This article is written by Yasharth Mishra of 1st Semester of Dr. Rajendra Prasad National Law University Prayagraj, an intern under Legal Vidhiya
ABSTRACT
India has seen much in terms of changes in corporate governance regulations reflecting socio-economic change and, indeed, the entire shift towards becoming a liberalized economy in the early 1990s. Corporate governance represents all mechanisms and practices that will contribute to responsibility, transparency, and fairness within various stakeholders of organizations, boards of directors, management, and shareholders. Historically, India had a very primitive governance framework. The Indian Companies Act of 1956 was the basic framework for company regulation. However, the economic liberalization of the 1990s required a paradigm shift towards more robust governance standards to meet the demands of globalization, attract foreign investment, and mitigate risks.
The milestones in this journey include the Cadbury Report and recommendations from the Kumar Mangalam Birla Committee. These initiatives focused on autonomy of boards, high standards of disclosure, and dedicated committees of audit. The Companies Act, 2013, was a landmark shift as it codified modern principles of corporate governance. Its provisions provided strong board structures, introduced the concept of CSR, and brought transparency and accountability into decision-making processes.
Such regulatory oversight is complemented by the existence of bodies such as the Securities and Exchange Board of India (SEBI), that have the periodic inspections, report requirements, and deterrents like penalty in case of non-compliance. Over the years, the SEBI’s evolving listing regulations, as brought about in 2015, set governance standards and a bar for the protection of investors.
Significant challenges exist, despite recent progress: such as board composition with conflict of interest; poor alignment between the interests of managers and those of shareholders; and cultural obstacles specific to family-controlled businesses. It is only possible to mitigate the above problems if digital governance tools, including blockchain and AI, are applied while emphasizing the concept of ethical leadership and constant learning.
Concluding, this essay has proved how India has significantly aligned to global standards from local nuances under corporate governance structures. Sustained efforts with the promotion of transparency, good practice, and investor confidence can become crucially necessary for this development in sustainability in the interests of societal growth through the corporate sector.
KEYWORDS
Corporate Governance, Transparency, Accountability, Companies Act 2013, Kumar Mangalam Birla Committee, SEBI, Disclosure Norms, CSR, Investor Confidence, and Sustainable Growth
INTRODUCTION
Corporate governance refers to the mechanisms, processes, and relationships by which corporations are controlled and directed. It encompasses a wide range of practices and policies designed to manage the interactions among various stakeholders, including the board of directors, management, shareholders, and other interested parties. Essentially, corporate governance aims at providing accountability, transparency, and fairness in the decision-making processes of organizations, which in turn ensures trust and stability within the corporate sector.
The evolution of corporate governance regulations in India mirrors the broader socio-economic transformations of the country. Globalization has accelerated at a very fast pace, and significant technological advancements have not only increased market competitiveness but also raised public expectations regarding ethical corporate behavior. This dynamic landscape has necessitated a robust framework that can address emerging challenges while promoting sustainable business practices.[1]
Historically, the corporate governance structure in India has been based on simple legal structures that primarily relied on statutory compliance. However, with the opening up of the nation’s economy in the 1990s and integration into global markets, a more developed governance structure became necessary. The rationale was based on the realization that effective governance is critical for risk mitigation, foreign investment, and long-term economic growth.
Legislated milestones like regulatory codes, as well as reform measures undertaken by the governance, have deeply shaped the contemporary framework of governance. The reformed measures increase the level of disclosure requirements for entities, direct entities to form corporate boards to have independent directors, and bring into place definite roles and responsibilities among the diverse players. All such measures help ensure better supervision of corporate action, deter malpractices, and align management with shareholder as well as general public interests.[2]
The corporate governance frameworks of India today continue to evolve, drawing more on international best practices and addressing the challenges of the times, including sustainability and corporate social responsibility. This is particularly pertinent as India looks to seize opportunities and meet challenges in an economic environment that continues to rapidly evolve. Thus, the evolution of corporate governance regulation remains an essential component of how corporations do not only respect the law but contribute positively to society.
HISTORICAL CONTEXT
The roots of corporate governance in India date back to the colonial era, with the Indian Companies Act of 1956 forming the cornerstone of the country’s corporate legal framework. This early legislation provided guidelines for company formation, operation, and eventual dissolution. Its primary focus was on protecting investors by regulating share capital and outlining the responsibilities of company management. Although the Act provided legal underpinnings for businesses to operate within, it failed to include solid mechanisms for checks and balances regarding the operations of the corporations. This omission implied that, even though companies were allowed to be formed and conducted under clear-cut legal parameters, there was a lack of scrutiny to prevent business mismanagement or malfeasance, a loophole that would subsequently become more profound.
The transformation phase for corporate governance in India started in the early 1990s, a period characterized by comprehensive economic liberalization and the rapid acceleration of globalization. This period was challenging the traditional corporate structure because India opened its doors to foreign investment and had to conform to international business practices. Entry of global investors into the economy brought much-needed capital, but more importantly, a demand for higher standards of corporate governance that could guarantee investor confidence and protect stakeholder interests. In response to these new dynamics, the regulatory framework in India underwent a significant re-evaluation and overhaul.[3]
Liberalization underscored the need for modernizing corporate governance practices. More robust accountability and disclosure policies were asked by investors as well as by the regulators and others. So, the focus, again, on that was given toward previous faults because corporate decision making was given under greater degree scrutiny and better ethics. Practices change over years are very effective to improve corporate sector integrity while strengthening investor trust in India along with Indian businesses adopting globalized standards of corporate governance. It can be said that the change from basic regulatory framework under the 1956 Act to more advanced structures of governance after liberalization reveals India’s journey toward building a harder, more transparent, and globally competitive corporate landscape.
THE CADBURY AND KUMARA MANGALAM BIRLA COMMITTEES
The evolution of corporate governance in India has been significantly influenced by key international models and homegrown reforms, particularly through the recommendations of the Cadbury Report and the Kumar Mangalam Birla Committee. Although the Cadbury Report of 1992 was an outcome of the United Kingdom and had been tailored for a different regulatory environment, its core principles were felt to be relevant to all parts of the world and thus served as an important source of inspiration for Indian policymakers who were grappling with similar issues of corporate accountability and transparency.
The Cadbury Report underlined the need for a sound system of internal controls, ethical financial practices, and well-defined roles and responsibilities within corporate boards. Although the report did not have any direct applicability in India, its emphasis on transparency and accountability triggered a larger debate on corporate governance. Its recommendations were significant, such as establishing independent oversight mechanisms and instilling a culture of integrity among companies, both of which became the cornerstone of India’s corporate governance approach later on.[4]
In the aftermath of these global influences, the Kumar Mangalam Birla Committee was formed in 1999 as a direct response to growing concerns about corporate malfeasance and inefficiencies in the existing governance structures within India. This committee was tasked with developing a framework that would not only address these issues but also build investor confidence in the rapidly modernizing Indian corporate sector. The Birla Committee’s report was comprehensive in scope, emphasizing several critical areas.[5]
The committee recommended that board independence be strengthened. In the report, the committee advocated for a higher number of independent directors to ensure that corporate boards can function without undue influence from executive management, thus facilitating objective oversight of company operations. This was aimed at reducing conflicts of interest and promoting accountability within the boardroom.
Besides this, the committee emphasized strict norms of disclosure. In a scenario where business activities were becoming complex and investors had increased in numbers, there was a need for transparency. According to the report, companies were advised to publish their governance policies in minute details so that all shareholders and other stakeholders would know the real scenario of the performance and policies adopted by the corporates.
Establishing special audit committees is another prime cornerstone of proposals presented by Birla Committee. These specialized groups within a board were believed to scrutinize the financial report as well as the internal control over financial reporting that would ultimately act as the next layer to further protect interests of the corporation from risks as well as hazard.
The Kumar Mangalam Birla Committee recommendations had far-reaching implications. They formed the basis for significant amendments to the Companies Act in 2000 and led directly to the introduction of Clause 49 of the Listing Agreement. This clause mandated that all listed companies adhere to a defined set of corporate governance norms, ensuring that principles such as board independence, accountability, and transparency became standardized practices across the corporate landscape in India.[6]
The inspiration derived from the Cadbury Report and the actionable reforms proposed by the Kumar Mangalam Birla Committee together have played a pivotal role in shaping a more robust and reliable corporate governance framework in India. These measures addressed long-standing issues of mismanagement and opacity, but also helped align Indian corporate practices with global standards, ultimately fostering a more trustworthy and resilient business environment.
THE COMPANIES ACT 2013: A LANDMARK LEGISLATION
The enactment of Companies Act 2013 is noteworthy as a hallmark development in India’s corporate governance evolution. Overall, this codified piece represented a paradigm change in the statutory framework, and the older obsolete frameworks were thereby replaced by new, modern concepts of accountability and transparency in ethics-based management of the company’s affairs. Thereby, while overhauling the existing Indian corporate law architecture, the legislation aimed to rebalance investor sentiment and bring corporate practices in the country in harmony with international trends.
One of the most significant aspects of the Companies Act 2013 is its focus on strengthening the board of directors. The Act mandates a higher proportion of independent directors, a move designed to ensure that boards are equipped with unbiased oversight and are less susceptible to conflicts of interest. Independent directors play a crucial role in monitoring executive decisions, providing objective judgments, and safeguarding the interests of all stakeholders. This regulatory requirement has been very instrumental in enhancing greater transparency in board operations and decision-making processes.[7]
Besides enhancing the composition of the board, the Act requires the formation of specialized committees within corporate boards. Committees such as the Audit Committee, Nomination Committee, and Remuneration Committee are now integral to the governance structure. The Audit Committee is responsible for reviewing financial reporting and ensuring that internal controls are strong and effective. The Nomination and Remuneration Committees are responsible for the selection and remuneration of top management, thus ensuring that leadership decisions are in line with the long-term interests of the company and its stakeholders.
The other cornerstone of the Companies Act, 2013, also takes up improved disclosure norms. While realizing the cardinal need to infuse trust among investors and citizens, the Act squarely demands that strict parameters be created for the spread of corporate information. A company now has to disclose in minute detail its financial performance, best practices of governance, and the risk management policies in place. Such steps help to establish a more open corporate environment wherein stakeholders are properly informed about the operational and financial health of the organization.
Another notable feature of the Act was its focus on corporate social responsibility (CSR). For the first time, it was made obligatory for larger corporations to allocate at least a fraction of their profits to CSR activities. This provision represents a great deviation from the pure profit model since it introduces the concept of corporate accountability toward society into the legal framework. Compelling companies to contribute to social and environmental causes, the Act encourages a more holistic view of business success, one that values ethical considerations and societal impact along with financial performance.[8]
In summary, the Companies Act 2013 has not only redefined the regulatory environment for corporate governance in India but has also set new benchmarks for transparency, accountability, and social responsibility. Through its innovative provisions regarding board composition, committee structures, enhanced disclosure, and CSR, the Act has paved the way for a more resilient and ethically-driven corporate sector in India.
REGULATORY BODIES AND OVERSIGHT MECHANISMS
The establishment of strong regulatory bodies and stringent oversight mechanisms has significantly bolstered the evolution of corporate governance in India. One of the foremost institutions in this regard is the Securities and Exchange Board of India (SEBI), which has been pivotal in promoting and enforcing corporate governance norms, particularly among publicly traded companies.
SEBI’s role in the regulatory framework cannot be overstated. Given the fact that SEBI is a watchdog of the securities market, it is its basic responsibility to see that companies act according to prescribed standards of transparency and accountability. For this purpose, SEBI has evolved a set of guidelines and regulatory measures which have forced companies to put these disclosures about the critical aspects of their financial performances, managing practices, and risk management procedures. These disclosures not only assist investors in taking informed decisions but also help to create an environment of trust and reliability in the corporate sector.
A significant landmark in this journey of regulation has been the introduction of the SEBI (Listing Obligations and Disclosure Requirements) Regulations of 2015. These regulations have set a new benchmark for corporate governance as they require listed companies to maintain high levels of transparency in their operations. The regulations bind companies to file periodic compliance reports showing that they are compliant with established corporate governance norms. Periodic inspections ensure that companies are held accountable by their shareholders and other stakeholders, which reinforces ethical behavior in business.[9]
SEBI has implemented a number of proactive measures that prevent non-compliance and promote a sense of responsibility. In addition to these sets of proactive measures, SEBI also mandates compliance reports. Among these measures are stringent penalties and corrective actions for companies that fail to meet the stipulated standards. The imposition of these penalties serves as a deterrent against malpractices and encourages companies to prioritize ethical standards in their day-to-day operations. This proactive approach by SEBI has been instrumental in shaping a regulatory landscape where companies are forced to operate within the ambit of the law while maintaining higher ethical standards.
The SEBI also periodically reviews and updates its regulations in line with the changing business environment. This dynamic regulatory approach keeps the framework relevant to new challenges such as technological changes, market dynamics, and complexity in financial transactions. It stays ahead of the curve, which helps SEBI protect the interests of investors and maintain the integrity of the securities market.
The regulatory measures initiated by SEBI are not only about enforcing compliance but also about educating companies and the market on best practices in corporate governance. Through workshops, seminars, and published guidelines, SEBI disseminates knowledge and fosters an environment where transparency and accountability are ingrained in the corporate culture.
In other words, it was the formation of regulatory bodies such as SEBI and introduction of overall oversight mechanism that shaped corporate governance in India. Measures of SEBI which include the obligatory submission of reports of compliance, regular update in regulatory norms and stringent penalty imply a huge movement towards more disciplined, transparent and responsible corporate governance framework. All these developments ensured not only that the companies operate in a legal framework but have been very important to strengthen investor confidence and foster long-term sustainable growth in the corporate sector.
CURRENT CHALLENGES AND THE PATH FORWARD
Despite significant progress in strengthening corporate governance regulations in India, several challenges continue to complicate effective implementation and compliance. One of the first issues is related to board composition. While regulations have increasingly mandated a higher proportion of independent directors, practical challenges persist. In many cases, board members continue to exhibit conflicts of interest or lack true independence due to familial ties and long-standing relationships, particularly in family-owned businesses that dominate a significant portion of the Indian corporate landscape. This dynamic often undermines the intended checks and balances, weakening the board’s ability to effectively monitor management decisions.
Another issue is the overall management practices and inherent conflicts of interest. It is really hard to line up the interests of management with shareholders in many firms, especially in companies whose managements are really established. Overlapping roles and self-dealing continue to challenge the integrity of governance frameworks as management may prioritize personal gains over the interest of the company. These are further complicated by the socio-economic context in India, which has unique characteristics. Traditional business practices and informal management structures sometimes conflict with modern corporate governance principles.
Yet, rapid economic integration with global markets has only brought to the forefront the need for an agile regulatory framework. While India has done well in benchmarking itself against international best practices, the existing framework still remains inadequate to absorb the flavors of the local corporate environment. This gap calls upon regulatory reforms that maintain the compliance level with global standards but also challenge localized issues such as family-owned enterprises and regional market disparities.
It has shown promise with regards to embracing technologies. It enables the application of digital governance tools that increase the transparency levels as well as automate compliance procedures. Technologies like blockchain for record security, artificial intelligence for monitoring and data analytics improve risk management allow corporate governance systems to transform entirely. Such opportunities can make a difference between proper information that can be used either for accurate knowledge or even accessing it easily-which then reinforces stakeholder confidence and provides information for informed choices.
The third core area is the cultivation of a culture of ethics and responsibility within the organization. Building this culture requires top-down support from leadership and leadership by example. Companies can integrate ethical practice into core values and everyday operating procedures so that every decision reflects accountability and transparency.
Internal mechanisms have to be strengthened, and incentives must be made clearly associated with performance evaluations.
In addition to that, continuous education and training by the directors and the executives are important in navigating the dynamic aspect of corporate governance. Through various workshops, seminars, and certification courses, corporate leaders would be afforded refreshers on up-to-date trends, regulatory changes, and global best practices. This will give them proper guidance and enable them to cope actively with possible conflicts of interest and highest standards of corporate conduct.
In summary, while India’s corporate governance framework has made remarkable progress, addressing the challenges of board composition, management practices, and conflicts of interest remains imperative. By leveraging digital governance tools, fostering an ethical organizational culture, and investing in ongoing education, India can further strengthen its governance standards. An agile and responsive regulatory framework that knows the local nuances and global best practices will not only enhance compliance but build long-term sustainable growth and investor confidence in the corporate sector.
CONCLUSION
The evolution of corporate governance regulations in India is a mirror reflecting the nation’s journey towards building a robust, transparent, and accountable corporate sector. Grounded in historical antecedents and propelled by legislative milestones, the regulatory framework has undergone significant transformation, moving from a protectionist model to one that values transparency and accountability. As challenges loom, it is imperative for stakeholders, including regulatory agencies, companies, and investors, to actively engage in fostering an ethical corporate governance culture. By doing so, India can foster an environment that not only attracts investment and ensures sustainable growth but also promotes societal welfare, ultimately leading to a more resilient economic landscape.
REFERENCES
- WIKIPEDIA, Companies Act 2013, https://en.wikipedia.org, February 02, 2025
- WIKIPEDIA, Insolvency and Bankruptcy Code, 2016, https://en.wikipedia.org, February 02, 2025
- WIKIPEDIA, Companies (2nd Amendment) Act 2017, https://en.wikipedia.org, February 02, 2025
- LEXOLOGY, Corporate Governance in India, https://www.lexology.com, February 03, 2025
- ICLG, Corporate Governance Laws and Regulations India 2024-2025, https://iclg.com, February 03, 2025
- ECGI, Corporate Governance in India, https://www.ecgi.global, February 03, 2025
[1] Law Bhoomi, Evolution of Corporate Governance in India, https://lawbhoomi.com, February 02, 2025
[2] Harvard Law School Forum on Corporate Governance, Corporate Governance Regulation: A Primer, https://corpgov.law.harvard.edu, February 02, 2025
[3] ECGI, Corporate Governance in India, https://www.ecgi.global, February 01, 2025
[4] SSRN, Corporate Governance in India Impact on Firm Performance, https://papers.ssrn.com, February 03, 2025
[5] GK Today, Key Recommendations of Kumar Mangalam Birla committee Report, https://www.gktoday.in, February 03, 2025
[6] GK Today, Key Recommendations of Kumar Mangalam Birla committee Report, https://www.gktoday.in, February 03, 2025
[7] Tax Guru, Independent Directors under Companies Act 2013, https://taxguru.in, February 02, 2025
[8] Drishti Judiciary, Legal Dimensions of Corporate Social Responsibility in India, https://www.drishtijudiciary.com, February 03, 2025
[9] Tax Guru, SEBI guideline on corporate governance provisions applicability, https://taxguru.in, February 03, 2025
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