[Opinion] Non-adherence of Code for IDS land the Co. & its MD & CEO into Penal Actions by ROC

Prof R Balakrishnan – [2023] 152 taxmann.com 155 (Article)

1. Code for independent directors

Under the provisions of the Companies Act 2013, Schedule IV of the Companies Act 2013 has prescribed “Code for Independent Directors”. Sub-section (8) of section 149 of the Companies Act, 2013 spells out that the company and independent directors shall have to abide by the provisions specified in Schedule IV. The Code for independent directors spells out the

(a) guidelines of professional conduct;

(b) role and functions of IDs;

(c) duties – both to be discharged by IDs and as well by company;

(d) manner of appointment of IDs;

(e) reappointment procedure;

(f) resignation of IDs and their removal;

(g) separate meeting to be held by IDs and evolution mechanism.

From the Code for independent directors, one could understand that the company has also to fulfil certain duties as spelled out in the code itself, in adhering the code.

This particular case is typically, failure by the company on their part in adhering the code whereby all the IDS had to submit their resignation citing the governance issues in the company. The matter was looked into by the Registrar of Companies and at the end the company and its MD & CEO were penalized for the non-adherence of the code. Let us go through this case in threadbare to understand what had led to the penal actions.

2. Provisions under the Companies Act 2013 relating to this case

The sub-section (8) of section 149 of the Companies Act 2013 is the relevant provision pertaining to this case under Chapter XI-A which states as under:-

Click Here To Read The Full Article