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

Introduction:

Corporate governance refers to a framework of laws, regulations, rules, and practises under which a company is guided, administered and controlled. It outlines the relationship between the board of directors and the management, shareholders and other stakeholders in the modern day corporate law through accountability, transparency and ethical decision making. Its essence is to reduce the power of management coupled with the interests of the shareholders without compromising the long-term sustainability of the company and its legal requirements. Market integrity and investor confidence are closely associated with effective corporate governance. Effective governance systems are important to ensuring that investors are convinced that corporate business is done in a fair manner, that disclosures are also sound and that risks are well handled. This trust builds up capital markets and promotes investment. Meanwhile, effective governance limits fraud, insider trading and mismanagement, which increase transparency and confidence in the securities market and ensures stability in the financial market in general. 

In India, there has been a remarkable transformation in the corporate governance with the economic liberalisation, expansion of the market and recurrence of corporate failures that displayed structural and ethical weak areas of corporate management. The development of the governance norms can be associated with the efforts of India to strike the balance between the managerial independence and the responsibility to the shareholders and the other stakeholders. The regulatory intervention especially the Securities and Exchange Board of India (SEBI) has been decisive in the creation of governance standards in terms of disclosure requirements, independent board norms and mechanisms that protect investors. Introducing the Clause 49 [1]of the Listing Agreement was the turning point of the Indian system of corporate governance, as it institutionalized independent directors, audit committees and transparency requirements. Nevertheless, major corporate scandals like the Satyam frauds showed that compliance and enforcement had long-standing loopholes, which required constant reforms.

SEBI’s Role in Enhancing Corporate Governance in India:

The role of the securities and exchange Board of India (SEBI) has been significant towards defining and reinforcing corporate governance in the Indian capital market. SEBI, a strong regulator charged with the responsibility of safeguarding investor interests, securities market regulation and ensuring fair and transparent corporate practises was established originally as a non-statutory body and subsequently given statutory status under SEBI Act 1992. The progress of SEBI is an indicator of how India has reacted to irregularities in the market, poor corporate governance, and the necessity of regulation in an ever more sophisticated financial environment. SEBI has made efforts to fill in the systematic weaknesses through its growing legislative or regulatory authority to compel disclosures, to regulate intermediaries, and to hold listed companies accountable. Its interventions have been aimed at promoting transparency, restraining unhealthy trade practises and inculcating discipline to corporate behavior, which have had direct effects in the development of safe corporate governance practices. The development of SEBI as a regulator evidences a change in reactive to proactive governance in order to align Indian corporate standards with the best international standards as well as enhance the integrity of the market and investor confidence.

Legal and Regulatory Framework of Corporate Governance of India:

The system of corporate governance in India is based on a mixture of legal acts, subordinate acts, norms and interpretations that the courts make. The Companies Act, 2013[2] lays the basis of corporate governance with all its requirements stipulating that the directors have the responsibilities, the board committees, the transactions between shareholders and the company, and also the disclosure requirements. In the case of listed firms, the regulatory environment is complemented by the broad regulatory regime by SEBI mandated by SEBI act of 1992. SEBI has the authority on matters related to capital market, investors, and unfair trade practises. The LODR Regulations brings together previous listing contracts and puts in place a similar governance and disclosure standards within the stock exchanges. Further on, regulations of SEBI concerning insider trading, takeover code, disclosure of shareholding, and inhibition of fraudulent practise have a prominent impact on the practice of governance. Courts and tribunals in India have gone an extra mile to assert governance principles of fiduciary obligations, protection of minority, and corporate responsibility through judicial rulings. [3]

SEBI: Mandatory and Institutional Role:

The statutory mandate of SEBI is also three-fold, which includes investor interests protection, securities market regulation, and its orderly development promotion. In contrast to the old-fashioned corporate regulators, SEBI has proactive control over the listed organisations, as it prescribes the rules of governance that have a direct impact on the functioning of boards, disclosure and shareholder participation. SEBI uses various instruments of governance such as rule making authority, circulars, inspection and adjudication as well as penalties. The regulatory strategy has a combination of prescriptive norms and disclosure regulation which allows market discipline and guarantees minimum standards of compliance. SEBI has shown an evolving and responsive nature to the issue of corporate governance through the constant amendments to the LODR Regulations and through the issuance of consultation papers.

Key Areas of Corporate Governance Reforms of SEBI:

1. Board Composition and Independence: Enhancement of the role and independence of corporate boards has been among the pillars of the reforms in the governance of SEBI. SEBI requires an ideal balance between the executive and non executive directors and a large number of independent directors. The demands of women directors, separation of the functioning of chairperson and managing director (in some cases) and restrictions on the number of directorships are intended to enhance the effectiveness of the board. SEBI has also dwelled on the redefinition of independence so as to avoid instances of conflict of interest especially in promoter-driven firms. Routine re-election of directors in form of a shareholder vote, allows accountability as well as the abatement of entrenchment.
2. Norms of Transparency and Disclosure: The key to the philosophy of governance of SEBI is transparency. The LODR Regulations place extensive disclosure requirements to the financial performance, material events, governance practises and risk management. Recent changes to the law have enhanced the notion of materiality with immediate disclosure of occurrences that could influence decision-making of the investors. The disclosure of related party transactions has also been raised by SEBI, which makes sure that the shareholders approve, and they are scrutinised by the people. Information asymmetry in the market has hugely been minimised due to the focus on timely, accurate and standardised disclosure.
3. Investor Protection and Shareholder Empowerment: Protecting investors is also one of the pillars in the regulatory mission at SEBI. Rationalisation of minimum public shares holding norms, tightening of the takeover rules and increased insider trading bans are measures targeted to protect minorities in the shareholders against promoter and insider abuse. SEBI has enabled the shareholders with voting processes which are mandatory, electronic participation, and increased rights in the approval of major actions of the corporations. The emphasis on fair treatment of shareholders makes Indian governance standards close to the international best practises in corporate governance. D. ESG and Sustainability Governance. One of the most recent changes in the sphere of corporate governance is the concerned attitude of SEBI towards ESG and sustainability. Business Responsibility and Sustainability Reporting (BRSR) is an introduction that requires big listed firms to report the non-financial parameters that affect the environment, social responsibility, and governance practises. This change is an indication of a more comprehensive concept of corporate accountability not just in financial terms. The ESG framework of SEBI is meant to incorporate the sustainability of long-term in the corporate strategy and investor assessment.
4. Technology and Compliance Mechanisms: SEBI has been using technology more to promote compliance and enforcement. Regulatory effectiveness has been enhanced by integrated reporting systems, electronic reporting, and real-time reporting systems. A non-compliance, insider trading, and market manipulation can better be detected with the adoption of regulatory technology.

Recent Developments in Corporate Governance (2024-2025) 

The last few years have recorded high levels of regulatory and legislative developments. The amendments to the LODR Regulations have made norms concerning secretarial audits stricter and mandatory peer-reviewed auditors and cooling-off period and increasing accountability. These would help in enhancing compliance reporting. The proposed code in the Securities Markets is aimed at consolidating several securities laws in one document, simplifying the regulatory operations, and boosting the enforcement capacity of SEBI besides decriminalising minor procedural defaults. In as much as the Bill is a promise of clarity of regulation, it has caused debate on the issue of regulatory overreach and institutional balance. SEBI has also embarked on reforms that deal with conflict of interest, disclosure of ethics and governance standards in the market infrastructure institutions. These efforts portray the comprehensive governments stance that is not limited to listed companies.

Reforms in SEBI-Impact Assessment

The corporate governance reforms by SEBI have enhanced a lot of transparency, accountability and investor confidence in the Indian capital markets. The increased disclosures and board control have imposed greater market discipline and minimised governance failures. The governance structure in India has become more in line with the international standards and it has made it even more appealing to foreign investors. The ESG reporting focus also places India in the sustainability discussion of the global arena. Nonetheless, compliance expenses and regulatory burdens are an issue, especially in the case of smaller listed companies. The successful execution is still dependent on the ability to enforce and corporate dedication.

Challenges and Criticisms

Even with progressive reforms, there are challenges that are still there. The issues of the overlapping of these regulatory authorities of SEBI and ministry of corporate affairs, the compliance costs, and the efficiency of the independent directors remain controversial. Opponents claim that too much regulation can kill entrepreneurial freedom and innovation. In addition, the weakness of rule-based governance is the fact that governance failures are frequently caused by ethical rather than regulatory shortcomings.

Future Outlook

India should strike a balance between regulatory strictness and business flexibility in terms of corporate governance. It is likely to have increased dependency on technology, outcome-based regulation and international collaboration. The role of SEBI will stay central in the process of going through changing market risks, digital assets, and the issue of sustainability.

Judicial Reinforcement of Corporate Governance Principles in India

Indian courts and tribunals have played a decisive role in strengthening the corporate governance framework by reinforcing fiduciary obligations, minority shareholder protection, transparency, and regulatory accountability. Judicial interpretation has complemented statutory and regulatory reforms led by SEBI, ensuring that governance norms are not reduced to mere procedural compliance but are substantively enforced.

• In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981), [4]the Supreme Court firmly established that directors owe fiduciary duties to the company as a whole and must act in good faith and for proper purposes. The Court held that even legally permissible corporate actions may be invalidated if they are oppressive or unfair to minority shareholders. This decision remains a cornerstone of Indian corporate governance jurisprudence and continues to inform statutory duties of directors under Section 166 of the Companies Act, 2013 as well as SEBI’s emphasis on board accountability.
• The principle of equitable treatment of shareholders was further strengthened in S.P. Jain v. Kalinga Tubes Ltd. (1965)[5], where the Supreme Court ruled that majority rule in corporate decision-making is subject to the overarching requirement of fairness. The Court clarified that corporate democracy cannot be used as a shield for oppressive conduct against minority shareholders. This judgment has enduring relevance in the context of SEBI’s governance reforms, particularly those aimed at curbing promoter dominance and empowering minority shareholders through enhanced voting and disclosure mechanisms.
• The institutional authority of SEBI as the primary regulator of the securities market was decisively affirmed in Sahara India Real Estate Corporation Ltd. v. SEBI (2012)[6]. The Supreme Court upheld SEBI’s wide powers under Section 11 of the SEBI Act, 1992 and recognised investor protection as the core objective of securities regulation. The ruling expanded SEBI’s jurisdiction over public issues of securities and reinforced its role in enforcing transparency, disclosure, and governance standards in listed entities.
• Transparency and disclosure as essential elements of market integrity were judicially recognised in Clariant International Ltd. v. SEBI (2004)[7]. The Supreme Court held that disclosure obligations under securities regulations are mandatory and form the basis of informed investor decision-making. The judgment supports SEBI’s disclosure-based regulatory approach under the LODR Regulations, particularly with respect to material events, changes in shareholding, and takeover-related disclosures.
• The balance between board autonomy and shareholder protection was examined in Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd. (2021)[8]. While the Supreme Court reaffirmed the primacy of board decisions in corporate management, it clarified that such autonomy operates within the bounds of statutory compliance, fairness, and good governance. The judgment emphasized that claims of oppression and mismanagement must demonstrate substantive governance failures, thereby strengthening accountability without undermining legitimate business discretion.
• Ethical governance and market fairness were central to the Supreme Court’s reasoning in SEBI v. Rakhi Trading Pvt. Ltd. (2018)[9], where the Court adopted a strict approach towards market manipulation and insider trading. It held that any trading activity designed to distort market mechanisms violates securities law, irrespective of the presence of direct financial loss. This decision reinforces SEBI’s zero-tolerance approach to unfair trade practices and underscores the ethical foundations of corporate governance.
• The scrutiny of related party transactions and promoter influence was brought into focus in Cyrus Investments Pvt. Ltd. v. Tata Sons Ltd. (NCLAT, 2019)[10]. Although later reviewed by the Supreme Court, the decision highlighted the importance of transparency, independence of directors, and shareholder approval in transactions involving conflicts of interest. The case significantly contributed to the discourse that shaped SEBI’s stricter norms on related party transactions under the LODR Regulations.

Conclusion

Corporate governance in India has been transformed into a voluntary system to a strong regulatory framework, which is mainly caused by the active intervention of SEBI. The SEBI has been able to enhance board governance, transparency, the protection of the investors, and sustainability reporting through continuous reforms. Although issues still persist, the course of reform indicates a governance ecosystem. Corporate governance is not seen today as a just part of the compliance requirement but as a source of corporate credibility as well as economic stability in the long term. The presence of SEBI as the key regulator will further mark the corporate governance scene in India, which has strong and reliable capital markets.[11]

References

[1] Sec. & Exch. Bd. of India, Circular No. SEBI/CFD/DIL/CG/1/2004 (Aug. 26, 2004).

[2] Companies Act, No.18 of 2013 (India).

[3] Securities and Exchange Board of India Act, No. 15 of 1992, § 11 (India).

[4] Needle Indus. (India) Ltd. v. Needle Indus. Newey (India) Holding Ltd., (1981) 3 S.C.C. 333 (India).

[5] S.P. Jain v. Kalinga Tubes Ltd., A.I.R. 1965 S.C. 1535 (India).

[6] Sahara India Real Est. Corp. Ltd. v. Sec. & Exch. Bd. of India, (2013) 1 S.C.C. 1 (India).

[7] Clariant Int’l Ltd. v. Sec. & Exch. Bd. of India, (2004) 8 S.C.C. 524 (India).

[8] Tata Consultancy Servs. Ltd. v. Cyrus Invs. Pvt. Ltd., (2021) 9 S.C.C. 449 (India).

[9] Sec. & Exch. Bd. of India v. Rakhi Trading Pvt. Ltd., (2018) 13 S.C.C. 753 (India).

[10] Cyrus Invs. Pvt. Ltd. v. Tata Sons Ltd., Comp. App. (AT) No. 254 of 2018 (NCLAT Dec. 18, 2019) (India).

[11] Umakanth Varottil, India’s Corporate Governance Reforms: A Critical Analysis, 24 Asian J. Comp. L. 1 (2019).