Corporate Governance Reforms in India: Role Of SEBI and Recent Developments

ABSTRACT

Modern corporations rely heavily on public trust in the capital market system, which necessitates a legal and regulatory framework that protects against oppression, fraud, and insider bias. In every corporate structure, shareholders are the primary owners of the company, but their influence and power vary greatly. Minority shareholders, who have a small ownership stake, frequently lack control over corporate decisions, making them vulnerable to exploitation by large or majority shareholders. This imbalance is the foundational concern upon which the Securities and Exchange Board of India[1] (SEBI) bases its investor protection mechanisms.

In India, the securities market plays an important role in the national economy, channelling savings into productive investment via transparent financial mechanisms. To maintain market integrity, SEBI, established under the SEBI Act of 1992, is the statutory regulatory authority tasked with protecting investors and promoting fair trade practices. Protecting minority shareholders’ rights, particularly during corporate takeovers, continues to be one of SEBI’s most complex and evolving mandates.

SEBI’s ROLE AS A REGULATORY AUTHORITY

The Securities and Exchange Board of India (SEBI) was established in 1988, primarily to address the growing complexities and challenges in the Indian securities market at the time. SEBI was not granted statutory status until 1992, when the SEBI Act of 1992 was enacted, empowering it to effectively oversee and regulate India’s securities market. Since its inception, SEBI has focused on creating a transparent and fair-trading environment that protects investors’ interests.

SEBI’s objectives can be broadly categorized into three key areas: the protection of investors, the promotion of market development, and the regulation of the securities market. Among these core objectives, investor protection remains central and is considered the nucleus around which all other reforms and initiatives are structured. This focus on safeguarding investors is crucial, especially in a market that can often be volatile and unpredictable. By implementing stringent regulations and guidelines, SEBI aims to reduce the risks faced by individual and institutional investors, thereby fostering greater confidence in the market.

Furthermore, SEBI actively promotes market development by encouraging innovation and the introduction of new products, which improves overall market efficiency. It also plays an important role in educating investors on various financial instruments and investment strategies, allowing them to make more informed decisions. SEBI’s efforts aim not only to protect investors, but also to build a strong and vibrant securities market that contributes to India’s overall economic growth. Over the decades, SEBI has introduced sweeping reforms to strengthen corporate accountability, including:

• The SEBI (Listing Obligations and Disclosure Requirements) or LODR Regulations[2], 2015, were established with the primary objective of ensuring timely and transparent corporate disclosures by listed entities. These regulations play a crucial role in maintaining the integrity of the capital markets in India, fostering investor confidence, and promoting fair trading practices. By mandating that companies disclose relevant information in a timely manner, the LODR Regulations aim to empower investors with the necessary information to make informed decisions regarding their investments.
• Companies must follow strict guidelines for disclosing information, such as financial results, shareholding patterns, corporate governance practices, and material events that may impact operations or share prices. This level of transparency aims to reduce information asymmetry between companies and their stakeholders, which include investors, analysts, and regulators.
• The LODR Regulations emphasise continuous disclosure, requiring listed entities to keep the market informed of significant developments on an ongoing basis. This includes not only financial performance, but also any other events that have the potential to materially impact the company’s performance or share price.  By establishing these requirements, SEBI hopes to improve accountability and ensure that all stakeholders have access to relevant and timely information, resulting in a more stable and efficient capital market environment.
• The SEBI (Prohibition of Insider Trading) Regulations aim to reduce information asymmetry and protect investors’ interests. These regulations recognise that the availability of non-public, price-sensitive information creates an uneven playing field in which certain individuals, often insiders, can exploit their position for personal gain.  This practice not only undermines market integrity, but it also erodes investor confidence, which is critical for the smooth operation of financial markets.
• By enforcing these regulations, the Securities and Exchange Board of India (SEBI) hopes to promote transparency and fair trading. Insiders, such as company executives, employees, and others with privileged access to sensitive information, are prohibited by the regulations from trading shares based on that information before it becomes public.  This ensures that all investors, regardless of access to information, have an equal opportunity to make informed investment decisions.
• Furthermore, the regulations impose stringent disclosure requirements on companies, requiring timely and accurate dissemination of information that may affect their stock prices. This is critical for maintaining a level playing field and improving market efficiency.  Violations of these regulations can result in severe penalties, including fines and imprisonment, demonstrating SEBI’s seriousness about insider trading.  Finally, the SEBI (Prohibition of Insider Trading) Regulations provide a critical framework for maintaining the integrity and credibility of the Indian securities market, which benefits both current and future investors.
• The 2011 Takeover Code was a significant regulatory framework established to ensure fairness and transparency in the increasingly complex landscape of mergers and acquisitions (M& A). This code was developed in response to growing concerns about the potential for unfair practices and the need for greater protection of shareholders, particularly minority shareholders, during takeover bids. By providing clear guidelines and rules, the 2011 Takeover Code aimed to create a level playing field for all parties involved in the M&A process.
• The 2011 Takeover Code aimed to increase accountability for companies and boards of directors during takeovers. The code mandated that companies provide shareholders with clear and comprehensive information so that they can make informed decisions about any offers.  This transparency is critical because it helps to mitigate the risks associated with misinformation or a lack of information, which can lead to poor decision-making among shareholders.
• Furthermore, the 2011 Takeover Code included provisions to protect minority shareholders from being sidelined during the takeover process. For example, it emphasised the importance of fair treatment for all shareholders and prohibited any actions that would disadvantage minority stakeholders.  The code aimed to foster trust in the merger and acquisition process while also ensuring that all shareholders’ interests were adequately represented.
• Overall, the 2011 Takeover Code represents a crucial step forward in promoting ethical practices in the field of mergers and acquisitions, thereby contributing to a more stable and equitable financial market.

SEBI’s intervention in the Indian securities market has significantly increased investor trust, playing an important role in creating a more stable and transparent financial environment.  SEBI ensures that the financial system operates transparently by enforcing strict regulations and monitoring compliance, providing investors with a sense of security.  This transparency is critical because it reduces the risks associated with market manipulation and insider trading, allowing investors to make sound decisions based on reliable data.  Furthermore, SEBI’s vigilant oversight ensures that minority shareholders—often retail investors—are treated fairly during ownership transitions. 

OBJECTIVES OF SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS

1. Protecting Minority Shareholders
2. Ensuring a Fair and Transparent Process
3. Maintaining Market Stability and Integrity
4. Promoting Corporate Governance
5. Providing an Exit Opportunity
6. Regulating “Creeping Acquisition”

CONCEPT OF MINORITY SHAREHOLDER PROTECTION

The principle of shareholder equality stands as a cornerstone of corporate democracy, playing a crucial role in promoting fairness and transparency within the corporate governance framework. Shareholders, regardless of the size of their holdings, have a vested interest in the success and ethical operation of the company. However, minority shareholders, while they form an essential part of the collective ownership, often find themselves at a significant disadvantage, lacking the necessary representation and influence in managerial decisions that are frequently dominated by majority shareholders[3]. This disparity can lead to situations where the interests of minority shareholders are overlooked or even compromised.

In the broader context of corporate governance, minority shareholder protection[4] is critical not only for ensuring transaction fairness, but also for fostering long-term investor trust. When minority shareholders are confident that their rights are protected, they are more likely to invest, which benefits the overall health and efficiency of capital markets. This confidence is critical because it attracts a broader range of investors, resulting in a more stable and resilient financial ecosystem.

Furthermore, enhancing minority shareholders’ rights and representation can lead to better corporate decision-making. Companies that consider diverse perspectives are more likely to thrive and innovate, ultimately benefiting all shareholders. As a result, addressing minority shareholders’ concerns is more than just a matter of equity; it is a strategic imperative for long-term corporate growth and effectiveness.

The abuse of majority control can manifest in several forms, including related-party transactions, unfair mergers, or manipulative buyouts, each of which poses significant risks to minority shareholders and the overall integrity of financial markets. For instance, related-party transactions may allow majority shareholders to engage in dealings that benefit themselves at the expense of minority interests, potentially leading to conflicts of interest and a lack of fair treatment. Unfair mergers can further exacerbate these issues, as they may involve the consolidation of power in ways that disadvantage smaller shareholders or lead to the undervaluation of their stakes. Similarly, manipulative buyouts can result in majority shareholders leveraging their position to execute deals that do not reflect the true value of the company, thereby harming minority investors who are unable to defend their interests.

Preventing such abuse requires a multifaceted[5] approach that combines legislative safeguards, institutional oversight, and procedural transparency.  Regulatory bodies must work not only to create laws prohibiting these practices, but also to strictly enforce them.  The Securities and Exchange Board of India (SEBI) has transitioned from a passive market watchdog to a proactive regulator, actively developing policies to prevent market manipulation and fraudulent practices.  This evolution highlights the importance of ongoing vigilance and strong regulatory frameworks in safeguarding minority shareholders’ rights and ensuring fair market conditions.  By emphasising transparency and accountability, SEBI hopes to foster a healthier market environment that benefits all participants.

IMPORTANCE OF MINORITY SHAREHOLDER PROTECTION DURING TAKEOVERS

During corporate takeovers, minority shareholders are frequently at a significant disadvantage, with the risk of being coerced into accepting unfavourable prices for their shares or being denied access to critical information required to make informed investment decisions. This imbalance can result in significant financial losses[6] for these shareholders, as they may lack the bargaining power to negotiate better terms. In this context, the Securities and Exchange Board of India (SEBI) has established takeover regulations that help to maintain the balance of control and fairness in the market. Specifically, the open offer system outlined in the 2011 Code ensures that every shareholder, regardless of holdings or stake in the company, has the opportunity to exit the company at a reasonable price. This mechanism protects minority shareholders’ interests while also promoting transparency and accountability during the takeover process, resulting in a more equitable investment environment for all parties involved. These regulations contribute to increased financial market confidence by protecting minority shareholders’ rights.

Minority protection mechanisms are critical in improving organisational accountability from a corporate governance standpoint. By discouraging opportunism and wealth expropriation, these mechanisms make the environment more equitable for all stakeholders. Furthermore, they contribute significantly to long-term market stability by instilling trust in small investors, who are widely regarded as the backbone of the securities ecosystem. When minority shareholders believe their rights will be protected, they are more likely to participate actively in the market. This, in turn, encourages investment and promotes a healthier economic landscape, thereby benefiting the entire financial system and improving corporate performance.

Judicial precedents, particularly the landmark case of SEBI v. Sahara India Real Estate Corporation Ltd[7]., have significantly reinforced the authority of the Securities and Exchange Board of India (SEBI) in demanding compliance from market participants and ensuring restitution to affected investors. This case has become a cornerstone in India’s legal framework governing securities markets, demonstrating the critical role of regulatory bodies in ensuring market integrity. The Supreme Court’s affirmation of SEBI’s role as a vigilant market watchdog highlights the judiciary’s recognition of investor protection as both a constitutional obligation and an essential economic necessity. By prioritising investor safety and rights, the judiciary has sent a strong message about the importance of regulatory oversight in fostering trust and stability in financial markets. This dedication to protecting investor interests reflects a broader recognition of the critical role that a secure investment environment plays in promoting economic growth and development in the country.

Key provisions for minority shareholder protection

• Mandatory Open Offer: Regulation 3(1)[8] mandates that any acquirer crossing the 25% shareholding threshold must make an open offer to acquire at least an additional 26% of shares from the public shareholders at a fair price, ensuring minority shareholders have an exit opportunity and are protected from undervaluation or coercion
• Fair Pricing: The rules provide a straightforward formula for determining the minimum price of the open offer. The price tends to be the best price received by the acquirer in recent deals, making sure that the minority shareholders are offered a good bargain.
• Exit Opportunity[9]: The open offer is an important exit option, where the minority shareholders can offload their shares and leave the company if they do not want to be retained under the new management.
• Disclosure Obligations: Regulation 8 requires acquirers to disclose detailed information about their shareholding and intentions, enabling minority shareholders to make informed decisions and monitor control changes. Transparency is further reinforced by timely disclosures of acquisitions, bids, and intentions.

CONCLUSION

SEBI plays a critical role in promoting corporate transparency and safeguarding minority shareholders during acquisitions. Although its framework under the SAST[10] Regulations of 2011 is strong, persistent gaps in compliance and enforcement require attention. A more dynamic, technology-driven, and deterrent-based regulatory model, supported by judicial synergy, has the potential to boost minority investor confidence in India’s securities market.

REFERENCES

[1] Aumirah, Minority Shareholder Rights and Corporate Governance in India, LINKEDIN PULSE

[2] Abhishek Guha & Amrita Ghosh, SEBI Strengthening Governance and Protecting Minority Shareholders, Shardul Amarchand Mangaldas & Co. (June 28, 2023)

[3] Aumirah, Minority Shareholder Rights and Corporate Governance in India, LinkedIn Pulse (Accessed Oct. 27, 2025),

[4] Maulin Salvi, Rights of Shareholders based on Shareholding Thresholds, Nishith Desai Assocs., Hotline (June 19, 2025)

[5] The Role of SEBI in Facilitating Corporate Governance in India, 10 Int’l J. Food & Nutritional Scis. 944 (2021).

[6] Anuja Agarwal & Dr. Helena Fung, Balancing Ease and Oversight: Decoding India’s RPT Reforms, Asian Corp. Governance Ass’n (Aug. 27, 2025)

[7] Aishwarya Agrawal, Sahara vs SEBI, LawBhoomi

[8] Jayati Khatter, Impact of SEBI Takeover Regulations 2011 on Corporate M&As, TaxGuru (Apr. 2, 2025)

[9] Bhatt & Joshi Assocs., SEBI Takeover Code 2011: Key Rules and Provisions, Bhatt & Joshi Assocs. (May 23, 2025)

[10] Aradhana Gotur, Decoded: Substantial Acquisition of Stake and Takeovers Regulations, 2011, Blog by Tickertape (June 25, 2020)