Ministry Of Corporate Affairs Emphasizes Importance Of Governance For Curbing Fraud
Ministry Of Corporate Affairs Emphasizes Importance Of Governance For Curbing Fraud
Suggests safeguards under the Company’s Act
The Ministry of Corporate Affairs has reiterated the importance of sound governance mechanisms to prevent fraudulent activities, safeguard investor rights, and maintain market confidence.
In its recent monthly report, the ministry saids it could lead to "instances of oppression and mismanagement.”
Though without specifying any lapses, the instructions have come when the ministry ordered a probe into the alleged corporate governance failure at Gensol Engineering and its related entity BluSmart Mobility amid allegations of fraud.
The ministry added, "Corporate governance serves as the backbone of a well-functioning corporate structure, ensuring accountability, transparency, and fairness in business operations. It establishes a system of rules and practices through which companies are directed and controlled, balancing the interests of various stakeholders.”
In 2023, the ministry ordered a probe into Byju's. However, the report is yet to be finalized.
Recently, the Securities and Exchange Board of India (SEBI) barred Gensol's promoters-brothers, Anmol Jaggi 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 observed fund diversion by Jaggi brothers and governance failures within the company.
The duo faces allegations of misappropriation of term loans availed by Gensol from state-run IREDA and PFC.
The ministry's communication underlines legal safeguards under the Companies Act, which could be used by stakeholders, including minority ones, to ensure sound corporate governance and curb oppression and mismanagement.
(Exploitation happens when a firm's affairs are conducted prejudicially to a member or group by disregarding their rights).
Sections 241 to 246 of the Companies Act establish a framework to promote fairness and transparency. It provides solutions when the company’s affairs become detrimental to itself or the shareholders.
Under Section 241, the company members can approach the National Company Law Tribunal (NCLT).
Moreover, the government also has the power to approach the NCLT if it notes that a company's affairs are against the public interest.
