Introduction

1. Corporate governance is concerned with the separation of ownership and control in that when a company is publicly traded and therefore has too many owners who can not control any company at a time, and as such, they hire professional managers to do it. It has been defined as follows:

“The system in which those involved in the management of the company are responsible for their performance with the aim to ensure they follow the correct objectives of the company.”

It is generally accepted that the law plays a key role in corporate governance especially in the provision of protection of shareholders and reduction of expropriation as a result of the separation of ownership and management. However, the importance of the role of criminal law in enforcing good governance there is more than one screen. The performance penalty prevent corporate governance violations.

2. In order to prevent certain undesirable behavior, the criminal law has traditionally employed such penalties as imprisonment, fines and the stigma of criminality. While the success of these penalties in criminal law in general has been discussed, it has been convincingly argued that they can actually prevent corporate crime. Since companies are primarily profit seeking organizations, they choose to break the law if it appears profitable. Profit maximizing decisions are carefully based on the likelihood and amount of potential profit, and corporate decision to violate the criminal law would generally include a calculation of the likelihood of prosecution and the likely severity of the punishment. Making these costs sufficiently high should eliminate the potential benefits of illegal corporate activities and hence, any incentive to conduct such activities.

2.1 Improper corporate conduct could be deterred by applying criminal sanctions either the company itself or its officers and employees. A company can not, of course, to prison but it may be the stigma of criminal label attached to it. Such prejudices may affect behavior if it led to reduced profits.

2.2 A system of fines imposed on companies should also sufficiently prevent illegal corporate activities as long as fines are large enough to force the company to disgorge any benefit received from illegal conduct.

2.3 It is possible to prevent corporate misbehavior by criminal law to individuals in the organization. Since businessmen fear the stigma of criminality for both personal and economic reasons, such sanctions could be effective deterrents. Indeed, fear of criminal indictment or trial, even in the absence of conviction can effectively prevent corporate officials.

2.4 Corporate civil penalties and even individual civil fines will be insufficient when the individual is encouraged to violate the law by other than the common benefit. He may look, for example, to enhance its position within the company or even to use their position to break the law he believes is unfair. . Thus, any additional deterrence needed to improve the system of criminal fines could only be obtained by placing criminal sanctions for such reprehensible behavior of individuals

2.5 criminal law also allows other law abiding individuals – whether the Board Directors , senior managers or other professionals – to stand up for the less well-meaning colleagues or, at least, to pass go with misconduct

2.6 survival and long-term corporate profitability is no longer. private interest only affect those who deal with the company at the primary level, such as investors, but also the public interest affecting the welfare of stakeholders such as employees as it provides jobs and pensions. The government, therefore, has the responsibility to ensure that employees and other stakeholders of the company are protected from fraudulent acts managers who do not work for the company. The success of the company is the public interest that to a certain extent, should be guaranteed by State regulation.

2.7 Studies have confirmed that criminal sanctions are the only thing that can protect investors from large scale fraud or theft. Each country uses a strong criminal penalties to deal with cases like Enron and Parmalat. This suggests that criminal punishment is widely recognized way to protect shareholders from expropriation and risk governance.

Quit the application of criminal penalties

3. Some commentators have expressed doubts about the effectiveness of penalties for infringements of good corporate governance. They believe that criminal penalties for companies and individuals are ineffective deterrents for violations of corporate governance norms.

3.1 The use of criminal penalties to regulate the activity is generally considered to be an over-reaction that is likely to discourage members from taking risks is necessary to run the business, thereby slowing down economic growth and interfere with profitability.

3.2 The use of punishment is an expensive way to enforce the regulation, which has the burden proof, and as such is prohibitive to those who want resources for expropriation, the shareholders need to demonstrate blame the director.

3,3 punishment can not provide restitution to shareholders and employees who have lost their jobs.

3.4 The difficulty in pinpointing the responsibility of individuals in the organization reduces the likelihood that the businessman will actually be convicted of the crime. Thus corporate crime can not sufficiently deterred by punishment designed for individuals.

3.5 criminal law is used to control behavior that is not in itself morally reprehensible and in some cases imposes sanctions in the absence of defects. Use only punishment for inspection purposes represents a serious departure from the traditional objectives of criminal law-deterrence and retribution.

3.6 of the activities leading to criminal liability in the corporate setting is different from other crime; primary concern is often with supervisors and managers rather than direct actors. Thus, corporate officials can be held liable for acquiescing in, or recklessly or negligently tolerated, illegal activities of subordinates.

3.7 penalties are imposed on companies, an artificial entity that can not possess a state of mind, in the absence of some theory that ascribes blame to the company itself, rather than just its officers, directors and employees, the concept of frequent area of ​​criminal law is itself a challenge.

Conclusion

4. With regard to the policy raised by corporate governance and a range of industries and companies involved, government decision-makers must understand thoroughly the effects of different regulations may have. There are arguments both in favor and against the use of punishment to be imposed against violators of corporate governance norms. As the laws of the country are various provisions fixing criminal liability sinners in cases of fraud and misconduct, etc. Indian Penal Code affixes criminal liability for fraud or breach of trust committed by companies and even a variety of individual sections of the Companies Act provide penalties for violations of specific criteria that are part of good governance.

But these provisions have only been on paper and their implementation has often been a big headache for the government. However, scandals and scams such as if Satyam has been realized, even in class. Even if part 23e of the Securities contracts (Regulation) Act, 1956 imposes criminal liability on the company for any violation of state registration of the contract, which includes provisions 49 listing agreement and relates to governance, but the fact is that such responsibility is placed on the company itself addressed affected stakeholders in the company and are in fact the real victims of the violation of good governance.