all shareholders, including institutional investors. g. Adequate mechanism to address the grievances of the shareholders. Protection of minority shareholders from abusive actions by, or in the interest of, controlling shareholders acting either directly or indirectly, and effective means of redress. |
| Timely information | The listed entity shall provide adequate and timely information to shareholders, including but not limited to the following:
a. Sufficient and timely information concerning the date, location and agenda of general meetings, as well as full and timely information regarding the issues to be discussed at the meeting. b. Capital structures and arrangements that enable- certain shareholders to obtain a degree of control disproportionate to their equity ownership. c. Rights attached to all series and classes of shares, which shall be disclosed to investors before they acquire shares. |
| Equitable treatment | The listed entity shall ensure equitable treatment of all treatment shareholders, including minority and foreign shareholders, in the following manner:
a. All shareholders of the same series of a class shall be treated equally. b. Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors, shall be facilitated. c. Exercise of voting rights by foreign shareholders shall be facilitated. d. The listed entity shall devise a framework to avoid insider trading and abusive self-dealing. e. Processes and procedures for general shareholder meetings shall allow for equitable treatment of all shareholders. f. Procedures of listed entity shall not make it unduly difficult or expensive to cast votes. |
Question 4(A).
Dr. Ganguly Committee recommended some Corporate Governance norms which are applicable only to private sector bank. What were these recommendations?
Answer:
Dr. Ganguly Committee’s recommendations on corporate governance applicable only to private sector bank are as under:
(I) Eligibility criteria and ‘fit and proper’ norms for nomination of directors:
a. The Board of Directors of the banks while nominating/co-opting directors should be guided by certain broad ‘fit and proper’ norms for directors, viz. formal qualification, experience, track record, integrity etc.
b. The following criteria, which are considered for the boards of public sector banks, may also be followed for nominating independent/non-executive directors on private sector banks:
- The candidate should normally be a graduate (which can be relaxed while selecting directors for the categories of farmers, depositors, artisans, etc.)
- He/she should be between 35 and 65 years of age.
- He/she should not be a Member of Parliament/Member of Legislative Assembly/Member of Legislative Council.
(II) Commonality of directors of banks and Non-Banking Finance Com-panies (NBFC): In case, a director on the board of an NBFC is to be considered for appointment as director on the board of the bank, the following conditions must be followed:
- He/she is not the owner of the NBFC, [i.e., share holdings (single or jointly with relatives, associates, etc.) should not exceed 50%].
- He/she is not related to the promoter of the NBFC.
- He/she is not a full-time employee in the NBFC.
- The concerned NBFC is not a borrower of the bank.
(III) Composition of the Board: The composition of the Board should be commensurate with the business needs of the banks and should be blend of professionals having skills such as, marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery etc.
Question 5.
Now the days, protection of the Investors’ wealth is big challenge before the Government. In insurance sector, under IRDA’s Regulation, a various committees are mandatorily required to be constituted by the Companies. Highlight the name of the committees and describe the role of with Profit Committee.
OR
Write short note on the following; With Profits Committee.
Answer:
IRDA advises all insurers that it is mandatory to establish Committees for Audit, Investment, Risk Management, Policyholder Protection, Nomination and Remuneration, Corporate Social Responsibility (only for insurers earning profits).
Following are the names of the committees:
- Audit Committee (mandatory)
- Investment Committee (mandatory)
- Risk Management Committee (mandatory)
- Policyholder Protection Committee (mandatory)
- Nomination and Remuneration Committee (mandatory)
- Corporate Social Responsibility Committee (‘CSR Committee’) (man-datory)
- With Profits Committee:
With Profits Committee:
The Authority has issued IRDA (Non-Linked Insurance Products) Regulations, 2013, which lay down the framework about the With Profit Fund Management and Asset sharing, among other things. In terms of these Regulations, every Insurer transacting life insurance business shall constitute a With Profits Committee comprising of an Independent Director, the CEO, The Appointed Actuary and an independent Actuary. The Committee shall meet as often as is required to transact the business and carry out the functions of determining the following:
- The share of assets attributable to the policyholders.
- The investment income attributable to the participating fund of policyholders.
- The expenses allocated to the policyholders.
The report of the With Profits Committee in respect of the above matters should be attached to the Actuarial Report and Abstract furnished by the insurers to the Authority.
Question 6.
Write short note on the following; whistle blower policy.
Answer:
Following are the key points on Whistle blower:
‘Whistle blower ‘is one who exposes wrongdoing, fraud, corruption or mismanagement in an organization. A whistle blower is a person who publicly complains/discloses the concealed misconduct on the part of an organization or body of people, usually from within that same organisation.
Who can be a Whistle blower: Whistle blower may be an employee, former employee, vendor, customer or other stakeholder. Whistle blowers are important stakeholders as they can work as a tool for authorities to get information of deviant behavior or practices in organizations.
Protection of Whistle blower: Whistle blower needs protection against retaliation/misbehavior by superiors. At the corporate level, the companies can provide protection to whistle blowers by establishing a well documented Whistle Blower Policy “and ensuring its effectiveness practically. Just making a documented policy is not sufficient to develop confidence among the employees; examples should be set by taking action against the wrongdoing reported.
Whistle blower Policy: “Whistle blower” policy is a mechanism for employees to raise concerns internally about possible irregularities, governance weaknesses, financial reporting issues or other such matters. These could include employee reporting in confidence directly to the Chairman of the Board or of a Committee of the Board or to the Statutory Auditor.
The Policy illustratively covers the following aspects:
- Awareness of the employees that such channels are available, how to use them and how their report will be handled.
- Handling of the reports received confidentially, for independent assessment, investigation and where necessary for taking appropriate follow-up actions.
- A robust anti-retaliation policy to protect employees who make reports in good faith.
- Briefing of the board of directors.
Question 7.
Discuss briefly the Department of Public Enterprises Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises.
Answer:
1. DPE has issued New Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises with effect from 1st April 2013. Following one its key points:
2. The guidelines issued are in consonance with the National Voluntary Guidelines for Social, Environmental & Economic Responsibilities of Business issued by the Ministry of Corporate Affairs in July 2011.
3. In the revised guidelines the thrust of CSR and Sustainability is clearly on capacity building, empowerment of communities, inclusive socio-economic growth, environment protection, promotion of green and energy efficient technologies, development of backward regions, and upliftment of the marginalized and under-privileged sections of the society.
4. It is mandatory for CPSEs to take up at least one major project for development of a backward district.
5. CPSEs are expected to formulate their policies with a balanced emphasis on all aspects of CSR and Sustainability – equally with regard to their internal operations, activities and processes, as well as in their response to externalities.
6. Public Sector enterprises are required to have a CSR and Sustainability policy approved by their respective Boards of Directors.
7. Each CPSE shall have a Board level committee headed by the Chairman and/or Managing Director, or an Independent Director to oversee the implementation of the CSR and Sustainability policies of the Company.
8. The public sector enterprise shall have to disclose reasons for not being able to spend the entire budget on CSR and Sustainability activities as planned for that year, and shall make every endeavor to spend the unutilised budget of any year within the next two financial years.
9. In case the CPSEs are unable to spend the unutilised budget within the next two financial years, the unspent amount would be transferred to a ‘Sustainability Fund’ to be used for CSR and Sustainability activities.
Question 8.
“The controlled mis-governance is a type of fraud that is perpetrated by the personal running the company in such situations. The management deceptively leads all the stakeholder to believe that the company is being run superbly successfully while in reality it is led to bankruptcy.’’ With reference to the statement examine the issues and challenges in corporate governance citing relevant case(s) of corptfrate scams.
Answer:
Controlled mis-governance is a type of fraud that is perpetrated by the person/s,) running the company. In such a situation the management deceives all the stakeholders into believing that they run a superbly successful business but in reality it is heading toward bankruptcy. It then becomes impossible for us to believe that the governance of firm could have duped all its stakeholders.
It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its board, stock exchanges, regulators, investors and all other stakeholders.
It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.
The Satyam case mis-governance highlighted the lack of independent directors interest in the Board processes, they did not play their role in efficient manner and the consequence proceeded. The mere meeting of criteria of independence does not ensure that an independent director is acting independently. They should play a vigilant role by attending the meetings, studying and analyzing the agenda papers, ask the right question at the right time, insist that dissent if any is recorded and have separate sessions of independent directors and act with integrity.
On the other hand the auditors in this case have tried to distance themselves from the fraud perpetrated by the management by issuing a statement that – “The representations made by the chairman and other management to the auditors during the audit now appear to be fake and therefore, are no longer reliable”.
Some issues and challenges that need scrutiny in cases of mis-governance are as follows:
(i) Role of independent directors : The independent directors are guardians of the interest of all shareholders and stakeholders specially in the areas of potential conflict. Independent Directors bring a valuable outside perspective to the deliberations.
(ii) Tenure of independent directors : As per Regulation 25(2) of the SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time.
(iii) Role of Independent directors in audit committee : Independent directors play a crucial role in Audit Committee. The audit committee is responsible to ensure the integrity of financial reporting. Therefore, each independent director who is a member of audit committee should be able to read and understand financial statements.
(iv) Flow of information to the board : Companies should ensure that timely, relevant and complete information is made available to independent directors so that they are able to make informed decisions.
(v) Recording of dissent : It is important that where an independent director is not in agree-ment with the decision of the majority, he should insist that his dissent be recorded.
(vi) Role of auditor : Auditors are a reassurance to all who have a financial interest in companies, quite apart from their value to board of directors. The role of the auditors is not just to go by the numbers presented in the account and sign bogus accounts rather. They need to verify the facts presented by the company.
Question 9.
What is the Code for Stewardship for the insurers?
Answer:
The IRDAI has implemented a code for stewardship for the insurers. The code is in the form of a set of principles, which the insurers would need to adopt. The principles may be uniformly adopted for institutional § investors, like Mutual Funds, Pension Funds, Foreign Portfolio Investors § (FPIs), Alternative Investment Funds (AIFs), etc. The code broadly requires g the insurers to have a policy as regards their conduct at general meetings of the investee companies and the disclosures relating thereto. The code was made applicable from FY 2017-18.
Stewardship Principles provided in the Code:
- Principle 1 : Insurers should formulate a policy on the discharge of their stewardship responsibilities and publicly disclose it.
- Principle 2 : Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
- Principle 3 : Insurers should monitor their investee companies.
- Principle 4 : Insurers should have a clear policy on intervention in their investee companies.
- Principle 5 : Insurers should have a clear policy for collaboration with other institutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.
- Principle 6 : Insurers should have a clear policy on voting and disclosure of voting activity.
Question 10.
List out the recommendations by the Ganguly Committee on the following; Responsibilities of the Board of Directors.
Answer:
Following are the Recommendations which may be implemented by all banks:
Responsibilities of the Board of Directors:
a. A strong corporate board should fulfil the following four major roles viz
- overseeing the risk profile of the bank
- monitoring the integrity of its business and control mechanisms
- ensuring the expert management
- maximising the interests of its stakeholders.
b. The Board of Directors should ensure that responsibilities of di-rectors are well defined and every director should be familiarised on the functioning of the bank before his induction, covering the following essential areas:
- Delegation of powers to various authorities by the Board
- Strategic plan of the institution
- Organisational structure
- Financial and other controls and systems
- Economic features of the market and competitive environment
Role and responsibility of independent and non-executive directors:
a. The independent/non-executive directors have a prominent role in inducting and sustaining a proactive governance framework in banks.
b. In order to familiarise the independent/non-executive directors with the environment of the bank, banks may circulate among the new directors a brief note on the profile of the bank, the sub-committees of the Board, their role, details on delegation of powers, the profiles of the top executives etc.
c. It would be desirable for the banks to take an undertaking from each independent and non-executive director to the effect that he/she has gone through the guidelines defining the role and responsibilities and enter into covenant to discharge his/her responsibilities to the best of their abilities, individually and collectively.
Question 11.
Explain any five principles of corporate governance by Basel Committee.
Answer:
Basel Committee on Banking Supervision (BCBS) released Guidelines on Corporate Governance for banks which were released in July 2015. The principles of corporate governance of these guidelines are as under:
Principle 1:
Board’s overall responsibilities – The board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, governance framework and corporate culture. The board is also responsible for providing
Principle 2:
Board qualifications and composition – Board members should be and remain qualified, individually and collectively, for their positions. They should understand their oversight and corporate governance role and be able to exercise sound, objective judgment about the affairs of the bank.
Principle 3:
Board’s own structure and practices – The board should define appropriate governance structures arid practices for its own work, and put in place the means for such practices to be followed and periodically reviewed for ongoing effectiveness.
Principle 4:
Senior management – Under the direction and oversight of the board, senior management should carry out and manage the bank’s activities in a manner consistent with the business strategy, risk appetite, remuneration and other policies approved by the board.
Principle 5:
Governance of group structures – In a group structure, the board of the parent company has the overall responsibility for the group and for ensuring the establishment and operation of a clear governance framework appropriate to the structure, business and risks of the group and its entities. The board and senior management should know and understand the bank group’s operational structure and the risks that it poses.
(Note: This list is inclusive and not exhaustive)
Question 12.
What is the criteria to be considered ‘Fit and Proper’ for being elected as Directors on the Boards of State Bank of India and Nationalised Banks? What are its disqualifications.
Answer:
The Reserve Bank of India on August 2, 2019 has notified and specified the authority, manner, procedure and criteria for determining the ‘fit and proper’ status of a person to be eligible to be elected as a director on the Board of Public Sector Banks, and issued the Directions hereinafter specified. These Directions are called the:
“Reserve Bank of India (‘Fit and Proper’ Criteria for Elected Directors on the Boards of PSBs) Directions, 2019″
The Committee shall determine the ‘fit and proper’ status of the proposed candidates based on the broad criteria mentioned hereunder:
1. Age: The candidate’s age should be between 35 to 67 years as on the cut-off date fixed for submission of nominations for election.
2. Educational qualification: The candidate should at least be a graduate.
3. Experience and field of expertise: The candidate shall have special knowledge or practical experience in respect of matters enumerat¬ed in Section 19A(a) of the SBI Act. Section 9(3A)(a) of the Banking Companies (Acquisition and Transfer of Undertakings) Act and RBI Circular DBR dated November 24, 2016.
4. Tenure: An elected director shall hold office for three years and shall be eligible for re-election: Provided that no such director shall hold office for a period exceeding six years, whether served continuously or intermittently.
5. Professional Restrictions:
a. The candidate should neither have any business connection (in-cluding legal services, advisory services etc.) with the concerned bank nor should be engaged in activities which might result in a conflict of business interests with that bank.
b. The candidate should not be having any professional relationship with a bank or any NOFHC holding any other bank.
6. Track record and integrity: The candidate should not be under adverse notice of any regulatory or supervisory authority/agency, or law enforcement agency and should not be a defaulter of any lending institution.
Following are the disqualifications:
a. The candidate should not be a member of the Board of any bank or the Reserve Bank or a Financial Institution (FI) or an Insurance Company or a NOFHC holding any other bank.
b. A person connected with hire purchase, financing, money lending, investment, leasing and other para banking activities shall not be considered for appointment as elected director on the board of a PSB.
c. No person may be elected/re-elected on the Board of a bank if he/ she has served as director in the past on the board of any bank/FI/ RBI/Insurance Company under any category for six years.
d. The candidate should not be engaging in the business of stock broking.
e. The candidate should not be holding the position of a Member of Parliament or State Legislature or Municipal Corporation or Municipality or other local bodies.
f. The candidate should not be acting as a partner of a Chartered Accountant firm which is currently engaged as a Statutory Central Auditor of any nationalised bank or State Bank of India.
g. The candidate should not be acting as a partner of a Chartered ” Accountant firm which is currently engaged as Statutory Branch Auditor or Concurrent Auditor of the bank in which nomination for election is filed.
Question 13.
“All insurers shall comply with all the principles given in the guidelines and submit an Annual Certificate of Compliance approved by the Board to the IRDAI as per Annexure B referred in the guidelines, duly certified by CEO and Compliance Officer on or before 30th June every year”. In the light of the above statement discuss the principles.
Answer:
Following are the principles to be complied by the insurers:
- Insurers should formulate a policy on the discharge of their steward – ship responsibilities and publicly disclose it.
- Insurers should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
- Insurers should monitor their investee companies.
- Insurers should have a clear policy on intervention in their investee companies.
- Insurers should have a clear policy for collaboration with other in-stitutional investors, where required, to preserve the interests of the policyholders (ultimate investors), which should be disclosed.
- Insurers should have a clear policy on voting and disclosure of voting activity.
- Insurers should report periodically on their stewardship activities.