Shareholder Activism: A Necessity to prevent Corporate Frauds.

Abstract

Public Companies in India are largely family-run and promoter dominated entailing huge investments from shareholders. However, this corporate structure provides avenues to promoters for undue enrichment and the shareholders who have invested in such companies do not actively participate in the operations of the company neglecting the need for transparency. Shareholder activism in India is largely absent in comparison to other western countries especially USA. The recent Satyam fiasco has turned out to be the biggest fraud by an Indian Corporate and has been popularly referred to as the Indian Enron. The episode marked the black letter day for the history of Indian Corporate System. Despite Satyam Promoters owning only 8.61 % of the Stock and pledging most of it to raise money they were able to unilaterally take decisions with respect to acquisition of Maytas and engage in enormous financial fraud to the tune of Rs. 7500 crores without the approval or knowledge of the other shareholders. Even with the increase in investments by foreign and Indian institutions and ordinary shareholders, Indian companies by and large continue to be run at the whims and fancies of the promoter group. Though shareholder activism is negligible in India, provisions of various statutes provide various recourses to shareholders to uphold their rights. This article aims to detail out the remedies available to the Shareholders in cases of fraud committed by the companies and suggests options to increase shareholder democracy in the functioning of the Companies. Further, we propose to examine the regulatory framework in India which makes committing fraud so easy and hard to detect, and would offer recommendations to close the loopholes and better the corporate governance in our country.