India's Company Act of 2013: A Governance Shift into the Sunlight

Author:Sarah Alvy
Position:California Western School of Law and San Diego State University Graduate School of Business
Pages:187-220
SUMMARY

With respect to emerging markets in today’s global economy, it has become increasingly apparent that the design of a country’s corporate governance system affects its macro-economy. Recently enacted, India’s Companies Act of 2013 overhauls the country’s corporate governance system. With implementation underway, many academics and business professionals alike wonder whether the Act will be... (see full summary)

 
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e Indonesian Journal of International & Comparative Law
ISSN: 2338-7602; E-ISSN: 2338-770X
http://www.ijil.org
© 2015 e Institute for Migrant Rights Press
187
INDIAS COMPANIES ACT OF 2013
A GOVERNANCE SHIFT INTO THE SUNLIGHT
SARAH ALVY
California Western School of Law and San Diego State University Graduate School of
Business
E-mail: alvy@rohan.sdsu.edu
With respect to emerging markets in today’s global economy, it has become
increasingly apparent that the design of a country’s corporate governance
system aects its macro-economy. Recently enacted, India’s Companies
Act of 2013 overhauls the country’s corporate governance system. With
implementation underway, many academics and business professionals
alike wonder whether the Act will be successful in achieving its policy
objectives. is article examines and critiques three novel provisions of
the Act including: mandatory female board membership, corporate social
responsibility, and auditor rotation. is article identies India-specic
challenges to the provision mandating female board membership, but
argues from a managerial perspective that the provision will enhance
corporate governance and oversight in the long-run. Lastly, the article
comments on how the U.S. could emulate India by adopting a similar
non-binding regulation designed to promote female board membership.
Keywords: Company Law, Corporate Governance, Corporate Social
Responsibility, Law and Development, Gender and Law, Women and the
Law, Gender Diversity on Corporate Boards.
The Indonesian Journal of International & Comparative Law Volume II Issue 1 (2015) at 187–220
Sarah Alvy
188
I. INTRODUCTION
Inuenced by Supreme Court Justice Louis D. Brandeiss century-old dec-
laration that “[s]unshine is said to be the best of disinfectants[,]” United
States corporate governance and securities law demands transparency and
honesty through regulatory disclosure.1 Increased transparency not only
helps the investing public and society-at-large understand what compa-
nies and their boards are doing, it also encourages company employees
to meet their obligations to stakeholders. In turn, this transparency gives
stakeholders a foundation upon which they may raise claims when they
believe greater oversight, governance, and control is needed. Further, cor-
porate governance and securities law promote capital formation while
maintaining the integrity and eciency of our capital markets.2 Accord-
ingly, scholarly research has found that the design of a country’s corporate
governance system aects the country’s macro-economy and its ability to
attract foreign capital.3
India is home to the world’s largest emerging economy, and the
country has experienced rapid economic transformation since the early
1990s.4 is transformation has been accompanied by sweeping corporate
1. L D. B, O P’ M 92 (1914). Justice Brandeis was
referring to the banking industry during the early 1900s and disclosure demands
as a ray of sunshine that provides transparency to the investing public. e
United States’ mandatory disclosure system began after the Great Depression and
ensuing market collapse of 1929. Our federal securities laws enacted thereafter, the
Securities Act of 1933 and the Securities Exchange Act of 1934, were premised on
mandatory disclosure as the remedy to our market’s failure. See J D. C 
., S R C A M 5 (7th ed. 2013).
2. See generally S  E C, e Laws that Govern the
Securities Industry, http://www.sec.gov/about/laws.shtml (last visited Oct. 20,
2014).
3. Afra Afsharipour, Rising Multinationals: Law and the Evolution of Outbound
Acquisitions by Indian Companies, 44 U.C. D L. R. 1029, 1034-1035 (2011)
(analyzing India’s macro-economy via outbound acquisition activity, Afsharipour
argues that the “law plays a number of important roles in the emergence of Indian
multinationals.” Stating that “legal reforms and legal history have shaped outbound
acquisitions both in terms of transaction structure and transaction size [and that]
legal constraints on M&A activity by Indian rms and the traditional governance
of Indian rms impose substantial restrictions not only on the methods used by
Indian multinationals in pursuing outbound acquisitions, but also on the future
potential of Indian multinationals.”) [hereinafter Rising Multinationals].
4. See KC Chakrabarty, Deputy Governor, Reserve Bank of India, Inaugural Address
Sarah Alvy
India’s Companies Act of 2013: A Governance Shift into the Sunlight
189
governance reforms.5 Business and economic analysts expect this
economic transformation to continue under the pro-business leadership
of the newly elected Prime Minister, Narendra Modi.6 In fact, Mr. Modi’s
economic policies emphasize his commitment to “make in India . . . an
invitation to all to turn India into a new global manufacturing hub.”7
India has become a leader in the global economy thanks to its
exponential economic growth, yet its development still relies on its ability
to attract foreign direct investment.8 Recently, a series of unfortunately
at the Antique India Market Conference: India’s Economic Transformation (Sept.
7, 2009) [hereinafter KC Chakrabarty]. India is the world’s largest democracy,
with over 1.2 billion people. It had a gross domestic product (GDP) of $1.73
trillion in 2010. And it is considered a robust cultural hub, with multiple
languages and religions. Transparency International, India Facts & Figures, http://
www.transparency.org/country/#IND (last visited Oct. 30, 2014).
5. See Afra Afsharipour, e Emergence of New Corporate Social Responsibility
Regimes in China and India,  U.C. D B. L.J. 175, 209 (2014) (noting
that “India’s reform eorts were spurred by the needs of India’s rapidly expanding
economy, including a signicant widening of India’s investor base to encompass
both increased foreign and institutional investors.”) [hereinafter Emergence of New
Corporate Social Responsibility Regimes]. See also Afra Afsharipour, e Promise and
Challenges of India’s Corporate Governance Reforms, 1 I J. L.  E. 33, 33-
34 (2010).
6. Narendra Modi assumed oce on May 26, 2014. Sta Writer, Narendra Modi
is sworn in as the 15th Prime Minister of India, T T  I, http://
timesofindia.indiatimes.com/news/Narendra-Modi-is-sworn-in-as-the-15th-
Prime-Minister-of-India/articleshow/35620796.cms (last visited Nov. 17, 2014).
See Anant Vijay & Eric Bellman, India April-June GDP Grew 5.7% On-Year, W
S. J. (Aug. 29, 2014), http://online.wsj.com/articles/india-april-june-gdp-grew-
5-7-on-year-1409317312. See also Prudence Ho, Asian IPOs, Other Share Sales Hit
Four-Year High, W S. J. (Oct. 12, 2014), http://online.wsj.com/articles/ipos-
other-share-sales-in-asia-hit-four-year-high-1413149585?KEYWORDS=ipos-
other-share-sales-in-asia-hit-four-year-+high.
7. Narendra Modi, An Invitation to ‘Make in India’, W S. J. (Sept. 25, 2014),
http://online.wsj.com/articles/narendra-modi-an-invitation-to-make-in-india-
1411687511?KEYWORDS=%22make+in+india%22 (Prime Minister Modi also
stated that “India will pursue its dreams in partnership with our international
friends. History tells us that India’s natural instinct is to be open to the world. India
will be open and friendly—for business, ideas, research, innovations and travel.”).
See also Arvind Panagariya, e Promise of Modinomics How the New Prime Minister
Can Bring Back Growth, F A. (June 10, 2014), http://www.foreignaairs.
com/articles/141556/arvind-panagariya/the-promise-of-modinomics (noting
it’s demographic prole “. . . India is young, and it is predicted to become even
younger, with a healthy growth in population. It will not, therefore, face the labor
shortages that have already hit many other economies, including China.”).
8 See generally Sarbapriya Ray, Impact of Foreign Direct Investment on Economic Growth

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