Corporate Governance in India: Legal Reforms and Global Best Practices

Abstract:

Corporate governance has become a defining concern of modern business regulation. In India, Scandals such as the Satyam Computer Services fiasco exposed structural weaknesses in corporate oversight. since then, significant reforms have sought to align Indian corporate governance with global standards. The Companies Act 2013, the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015, and the Kotak Committee recommendations mark crucial milestones. Nevertheless, persistent issues such as promoter dominance, board independence, and enforcement gaps remain. By comparing Indian practices with global benchmarks, particularly from jurisdictions like the United States and the United Kingdom, this paper evaluates India’s progress and identifies areas where further reforms are essential. The article argues that a combination of robust regulation, ethical corporate culture, and international cooperation is required to build trust in Indian markets and ensure sustainable business practices.

Keywords: Corporate governance, Companies Act 2013, SEBI Regulations, Global Best Practices, Board Independence Shareholder Protection and Transparency.

Introduction:

Corporate governance broadly refers to the system by which companies re directed and controlled. It balances the interests of shareholders, management, customers, employees, regulators and the community. At its core, good governance ensures transparency, accountability, fairness and responsibility.

In India, the importance of corporate governance rose dramatically after high-profile financial scandals, including the 2009 Satyam Case where accounting fraud shook investor confidence. [1]Such crises demonstrated that legal frameworks alone are not enough; effective enforcement and ethical business culture are equally critical.

The demand for better governance also stems from India’s rapid integration into the global economy. As foreign investment increases, multinational corporations and global investors expect Indian companies to follow international standards of accountability and disclosure. Weak governance not only risks financial instability but also damages India’s reputation as an investment destination.

Corporate governance in India has therefore evolved through a mix of legislative reforms, regulatory interventions, and judicial oversight. The enactment of the Companies Act 2013, [2]continuous amendments to the SEBI (Listing Obligations and Disclosure Requirements) Regulations,[3] and the introduction of mandatory corporate social responsibility have reshaped the governance landscape. Courts too have emphasised the need for directors to act in good faith and in the best interests of the company.

This article examines the development of corporate governance in India, focusing on major legal reforms and regulatory practices. It then compares these developments with global best practices to highlight strengths, weaknesses, and the way forward.

Evolution of Corporate Governance in India:

1. Early Developments

Before liberalisation in the 1990s, Indian corporate governance remained relatively weak due to concentrated ownership structures and limited shareholder activism. Most companies were controlled by family- owned promoters, leaving minority shareholders with little say.

2. The Kumar Mangalam Birla Committee (1999)

SEBI appointed this committee to establish governance standards. Its recommendations- particularly regarding audit committees, board composition, and shareholder disclosure – formed the basis of clause 49 of the Listing Agreement.[4]

3. The Narayana Murthy Committee (2003)

Building on earlier reforms, this committee strengthened disclosure norms and recommended independent directors on boards.

4. The Satyam Scandal (2009)

This watershed moment exposed weaknesses in oversight and accountability. It promoted widespread calls for reform, culminating in the Act 2013, which embedded corporate governance principles in statutory law.[5]

Legal Framework for Corporate Governance in India:

1. The Companies Act 2013

The Act introduced several governance – related provisions:

• Independent Directors: At least one–third of board members in listed cvompanies must be independent.
• Audit Committee and Risk Management: Enhanced role of audit Committees to oversee financial integrity.
• Corporate Social Responsibility (CSR): Mandatory Spending of 2% of net profits on CSR activities for certain companies.
• Board Diversity: At least 1 woman director in prescribed companies.

2. SEBI (Listing obligations and Disclosure Requirements) Regulations 2015

These regulations harmonised governance standards across listed companies, emphasising disclosure, shareholder rights, and accountability of boards.

3. Kotak Committee Recommendations (2017)

This Committee suggested reforms such as stricter criteria for Independent directors, enhanced disclosure of related-party transactions, and separation of roles between chairperson and managing director. While not all were implemented, they reflect a push towards global best practices.[6]

Challenges in Indian Corporate Governance:

  Despite reforms, several concerns persist:

1. Promoter Dominance: Most India companies remain promotes- controlled, diluting the role of minority shareholders[7]. In many cases, promoters exercise disproportionate infuence over ley decisions, such as board appointments and related-party transactions. This weakens accountability and creates conflicts of interest.
2. Board independence: Many independent directors face questions of true independence due to close ties with promoters. As a result, their ability to question management decisions is compromised, making independence more formal than real.
3. Enforcement Gaps: Regulators such as SEBI and the Ministry of Corporate Affairs face challenges in timely enforcement. Delayed investigations and limited staffing reduce the deterrent value of corporate governance laws, allowing violations to go unchecked[8] for years.
4. Corporate Culture: Governance in many companies is still treated as a compliance formality. Instead of fostering transparency and ethical conduct, rules are often followed mechanically, which undermines their purpose.
5. Shareholder Activism: Although institutional investors are beginning to demand accountability, activism among retail shareholders is still minimal. Limited awareness, procedural hurdles, and lack of coordinated efforts weaken the role of shareholders as guardians of good governance.

Global Best Practices:

1. United States: The Sarbanes- Oxley Act 2002 introduced strict requirements on financial disclosures, auditor independence, and whistle-blower protections after the Enron scandal. The US model emphasises strong enforcement and shareholder litigation.[9]
2. United kingdom: The UK Corporate Governance Code operates on a “comply or explain” basis, giving companies flexibility while ensuring accountability.q Board evaluation, diversity, and stakeholder engagement are central features.
3. OECD Principles of Corporate Governance: Adopted widely, these principles emphasise shareholder rights, equitable treatment, stakeholder role in governance, disclosure, and board responsibilities. They serve as a global benchmark.

Comparative Analysis:

India has made notable progress in aligning its governance framework with global practices. The introduction of mandatory corporate social responsibility (CSR) spending is a feature unique to India, reflecting its socio-economic priorities and developmental concerns. [10]Yet, 20 areas such as genuine board independence, minority shareholder protection, and consistent enforcement continue to lag behind advanced jurisdictions.

The united States model is characterised by strict enforcement. The Sarbanes–Oxley Act, enacted after the Enron and WorldCom scandals, requires CEO and CFO certification of financial statements, independence of auditors, and imposes harsh penalties for misconduct.21 Enforcement by the Securities and Exchange Commission (SEC), combined with shareholder litigation, makes the system highly deterrent.[11] However, critics note that the compliance burden is costly and sometimes discourages smaller firms.

The United Kingdom model, in contrast, is based on principles rather than rigid rules. The UK Corporate Governance Code functions on a “comply or explain” basis, giving companies flexibility while requiring them to justify deviations publicly.22 This nurtures a culture of ethical practice and accountability without excessive rigidity.

India Stands at a middle ground. Drawing on U.S. enforcement strength, U.K. flexibility, and OECD principles of fairness and transparency, India must build a balanced governance model that emphasises both compliance and a culture of ethical leadership.

The Way Forward:

1. Strengthening Enforcement: Equip SEBI with greater autonomy, resources, and quicker and adjudication mechanism. Regulatory bodies should be technologically empowered to track violations in real time, ensuring that penalties act as a genuine deterrent.
2. Enhancing Board Independence: Transparent and merit- based processes are needed for the appointment of independent directors. Introducing training and periodic evaluation can ensure that directors serve the company and stakeholders rather than promoters.
3. Promoting Shareholder Activism: Institutional investors such as pension and mutual funds, should actively question management decisions and exercise voting rights responsibly. Simplifying procedures for retail shareholders will also increase their participation in governance.
4. Cultural Change: Laws alone cannot create ethical companies. Regular workshops, awareness campaigns, and leadership programs can instil a culture of integrity and accountability beyond mere compliance. Companies must see governance as a long-term investment rather than a short-term obligation.
5. International Cooperation: India should actively learn from OECD guidelines and global forums on governance. Participation in cross-border dialogues will allow India to adopt best practices while tailoring them to domestic realities, strengthening investor confidence.

Conclusions:

Corporate governance in india has undoubtedly evolved in both scope and substance. From the early reliance on promoter-driven models to the statutory reforms brought by the Companies Act 2013 and the SEBI regulations, the country has attempted to modernise its governance framework in line with global practices. These reforms have strengthened board accountability, improved disclosure standards, and introduced new concepts such as mandatory corporate social responsibility.

However, challenges remain deeply embedded in India’s corporate landscape. Promoter dominance continues to dilute minority shareholder rights, and the independence of directors is often more formal than real. Furthermore, enforcement by regulators like SEBI is sometimes slow and under-resourced, weakening the deterrent value of governance norms. These issues reflect that while legislative reforms are necessary, they are not sufficient by themselves. Governance is as much about culture and ethics as it is about statutes and regulations.

A comparison with global practices demonstrates that India still has significant ground to cover. Jurisdictions such as the United States emphasise strict enforcement and accountability mechanisms, while the United Kingdom relies on a culture of self-regulation through the “comply or explain” approach. India can draw lessons from both: adopting stricter enforcement in cases of fraud and malpractice, while also promoting a culture of voluntary compliance and ethical leadership.

Looking forward, India’s corporate governance must move beyond compliance checklists to embody principles of fairness, transparency, and accountability. Stronger enforcement, independent boards, active shareholder participation, and cultural change towards ethical business practices will be vital. At the same time, aligning domestic practices with OECD standards and other international benchmarks can enhance global investor confidence.

In essence, good governance is not only a legal obligation but also a strategic necessity for companies in a globalised economy. For India, embedding governance into the DNA of its corporate sector is not just about preventing scandals—it is about building sustainable businesses, protecting stakeholders, and securing long-term economic growth. If governance reforms are pursued with seriousness and sincerity, India has the potential to emerge as a model jurisdiction for balancing growth with accountability in the corporate world.

References:

[1] Satyam Computer Services Ltd v Union of India (2009) National Law School of India Review 1.

[2] Companies Act 2013 (India)

[3] SEBI (Listing obligations and Disclosure Requirements) Regulations 2015 (India)

[4] SEBI, Report of the Narayana Murthy Committee on Corporate Governance (2003)

[5] Satyam Computer Services Ltd v Union of India (2009) 3 SCC 1

[6] SEBI, Report of the Committee on Corporate Governance under the Chairmanship of Uday kotak (2017)

[7] Umakanth Varottil, Evoultion and effectiveness of Independent Directors in Indian Corporate Governance (2010) 6 Hastings Bus LJ 281.

[8] Companies Act 2013, s 211 (India); Securities and Exchange Board of India Act1992, s 11 (India)

[9] Saraben – oxley Act 2002, Pub L No 107_ 204, 116 Stat 745 (US).

[10] Companies Act 2013, s 135 (India)

[11] Securities and Exchange Commission, ‘Enforcement’ https://www.sec.gov/enforce accessed 12 September 2025.