Author(s): Ganesh Raghav, a BBA. LL.B.(Hons.), & Deep Pagare, BA. LL.B.(Hons.) at Chameli Devi Institute of Law, Indore.
Abstract
Corporate governance underpins accountability, investor protection, and long term economic growth. Yet despite a growing body of reforms, the Companies Act, 2013, the SEBI (LODR) Regulations, 2015, and a range of other statutory interventions, India continues to witness corporate collapses that suggest the underlying weaknesses have never really been resolved, only patched over. This article looks at why the governance framework keeps failing in practice even where it succeeds on paper. Drawing on the statutory scheme, judicial trends, and a set of landmark scandals, it identifies the recurring causes of failure and proposes reforms aimed at sharpening enforcement, reinforcing board independence, and giving investors more durable protection.
Keywords: Corporate Governance, Financial Markets, Stakeholders, Companies Act, SEBI, Investor Protection, Corporate Scandals, Regulation, Auditors, Directors, Shareholder Protection, India
Introduction
Corporate governance sits near the centre of modern company law for a reason. It is fundamentally about whether decisions get made honestly, whether information reaches the people who need it, and whether a company answers to more than just the promoters who run it. India’s governance architecture has been under construction since the 1991 liberalisation reforms. Clause 49 of the Listing Agreement was the first serious attempt to put governance norms into writing, and it was later followed and eventually absorbed by the Companies Act, 2013 and the SEBI (LODR) Regulations, 2015. Each of these was designed to push companies toward more independent boards, fuller disclosure, and stronger protection for shareholders.
Despite that, the scandals have not stopped. Satyam, IL&FS, the Nirav Modi PNB fraud, DHFL, these are not scattered, unrelated failures. Looked at together, they reveal the same fault lines each time: boards that rubber stamped rather than supervised, auditors whose independence existed mostly in name, internal controls that were more paperwork than practice, and regulators who showed up only once the damage was already done.
What stands out about India’s governance failures is how rarely they trace back to an actual gap in the law. The rule is usually there it just isn’t being followed in substance. Independent directors get appointed, but don’t always behave independently. Audit committees meet on schedule, but avoid the uncomfortable questions. Financial statements satisfy every disclosure requirement while still concealing the risks that matter most. Enforcement does eventually arrive, but shareholders have usually already absorbed the loss by the time it does.
The Existing Regulatory Framework
India’s governance architecture rests on several statutes and regulatory instruments, chief among them the Companies Act, 2013, the SEBI (LODR) Regulations, 2015, the Securities Contracts (Regulation) Act, 1956, and the Depositories Act, 1996.
Companies Act, 2013
Sections 149 to 172 forms the backbone of the Act’s provisions on directors, how they are appointed, or how many a company must have depending on whether it is public or private, or what duties attach to the role, or what disqualifies someone from holding it. These sections shape much of how Indian boards actually function day to day.
The Act also builds in a measure of protection for employees who report wrongdoing: Section 177 establishes a vigil mechanism, essentially a whistleblower safeguard. Beyond that, it mandates a set of oversight committees, audit, nomination and remuneration, and stakeholder relationship committees which are meant to keep company operations in check. Section 135 goes further still, making India one of the first jurisdictions to legally require corporate social responsibility spending from qualifying companies. The statute also calls for regular evaluation of board and committee performance.
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
The LODR Regulations knit together a single governance framework for India’s listed companies, built around investor protection, transparency, and mandatory disclosure.
They require boards to include a minimum number of directors, among them independent directors and at least one woman director, with the aim of building in both independent judgment and diversity. Listed entities must also constitute committees, audit and risk management, among others to tighten internal controls and manage conflicts of interest. Financial disclosures are mandatory so investors can properly assess a company’s health, and entities must file periodic governance reports setting out their compliance record.
Securities Contracts (Regulation) Act, 1956
Enacted well before India’s economic liberalisation, the SCRA was intended to protect participants in the securities market, both those trading professionally and ordinary investors putting money into listed companies. It governs how securities transactions are conducted and how fair trading standards are maintained.
The Act sets out an audit process spanning planning, stock exchange compliance, and investor protection under SEBI’s oversight. It also prohibits insider trading, price manipulation, and fraudulent dealing, while ensuring securities contracts remain legally enforceable and giving investors real recourse in the event of a dispute. Alongside the other statutes discussed here, the SCRA is meant to keep the capital markets functioning without dishonest practices distorting them.
Clause 49 of the Listing Agreement
SEBI introduced Clause 49 in 2000, acting on the recommendations of the Kumar Mangalam Birla Committee. It addressed shareholder rights, board composition, the role of independent directors, audit committees, and related party transactions, all in service of greater transparency and stronger governance.
In practice, though, its limitations became apparent quickly. Compliance often amounted to box ticking, “independent” directors were frequently anything but, and successive scandals exposed just how thin the clause’s protections really were.
Clause 49 no longer operates as a standalone instrument, SEBI folded it into the LODR Regulations, 2015, tightening and modernising its requirements in the process.
Regulatory Loopholes Behind Governance Failures
The persistence of major scandals, notwithstanding an elaborate statutory scheme, points to a problem of application rather than drafting. The Companies Act and SEBI’s regulations articulate detailed standards, the gaps show up in how those standards get implemented or don’t.
One recurring weakness is the independence of independent directors, or the lack of it. The law requires their appointment specifically to inject objective oversight into the boardroom, but in practice promoters and controlling shareholders tend to have significant influence over who actually gets the role. That dynamic can leave some independent directors reluctant to challenge management, reducing the position to a formality. IL&FS and DHFL illustrate this well: both companies had independent directors on their boards, and both still pursued a string of reckless financial decisions that no one on those boards seemed able, or willing, to stop.
Auditor independence presents a similar problem. Statutory auditors are supposed to safeguard the reliability of financial statements, but long standing client relationships, financial dependence on the companies being audited, and a general softening of professional scepticism have all eroded audit quality at various points. Satyam remains the clearest illustration external auditors failed to detect years of manipulated accounts despite being positioned to catch them.
Fragmented regulatory oversight compounds the problem. SEBI, the Ministry of Corporate Affairs, the RBI, the SFIO, the NFRA, and the NCLT all exercise some jurisdiction over corporate entities, and those jurisdictions frequently overlap. Multiple regulators were meant to strengthen supervision, but weak coordination and slow information sharing between them tends to produce enforcement that reacts to crises rather than catching them early.
Whistleblower protection remains comparatively weak in practice as well. Many companies maintain whistleblower policies simply because SEBI requires it, but employees often hesitate to use them, fear of retaliation, combined with genuine uncertainty about how much legal protection actually applies, discourages people from coming forward.
Taken together, these gaps suggest that India’s governance failures are not purely a legislative shortfall. They reflect problems of institutional design, and more fundamentally, of how those institutions function on a day to day basis.
Framework Versus Enforcement
Judged against other emerging economies, India’s corporate governance framework is relatively comprehensive. That makes the recurrence of scandals all the more revealing. It demonstrates that having sound rules is not the same as enforcing them consistently or promptly.
A central weakness is that Indian enforcement tends to be reactive rather than preventive. Regulators typically intervene only once financial damage has already accumulated. Both IL&FS and DHFL experienced years of deteriorating governance before serious regulatory action followed, which says something uncomfortable about the state of early warning systems and ongoing supervision.
It is also worth noting that the mere existence of oversight bodies does not guarantee meaningful monitoring. Audit committees, independent directors, risk committees, and internal auditors all exist because the law requires them, but their functioning is often procedural rather than substantive. Enforcement agencies face their own structural constraints, overlapping jurisdiction, investigations that stretch on for years, and slow adjudication. With several regulators potentially involved in any given matter, accountability for coordinated action can become unclear.
Penalties, too, have not consistently deterred misconduct. Regulators have gained additional legal powers through recent reforms, but slow proceedings and inconsistent enforcement undercut how credible those powers actually are.
The broader conclusion is straightforward: well drafted legislation cannot substitute for effective institutions. Reducing the frequency of governance failures in India will require investment in enforcement capacity, better inter agency coordination, and a shift toward supervision that anticipates problems rather than merely responding to them.
International Practices
Corporate governance forms the backbone of any functioning business ecosystem, which is why most jurisdictions invest heavily in building robust governance rules. The goal being an environment where companies and their stakeholders can operate efficiently, accountably, and transparently.
Singapore
Singapore’s governance regime is often held up as efficient precisely because its rules avoid excessive complexity while still delivering strong outcomes for companies and investors. The framework rests mainly on the Companies Act, the Securities and Futures Act, and the SGX Code of Corporate Governance, overseen by the Monetary Authority of Singapore.
The Companies Act provides the primary statutory basis for private and public companies, and in limited cases for foreign companies operating in Singapore, supplemented by the SGX Listing Rules and other instruments designed to ensure fair trading and transparency. The Securities and Futures Act addresses non compliance with disclosure obligations and prescribes civil penalties for breaches. Since 2015, SGX has also operated three independent bodies, the Listings Advisory Committee, the Listings Disciplinary Committee, and the Listings Appeals Committee empowered to impose penalties ranging up to roughly SGD 250,000 per breach, capped at SGD $1 million.
This combination of clear rules and credible enforcement has helped Singapore build a reputation for financial market transparency.
United Kingdom
The UK’s governance system developed largely out of common law, with additional influence from European legislation. Despite that layered history, the UK framework is often treated as a model by other jurisdictions precisely because its foundational principles remain relatively uncomplicated.
UK corporate governance combines statute, codes of practice, and market guidance to promote a set of core practices: separating the roles of chairman and chief executive, maintaining a balanced board of executive and independent non executive directors, ensuring strong and independent audit and remuneration committees, conducting annual board performance evaluations, maintaining transparency around appointments and pay, and protecting shareholder rights. The result is a system that actively encourages investor engagement with the companies they hold stakes in.
United States
As a federal system, the US layers several sources of governance regulation on top of one another, state law, federal securities law, stock exchange rules, and industry specific regulation.
State corporate law: each state sets its own rules, but Delaware’s corporate law carries outsized importance because most listed US companies are incorporated there.
Federal securities law: the Securities Act of 1933 and the Securities Exchange Act of 1934, both administered by the Securities and Exchange Commission, require accurate disclosure, prohibit misleading financial statements, and enforce accountability toward shareholders.
Stock exchange rules: companies listed on the NYSE or NASDAQ must comply with exchange specific requirements covering board composition, audit committee formation, and broader governance guidelines.
Sector specific federal law: certain industries answer to their own regulators, banks to the Federal Reserve, transportation companies to federal transport regulators each imposing its own governance expectations.
Case Studies
Reebok India Company v. Union of India & Anr. (2024) -Delhi High Court
In 2012, Reebok India, a subsidiary of the Adidas group, uncovered what was initially reported as roughly ₹870 crore in financial fraud. Investigations by the Income Tax Department, the Serious Fraud Investigation Office, and the Economic Offences Wing (Gurgaon Police) implicated the company’s managing director, Subhinder Singh Prem, and its chief operating officer, Vishnu Bhagat though the investigating agencies ultimately characterised the episode less as large scale fraud and more as business mismanagement rooted in governance failure.
The underlying conduct involved inflated billing, falsified financial records, and forged sales documentation, which together misrepresented the company’s true financial position to investors and other stakeholders. The Income Tax Department separately found that around ₹140 crore in tax had been evaded through false billing and fabricated expenses. SFIO also found that Reebok India had raised funds from roughly sixty high net worth individuals, promising returns of 16–20% interest, and used those funds to shore up cash flow, a practice inconsistent with basic governance principles.
The episode illustrates a breakdown across nearly every governance principle transparency, accountability, fairness, and compliance alongside weak internal controls and a board and senior management that failed to exercise meaningful oversight.
Central Bureau of Investigation v. B. Ramalinga Raju & Others, 2009 (the Satyam Scandal)
Satyam Computer Services, founded by B. Ramalinga Raju in 1987, grew into a company employing around 40,000 people and became India’s fourth fastest growing IT firm, the first Indian company listed simultaneously on the NYSE, Dow, and Euronext.
It also became the site of one of the largest accounting frauds and governance failures in Indian corporate history, with the misstatement estimated at roughly ₹7,800 crore, orchestrated by Raju himself.
What happened: Raju, working with his brother Rama Raju and other senior executives, engineered a sustained scheme of falsified financial statements, fictitious invoices, non existent customers, and manipulated accounting records, while also misrepresenting audit findings and the underlying books of account. The purpose was to project financial performance far stronger than reality supported.
The governance breakdown was comprehensive: the board failed to exercise real oversight, independent directors were subject to promoter influence, the audit committee did not scrutinise the financial statements it was meant to review, and the external auditors failed to perform adequate due diligence.
SEBI and the SFIO subsequently pursued the matter, and the individuals involved ultimately admitted responsibility, facing liability for fraud, forgery, criminal conspiracy, money laundering, insider trading, and criminal breach of trust.
What Needs to Change: Strengthening India’s Corporate Governance
Resolving India’s governance problems will take more than another legislative amendment. The harder task is improving how institutions function in practice, how seriously companies take ethical conduct, and how quickly regulators respond to early warning signs.
A sensible starting point is reforming how independent directors are appointed, the process needs to be more transparent and considerably less shaped by promoter influence if the role is to carry any real weight. Regular performance evaluation, mandatory governance training, and closer scrutiny of conflicts of interest would all help make that independence substantive rather than nominal.
Auditor accountability needs strengthening too, through closer supervision by the National Financial Reporting Authority, stricter enforcement of mandatory auditor rotation, and tougher consequences when professional standards are breached. Financial reporting more broadly would benefit from greater use of forensic auditing and technology assisted verification, rather than relying solely on conventional review methods.
There is also a strong case for formalising coordination among SEBI, the MCA, the RBI, the SFIO, the NFRA, and the NCLT, so governance risks surface earlier rather than after the fact.
Artificial intelligence, data analytics, and continuous compliance monitoring could help shift regulatory practice from reactive to genuinely preventive.
Whistleblower protection needs meaningful improvement as well, confidential reporting channels, statutory safeguards against retaliation, and real incentives for coming forward would strengthen internal governance considerably.
Ultimately, reform cannot stop at process. Most of India’s major corporate failures did not occur because a law was missing, they occurred because people in positions of trust chose to act dishonestly. That is why governance cannot remain a purely compliance driven exercise, it needs to become part of organisational culture: a genuine commitment to integrity, transparency, and accountability, rather than a checklist to clear before the next audit.
Conclusion
India has built a comprehensive corporate governance framework on paper, yet repeated high profile failures make clear that rules alone cannot prevent malpractice. Meaningful progress will require more rigorous selection and training of independent directors, stronger auditor accountability, formal coordination across regulators, technology enabled continuous monitoring, and genuine whistleblower protection. Governance has to move beyond box ticking toward a culture of integrity if investor trust and sustainable economic growth are to be restored. That shift depends on stronger enforcement capacity, coordinated regulatory supervision, technology driven oversight, real protection for those who speak up, and a deeper institutional commitment to transparency, accountability, and investor protection.
References
- https://www.sebi.gov.in/legal/circulars/oct 2004/corporate governance in listed companies clause 49 of the listing agreement_13153.html
- https://www.icsi.edu/media/webmodules/programmes/33nc/33souvearticle pdf
- https://www.ecgi.global/publications/codes/corporate governance by country
- https://www.directors com/post/corporate governance failures case studies and lessons learned
- https://www.5paisa.com/blog/satyam scam
- https://www.legalserviceindia.com/Legal Articles/corporate governance failures india satyam ilfs analysis/
