The Role of Criminal Sanctions in Investor Protection through Disclosure Regulations: An Indian Scenario

Anju N. Pillai
Principal in Charge, Markaz Law College, Markaz Knowledge City, Calicut University, Kerala, India

Volume III – Issue II, 2021

India’s regulatory system employs disclosure rules to ensure corporate governance and accountability. Corporate governance is built on the principles of transparency, disclosure, accountability, and integrity. The shift from merit-based to disclosure-based regulation has been portrayed as part of the globalisation of competitive economies. As a result of the internationalisation of national economies, the consequences of corporate failure in different countries, and the rivalry for corporate managerial roles, the demand for effective corporate accountability has increased. Adequate transparency is a cornerstone of a healthy capital market. Regulations on disclosure can only be effective if they are properly implemented. In order to efficiently enforce disclosure legislation, those responsible for non-disclosure and non-compliance with disclosure norms must be prosecuted and disciplined. The regulatory framework requires the issuer to provide full disclosure of its affairs to investors, who can then determine whether or not to invest based on the risk. The information provided should be adequate to satisfy the needs of a wide range of stakeholders. Managers are held more responsible for their decisions as they are made aware of their actions. But in spite of all these mechanisms we can see a number of corporate scandals and also vanishing companies. In India, there were numerous examples, where the general public lost money by buying shares based on faith in the prospectus, deceptive claims and false representations in the company’s financial records. In this context it is vital to examine how far the criminal liability is used as a mechanism to render effective disclosure practices. This paper examines the importance of disclosure mechanisms in investor protection and the extent to which criminal sanctions are used to ensure that disclosure mechanisms work effectively.


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