Corporate governance in India: the legal framework

Corporate governance is the system by which companies are directed and controlled. This definition comes from the UK's Cadbury Report of 1992, and it is still the most widely used one. In practice, governance answers three questions: who makes the decisions, who checks them, and how outside shareholders are protected.

In the US and the UK, most large companies have no controlling owner. The classic problem there is between managers and shareholders: hired managers may run the company for their own benefit. Economists call this the principal-agent problem.

India is different. Most listed companies have a promoter: a founding family, a business group, a foreign parent or the government, often holding 40% to 75% of the shares. The main conflict is between the controlling shareholder and minority shareholders. A promoter can move value out of the listed company through related-party deals, use its cash to support other group firms, or pledge shares in ways that put control at risk. This is often called the principal-principal problem, and most Indian governance rules are designed around it.

For an analyst, governance is not a box-ticking exercise. Poor governance shows up in valuations as cash that never reaches minority shareholders, as sudden write-offs, and as a discount the market applies to companies it does not trust.

The main laws and rules

The enforcers

• SEBI: regulates listed companies and market intermediaries
• Ministry of Corporate Affairs (MCA): administers the Companies Act
• NCLT and NCLAT: the company law tribunals, which also handle insolvency cases
• SFIO (Serious Fraud Investigation Office): investigates complex corporate fraud
• NFRA (National Financial Reporting Authority): set up in 2018 to oversee the auditors of listed and large companies
• Stock exchanges (NSE and BSE): monitor listing compliance and can fine companies

The rules grew after each crisis

Most changes in Indian governance followed a scandal or a market shock.

• 1998: CII publishes a voluntary code of corporate governance.
• 1999 to 2000: the Kumar Mangalam Birla Committee leads to Clause 49 of the listing agreement, India's first mandatory governance rules for listed companies.
• 2003: the Narayana Murthy Committee strengthens audit committees and the role of independent directors.
• 2009: the Satyam fraud exposes weak boards and weak audits.
• 2013: the new Companies Act brings in rules on independent directors, CSR, auditor rotation and related-party deals.
• 2015: SEBI replaces the listing agreement with the LODR Regulations.
• 2017 to 2018: the Kotak Committee's recommendations tighten rules on boards, committees and disclosures.
• 2021 to 2025: changes to related-party rules, independent director appointments and material event disclosures, and in November 2025, turnover-based materiality thresholds for related-party deals.

The corporate governance report

Every listed company must include a corporate governance report in its annual report. It covers board composition, meetings and attendance, committee membership, director pay, related-party policies and any penalties from regulators. It is the best single place to start a governance review.