Company Law - CORPORATE SOCIAL RESPONSIBLITY “FALL IN PRICES OF SHARES”

INTRODUCTION

Indian economy has evolved in the market after the liberalization. It had lead to expansion of the share market and the concept of the corporate social responsibility or CSR the expansion of the Indian share market was fueled by the small investors who have invested domestic savings and retired persons who have invested their lifelong earnings in the share market. The fall in the share market lead to very drastic actions in 1992 even suicides by the bankrupt persons.

There after many rules were introduced by the government and changes were introduced in the market by itself to ensure safety and people faith in the market. The basic premise of the study is to outline if there is  any direct or indirect relationship between CSR and fall in the prices of the shares. If corporate has any responsibility towards the fall in the prices of its shares in the secondary market or not.

Is there any direct or indirect relationship between corporation and fall in the prices of shares?  CSR is the emerging concept which talks about the responsibility towards the society at large of a corporation or business house. It has a wider connotation from consumers to workers and their families. They have to take care of environment and many other things.

The purpose of this study is to look into the share market scams basically of Ketan Parikh where the promoter has artificially affected the prices of the shares of the company for there own benefits. The rules of the SEBI and Companies Act will be studied to find out if there is any direct or indirect relationship between the prices of the shares and social responsibility of the corporation towards its shareholders. The changes will reveal that we are far from entering new era of responsible corporate management, and have yet to approach “a tipping point for corporate responsibility.” But perhaps it is still ‘early days.’ In other words, maybe what has been primarily accomplished to date has been to define new norms or standards of corporate conduct and mechanisms to implement them, including increased transparency. According to this logic, as consumers, investors, and employees become more knowledgeable and sophisticated, and managers increasingly recognize the business value of CSR

Chapter-2

CORPORATE SOCIAL RESPONSIBLITY

The history of evolution of corporation is very interesting where some scholars trace the corporate laws origin to Roman law. First Corporation was created to serve the public. There are 2 theories about the corporation’s actual role. First it is the private property of the shareholders and profit maximization is the sole motive of the corporate law. Social responsibility according to this theory is the extra cost of doing business which tends to distort the business and convert the corporation into a vast wasteland.

  Whereas the other theory contends that the corporation is not the private property of the stockholders but a social institution tingled with the public purpose. Under this theory, the corporation comes into existence with the permission of the state and continues only as the legal entity with the government concurrence. This theory consummates that the business man is not only economic man but also social man. This theory maximizes the value of wealth creation in the society. Corporation’s role in the society according to this theory is not only restricted to promotion of industrial growth but targeted to much larger social goal.

Adam Smith’s classic remark[1]:

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”

 If companies make products that consumer’s value and price them affordably, making money in the process, what is the need for corporate social responsibility? We have to see when the interests of corporations are fully aligned with those of society as a whole and when they are in conflict, and for this we have to go beyond Adam Smith, to the concepts of private and social costs. Markets work well for society, aligning corporate and social interests, when a firm’s private and social costs are the same, as is the case with the tech sector. But when these costs are different, markets don’t do such a good job, as is the case with tobacco and, to a lesser degree, oil and autos. This explains the conflict between corporations and society in these sectors.

Corporate social responsibility needs to be an important part of corporate strategy in sectors where inconsistencies arise between corporate profits and social goals, or else discord can arise over issues of fairness. A corporate social responsibility program can make executives aware of these conflicts and commit them to taking social interest seriously. It can also be critical to maintaining or improving staff morale, to the stock market’s assessment of a company’s risk and to negotiations with regulators.

CSR represents significant phenomena. Pressures from consumers, investors, employees, and the general public have noticeably broadened the scope of company and industry responsibility. Within India industrial companies have assumed responsibility for the social and environmental impacts of their business activity to an extent that would have been inconceivable fifteen years ago. There are shortcomings which are substantial and systematic.

They reveal that we are far from entering new era of responsible corporate management, and have yet to approach “a tipping point for corporate responsibility.” But perhaps it is still ‘early days.’ In other words, maybe what has been primarily accomplished to date has been to define new norms or standards of corporate conduct and mechanisms to implement them, including increased transparency. According to this logic, as consumers, investors, and employees become more knowledgeable and sophisticated, and managers increasingly recognize the business value of CSR, we can expect substantial improvements in the supply of corporate virtue, at least up to the level of European and American firms.

 There are structural limitations on the ability of CSR to significantly increase the supply of corporate virtue. The ability or willingness of corporations to voluntarily behave more responsibly is primarily a function of two factors. The first are the risks of being seen as irresponsible, which in turn is linked to the intensity of public pressures. The more intense these pressures, the most likely it is that companies will invest significant resources in CSR in order to protect their reputation.

The second factor is the costs of more responsible behavior. The less the costs of behaving more responsibly – including monitoring costs- the more likely companies will improve their social and environmental performance. Thus companies are most likely to act more responsibly when they are faced with intense public pressures and the costs of responding to those pressures are modest. They are least likely to act more responsibly when public pressures are less intense and the costs of responding to those pressures are high. And if public pressures are not intense, but companies can improve their social or environmental performance at relatively low costs, they may or may not do so.

With regard to the changes in the purchasing practices of major retailers and consumers of wood and wood products, public concern has been intense and the costs of monitoring and switching suppliers has been modest. The same pattern holds for many of the improvements in corporate environmental practices. Public pressures have been substantial, while many of these improvements have been cost-effective. For the firms that have agreed to sell Fair Trade products, public pressures have been strong and while such products are often more expensive, many consumers are prepared to pay an ‘ethical’ premium, which means that companies can offer these products without reducing their profit margins.

And it is here, in the area between voluntary adherence to standards and government regulation, that CSR does have a legitimate role to play. First, CSR can help place issues on the political agenda. The pressures of activists and the voluntary codes many firms have adopted in response to them have played an important role in calling public attention to the role and responsibilities of business with respect to issues ranging from global climate change to working conditions in factories. And these have sometimes led to changes in public policy.

CSR and the Role of Government

The CSR movement has mixed views about the role or importance of government regulation. The vast majority of books and articles about CSR pay little attention to government regulation. Their underlying assumption is that CSR has the potential to lead to systematic and sustained improvements in corporate social and environmental performance. However many observers recognize that CSR is an inadequate solution to the myriad problems it purports to address. Unless standards are made legally binding on all firms, more responsible firms will be disadvantaged and the impact of voluntary corporate initiatives will remain limited. In principle, one might expect firms that have enacted more responsible policies, and have incurred substantial costs in attempting to implement them, to favor making them mandatory.

This however has occurred relatively infrequently, especially in the US. Until the contrary: corporations typically regard CSR as a strategy for avoiding addition Qnal regulation. But if companies are indeed serious about becoming more responsible citizens, they should explore creative ways of using government to universalize their standards and thus create a level playing field. That they have too rarely done so represents a major limitation of the contemporary market for virtue.

Thus CSR or corporate social responsibility is an emerging field which derives its basic from the moral turpitude and concept of corporate governance. With the liberalization and privatization the government era of functioning has considerably reduced and its place has been taken by the giant M.N.C.’s and big corporate houses who have large budgets and infrastructure, thus the conduct on their part is believed to be not only derived by profit aspect but also there should be social welfare. This was the reason for the evolution of the CSR in western countries as well as in Indian context.

In India, the process of social commitment is different if compared to other countries. Some measures include the starting of the social trusts, anti-pollution measures, providing drinking facilities etc.

Corporate social responsibility is the commitment of the business to contribute to the sustainable economic development working with the employees, their families, shareholders, and society at a large to improve their quality of life. The main study in the project is viewing the relationship between the CRS of the company and prices of shares of company in the secondary market as Indian market scenario is different from the world market, and there are large no of small shareholders in the market.

CHAPTER-3

Historically, discussions of the role of the corporation in society have centered around two divergent schools of thought: the "corporate social responsibility" school and the "shareholder primacy" school.[2] Adherents of the first school argue that corporations owe duties to multiple constituencies: to their shareholders and owners, certainly, but also to their employees, business partners, and customers, among others. A logical consequence of this proposition is that corporations exist not solely to produce profits, but also to serve as good citizens within their communities--to be responsible employers, to produce high-quality products, and to maintain the environments in which they operate.

 Adherents of the second school, by contrast, argue that corporations' primary responsibility is to their shareholders. This argument does not necessarily deny that corporations should serve the common good. Rather, it simply posits that the best way to do so is to do well for shareholders: corporations are profitable precisely because they make high-quality products and are good citizens. Moreover, the more profitable a company is, the more taxes it pays, and the better off--or at least, the more secure--its employees are. Thus, by focusing on the bottom line, corporations will, by definition, serve society's interests.

Empirically, however, this perceived dichotomy between shareholders and the rest of society is, at least in the United States, increasingly illusory. Propelled in part by the decisions of a growing number of companies to switch from defined benefit retirement programs to defined contribution programs, such as 401(k) plans, more than 52 million American households, comprising more than half of all American families, now own stock, up from little more than a third barely a decade ago. What's more, the value of those investments is growing rapidly. This democratization of equity ownership translates into an ever more direct relationship between the stock market's performance and the financial well-being of ordinary Americans. And it means that, for more and more companies, their shareholders are their employees, retirees, and customers. In short, the boundary separating shareholders from the rest of society has, to a great extent, been erased.

Consider Enron. The accounting scandal that devastated that company resulted in thousands of employee layoffs. But the thousands who kept their jobs, and the thousands more who had long since retired, were only marginally better off. Their retirement plans, heavily concentrated in company stock, were decimated. So, too, for WorldCom's employee stockholders, who saw the roughly forty percent of their company's 401(k) retirement plan invested in WorldCom stock vanish when the company went bankrupt.

Yet if the relationship between American corporations and American society is first and foremost a financial one, it is nonetheless not entirely about money. If we study the Indian relationship the price of stocks affect the life of many persons who have lost their life-long savings and retirement benefits in share market scams in 1992 and others. So there is a strong social relationship between the people investing the money in the market and the companies on which they spend money. There is a liability on the part of the corporate world to socially from their shareholder for saving themselves and their stocks form disturbance and crashing.

Nor does the connection between corporations and society stop at culture. Corporations play a vital role in the nation's political life, funding candidates for office and occasionally fielding them. Among the most hotly contested political issues of the day is the degree to which corporations should be permitted to contribute financially to political campaigns. And if, in this age of corporate scandal, the fear of deep-pocketed corporate giants swaying elections is viewed as justifying more stringent limits on candidate-specific contributions, it is also apparent that the corporate voice is often welcome in important social and political debates.

It is unsurprising; in this context, that the scandals of recent years have prompted a cathartic reappraisal of the rules by which corporations and market is governed, and of the consequent role they play in the nation's social, political, and financial life.
Part II begins this analysis by examining the body long viewed as the corporation's internal backstop against excess and mismanagement: the board of directors. Specifically, studies the board's role in supervising corporate conduct and the degree to which independence from potential or perceived social and financial conflicts of interest is critical to performing that function among the board's most fundamental responsibilities is hiring, and setting the compensation for, the corporation's chief executive officer. But with corporate boards themselves populated by CEOs, it remains questionable whether recent legal and regulatory attempts to secure greater independence will, absent more, sufficiently ensure the objectivity requisite to this important task. One response to this concern has been a call for greater shareholder empowerment in setting corporate policy. Scrutinizes one of the newest and most prominent examples of such empowerment: rules requiring shareholder ratification of equity-based compensation plans for both executive and no executive employees in USA. While those rules promise to stimulate greater shareholder monitoring of executive compensation, the shareholder empowerment approach may ultimately be ill-advised as a mechanism for limiting the outsized executive pay packages that have provoked widespread outrage in recent years

Has that reappraisal gone too far in attempting to rein in corporate wrongdoing and increase accountability? Will it stifle entrepreneurship and debate, and cause considerable talent to abandon corporate life? Or has it not gone far enough, temporarily satisfying near-term demands for action while promising a long-term return to the very same mischief? These are those questions which indicate whether there is any relationship between the CSR and fall in the prices of shares of the company. Or our companies Act and SEBI regulations gave any hint of the relationship between the two factors.

CHAPTER-4

FUNCTUNING OF INDIAN CAPITAL MARKET

Indian capital market has gone through a process of modernization and structural transformation during the last few years. Nevertheless, in terms of the performance of the market index, the activity in the primary market, and the flow of household financial savings to the capital market, the fact remains that the golden period for the capital market was the period from 1984-92. This was the period when the markets responded enthusiastically to the first whiff of economic reforms and rewarded the reformers long before they had completed their task.

India has 9,871 listed companies; this number is second only to that of the United States. However, most of the trading volume is concentrated in a few hundred stocks, and even within this, the top hundred stocks account for a disproportionate share of the trading volume.

The Indian capital market is well-diversified in terms of ownership pattern and industry structure. Most of the top 50 companies are domestic private sector companies with no single family or business group accounting for a disproportionate share. There is no foreign owned corporation, public sector organization or newly privatized company in the top five stocks by market capitalisation. Companies with a market capitalisation of $1 billion or more are present in industries as diverse as software, petrochemicals, oil refining, consumer goods, telecom, banking, pharmaceuticals, and entertainment.

In the last few years, however, new economy stocks have shown rapid increase in their market capitalisation and turnover. In the BSE 500 index covering the top 500 listed companies, new economy stocks account for about 49per cent of market capitalisation and 50per cent of the average daily turnover. India’s stock exchanges are fully computerised order driven or order-cum-quote driven systems. The country has made rapid strides towards a dematerialised trading environment on the basis of a competing depository’s model. Investors have the choice of holding their stocks in physical or dematerialised form, but trading in the exchanges is in mandatory dematerialised mode in most important stocks. Practically all the trading takes place in the account period settlement system in which all trades during a weekly account period are netted off and the net obligations are settled five business days after the end of the period.

However, account period settlement does not give rise to significant systemic risks in India because of stringent end of day and intra-day margining systems. Put simply, the weekly settlement is regarded as akin to a one-week futures contract, and the systemic risk is taken care of by using futures style margining. The exchange imposes daily mark to market and initial margins on the brokers to eliminate settlement risk. Exchanges also have clearing houses to guarantee settlements on the exchange. As a result, there have been no settlement failures in the principal stock exchanges during the last five years.

India enjoyed a major boom of IPOs in the mid 1990s. This hot IPO period came to an end in 1995-96 with a fall in the stock market and a downturn in the economy. Investors who subscribed at the height of the boom suffered significant losses, and the primary market has yet to recover from this debacle. In the late 1990s, moreover, the Indian corporate sector was in the midst of a structural transformation with the old economy companies stocks doing badly in the face of global competition while software companies delivered outstanding financial results. The stock market also rewarded the new economy stocks with high valuations. In this environment, it was difficult for most old economy companies to come to the market with a credible business plan. Software companies in India have used a stock market listing primarily to establish a valuation and create an acquisition currency as their large positive cash flows leave them with little need for additional funding.

At the same time, SEBI has been concerned about public capital raising by companies with no track record. Newly set up software companies, entertainment companies and internet companies with no tangible assets pose particular problems of valuation. In this situation, SEBI has moved half-way towards a QIB (Qualified Institutional Buyers) market for some of these stocks

The period from 1984 to 1992 was in some ways the high water mark of the Indian capital markets. As the markets responded enthusiastically to the first whiff of reforms in the mid 1980s and to the major reform initiative of 1991, the stock market soared through the roof. From October 1984 to September 1992, the stock market index went up more than ten times representing an annual compound return of 34per cent. It should be noted that the end point in this computation has been deliberately chosen to eliminate the effect of the securities scam discussed below.

The structural change was the emergence of the new economy in a significant way and the poor showing of the old economy in the face of global competition. In a way, these were the winners and losers of globalisation of the Indian economy. Thus the flat trend line conceals sharp falls in several old economy stocks and impressive rises in the new economy stocks.

The prices of the shares can be determined by the 2 methods, i.e.

1.      Technical analysis

2.      Fundamental analysis

Technical methord is based on the assumptions such as all factors are represented by the share prices and market discounts everything. The prices of the shares are given by the forces of demand and supply, which in turn is influenced by many rational and irrational factors. Share prices move in trends and trends of the past repeat themselves.

Dow Theory: oldest and most popular theory.

1.      Every factor affecting demand and supply of share prices are reflected in share prices and are averaged.

2.      share price movement is classified into 3 trend

3.      Primary trend most significant and last for more than year. It reflect basic trend of market. Secondary trend represent corrections in the primary trend and usually last for 3 weeks.

4.      Major trends have 3 phases. In bullish market investors start buying the shares and price start picking. Second stage sever investors notice this phase and participate in it. This is known s make up phase. Third phase is active public participation and investors of first phase gets out of market.

These trends do not give correct information of the market and Indian market is predominantly the bullish market near all the scams. This is a methord of how share price are determined.

The systemic reforms in the stock markets have made the markets safer, cleaner, more transparent and modern. The major reform in the capital market was the abolition of capital issues control and the introduction of free pricing of equity issues in 1992. Simultaneously, the Securities and Exchange Board of India (SEBI) was set up as the apex regulator of the Indian capital markets. SEBI has framed regulations on a number of matters relating to capital markets. Some of the measures taken in the primary market include[3]:

• Entry norms for capital issues were tightened and a limited form of a QIB market was introduced
• Disclosure requirements were improved
• Regulations were framed and code of conduct laid down for merchant bankers, underwriters, mutual funds, bankers to the issue and other intermediaries

In relation to the secondary market too, several changes were introduced:

• Capital adequacy and prudential regulations were introduced and enforced for brokers, sub-brokers and other intermediaries
• Margining system was rigorously enforced.
• The governance of the stock exchanges was improved
• Dematerialization of stocks was achieved in a fairly short time
• On-line trading was introduced at all stock exchanges.
• Settlement period was reduced to one week; and tentative moves were made towards a rolling settlement system.
• Derivatives markets were introduced

In the area of corporate governance:

• Regulations were framed for insider trading
• Regulatory framework for takeovers was revamped

A comprehensive code of corporate governance was formulated and implementation displace with disdain the names of the famous Indian personalities over the years from Short-term investment is nothing more than speculation, and one can rather try his luck at horse races, or at casinos where the probability of success is higher!

 Panic selling is also another factor which affects the investors most during a bear run. If you are confident your investment is fundamentally strong, every

 KETAN PARIKH SCHAM[4]

It was one of the major scams in the Indian capital market history. This lead to destruction of the small investor’s faith from the market which was returning due to the booming growth of the I.T. sector and destruction of many corporative banks. Due to this scam many people lost their life long savings and UTI lost public faith.

This it closely connected to the project topic because in this scam the promoters of the company have artificially increased the prices of the stock of company and sold their share at profitable prices in the secondary market, thus resulting in the fall of prices of shares and loss to the shareholders. The concept of CSR meant the just and fair conduct and not harming the society but benefiting it as a whole. With the fall in the prices of the shares which is engineered by the promoters it is social responsibility of the corporation to see that any person is not meddling with the share prices of company and causing harm to shareholders as a large.

As it was given under the head of CSR the employee’s welfare and rights are also corporate responsibility, so fall in the prices of the shares of corporation will be against the interests of the employees who were given shares of the corporation. Further it is also against the interests of the shareholders who have purchased shares from the secondary market.  

As cited from the JPC report:

“The unusual volatility in the stock market between 1.9.1999 and 30.3.2001 is attributed to various contributories. Two such significant contributories were promoters and corporate entities. Any in-depth study to analyse the genesis of the scam, also the subject-matter of the Committee’s enquiry, would be incomplete without focusing on the role of promoters and corporate entities. Their role was considered to be relevant even during the enquiry into the 1992 stock market scam by the previous Joint Parliamentary Committee. This is illustrated by the following observations made in their Report that “the Committee had come across various instances of close nexus between prominent industrial houses, banks and brokers.”

Explaining the scope for manipulation on account of preferential allotment, the

Association has stated that normally a portion of shares owned by promoter group is under lock in i.e. that they cannot be sold for a certain period. For manipulation of their share prices, promoters require a lot of money. They, normally, raise a substantial part of it, through pledging of their holdings. Preferential allotment of shares when made, comes in handy for sustaining the manipulation.

The shares allotted replenishes his holding sold at a very high price or may even increase the percentage of the promoters holding at a lower price as well as it enables him to pledge the same to raise further money required for manipulation and to release the earlier holdings already pledged. It also enables the promoter to sustain liquidity by giving more shares in the market, helps him raise more money required without jeopardizing his control on the company robbing existing small shareholders and trapping the unsuspecting investor in the secondary market. The Association also stated that hundreds of companies, whose share prices went through the roof in the boom, had availed of this loophole.

 The Stock Market plays a crucial role in mobilizing house hold savings. This is particularly important in view of the need to substantially augment savings and investment rates which have been stagnating in the recent past, to attain the ambitious growth targets being set for the 10th Five Year Plan and beyond. An efficient, well-regulated, trust-worthy system of Investor Protection is the key to drawing into Stock Market investment house-hold savings from relatively untapped sources, such as rural areas as well as augmenting Stock Market investments from better-tapped sources. Equally, a strong system of investor protection is likely to induce a higher level of foreign institutional investment in a buoyant Stock Market. In view of this strong link between sound investor protection and a healthy Stock Market, the Committee reviewed in some detail the existing level of Investor Protection. In any activity of the stock market and in any scam, sudden drop of SENSEX or decrease in the prices of shares hurts the common investor most.

While the common, middle class investor puts in his life savings with a view to earning long term benefits, institutional investors invest to gain quick money and there is a contradiction of interest between the two. Equally, when the institutional investors enter and exit the stock market they increase the volatility of the market.

Protection of common investors interests, therefore, is of paramount importance. Keeping the importance of this subject in view, the terms of reference of the Committee includes, inter alia, “to suggest measures to protect small investors.”  Investor protection being of vital importance, and it is also the social responsibility of the corporate to safeguard the small investors and minority holders from the losses due to fall in share prices by acts of promoters or any other officials of the company

SEBI in its written reply has stated that it has stipulated the following guidelines:-

(i) Companies proposing to access the markets have to make substantial disclosures as

prescribed in the SEBI (Disclosure and Investor Protection) guidelines. 326

(ii) The guidelines stipulate eligibility norms for issues. To ensure that good quality issues come to the market, the norms have been recently tightened.

(iii) SEBI makes the offer document public for its comments. If there are any shortcomings or negative aspects, they could be brought to the notice of SEBI by any person.

(iv) In order to ensure commitment of promoters, the guidelines for IPOs stipulate lock-in for promoter’s contribution of 20% of post issue capital for 3 years and the balance of the entire pre issue capital for 1 year from the date of allotment in the public issue.

(v) The lead merchant banker and the issuer are required to justify the issue price based on the various accounting ratios and they shall not proceed with the issue in case the ratio do not justify the issue price.

 RELATIONSHIP BETWEEN CSR AND SHARE PRICES:

If we closely study the Companies Act we will find large no sections which will indirectly indicate the relationship of the share prices in the market and corporate responsibility, this responsibility is not only towards private individuals i.e. share holders but towards the society as a whole. The companies Act has provided with large no of safeguards to save investors from alleged frauds and procedure where the interest of the investors are protected in the primary market and dealing. Sec 68 A provides for the penalty for the fraudulent or impersonation of another person to get share of the company where as Sec 68 deals with the prosecution for false statement made to the investors or the would be shareholders of the company.

Further many sections of the Act deal with the division of the share in to various categories, concealment of the information, shareholders right etc. thus they derive direct responsibility of the company towards shareholders in the primary market for trading of the shares. It includes fraud and other aspect in which CEO or Directors may face the penal provision in case of defaults.

If we study the functions of the directors and powers of board of directors we will find direct relation between the functioning of the company and rights of shareholders.  

 Indian economy has evolved from closely held faimaly business to professionally managed organizations in a considerable short time. India has moved on the from an era where majority business were run and controlled by the members of the family, giving very little room to the outside representation on the board. In such a family oriented scenario, the concept of independence rarely exists; leave aside considering it being an option. Indian has over times replicate the developments in the global industry practices and had made a significant advance in the in those areas of corporate governance

If we study the orientation of the Indian market we will find that there are large no of small investors who have invested a part of their household savings in the stock market. Further there are mutual funds in which a large no of persons deposit their life long savings, thus it is responsibility of the corporation to take care of the price of the shares and that they are not manipulated by the market like in the scams it had. Rather than leave minority shareholders to the ruthless efficiency of the marketplace, corporate law steps in to provide mandatory and default protections for such shareholders. Corporate law's concern for minorities is evident in its elaborate framework protecting minority interests in the corporation.

Moreover, minority shareholder protection generally does not empower the minority to make decisions for the corporation. The business judgment rule, in particular, operates to insulate most corporate decisions from judicial review, at least in the absence of fraud, illegality, or conflict of interest. This is not to say that minority shareholder protection operates only occasionally, intervening in extreme cases. Rather, it is omnipresent--structuring mergers, regulating securities offerings, and guiding deliberative processes. Due consideration of minority interests is an ordinary part of corporate life, mandated by law.

The concern is that shareholders, who earlier were more or less equal, would now become minority shareholders in an enterprise controlled by someone else. And, as minority shareholders, they might face exploitation, as the court explained absent effective protective provisions, minority stockholders must rely for protection solely on the fiduciary duties owed to them by the directors and the majority stockholder, since the minority stockholders have lost the power to influence corporate direction through the ballot.

If we study the SEBI decision on the discloser of the shareholdings, we will find a direct relationship between the share prices and modern corporate governance principals. As corporate governance emphasis on the transparency and efficacy of the body corporate, SEBI has directed the listed companies to disclose the shareholding patter within 15 days of the listing of the company to market.  Further in wake of Ketan Parikh scam it has to disclose entities of the promoter group and body corporate. All the person who have 1% holding of the corporate should also be disclosed as it is responsibility of the corporation.

If we study the committees who have proposed the reforms then we will find that larger discloser and norms of corporate governance are propounded. CSR is also and concept which has evolved from the corporate governance so we can correlate that there is relationship between CSR and prices of shares. In 1998 CII recognized the needs of the greater discloser to investors and transparent mechanism with regard to the decision-making process of the company.

BIRLA COMMITTEE [5]was incorporated in 1992 in wake of Harshad Metha scam and it elaborated the importance of the composition of the board and importance of independent directors to the board. It stated independent directors are those directors who do not have material interests in the company or any relationship with promoters or firms dealing with the company .i.e having material interest in firm.

In 2002 Naresh Chandra Committee was appointed for the purpose. It recommended the separation of ownership from executive and professional persons to be appointed as the directors of the board. It recommended 50% of independent directors in board of listed company with free reserves of 10 crores.

Further if we study the Clause 49 of the listing agreement which has been revised by SEBI IN 2004. It has to be applicable at the time of seeking approval of the listing company. The stock exchange has to setup a separate monitoring cell with identified personals. It must submit report in 60 days. It has told that independent director should not be related to promoter, persons occupying position on the board and is not the executive of the company for 3 financial years. He is not material supplier and substantial shareholder of the company. It should disclose the remuneration of the director.

Clause 49 provide the check on the body corporate before entering in the share market so that the interests of the shareholders are protected so we can easily infer that there is indirect relation between CSR and prices of shares. Government has provided all these safeguards to facilitate CSR to safeguard investors and small shareholders from the fall in prices of shares.

The share prices do not only acts as the market pressure on the board but there is underlying responsibility of the board towards the shareholder. It is duty of board to protect shareholder from unusual or artificial rise in the prices of the shares to small investors as it is harmful to company’s image and to stop members of the company to harm small shareholder.

CONCLUSION

If we study the orientation of the Indian market we will find that there are large no of small investors who have invested a part of their household savings in the stock market. Further there are mutual funds in which a large no of persons deposit their life long savings, thus it is responsibility of the corporation to take care of the price of the shares and that they are not manipulated by the market like in the scams it had. Rather than leave minority shareholders to the ruthless efficiency of the marketplace, corporate law steps in to provide mandatory and default protections for such shareholders. Corporate law's concern for minorities is evident in its elaborate framework protecting minority interests in the corporation.

There is no direct relationship between the corporate social responsibility and prices of shares in the market, but if we study the provisions relating to the SEBI and Company Act, we will find a indirect connection between CSR and share prices. Large no of rules and regulations have been passed by the government for the corporations to adhere, for saving small investors. There are related to the process of corporate governance which strongly inculcates CSR.

The share prices do not only acts as the market pressure on the board but there is underlying responsibility of the board towards the shareholder. It is duty of board to protect shareholder from unusual or artificial rise in the prices of the shares to small investors as it is harmful to company’s image and to stop members of the company to harm small shareholder.

---

[1] Corporate Responsibility In the Global Village, National Policy Association, 2002

[2] www.westlaw.com

[3] www.idr.ac.in

[4] cited from JPC REPORT www.manupatra.com

[5] SEBI & CORPORATE LAW GENERAL,  VOL6, PG. 10