Corporate Governance in India: Law, Accountability and the Way Forward for Boards

1. Introduction

Corporate governance has emerged as one of the most critical pillars of modern corporate functioning in India. It is no longer confined to regulatory compliance or periodic disclosures but has evolved into a framework of accountability, ethical leadership, and sustainable value creation.

In the Indian context, governance standards are shaped by the Companies Act, 2013, SEBI regulations, judicial interpretation, and increasing stakeholder expectations. Regulators such as the Ministry of Corporate Affairs and the Securities and Exchange Board of India have progressively shifted the focus from form-based compliance to substance-based governance.

2. Evolution of Corporate Governance in India

India’s corporate governance framework evolved significantly after economic liberalisation and in response to corporate failures.

Key milestones include:

• Introduction of Clause 49 of the Listing Agreement

• Committees led by Kumar Mangalam Birla, Naresh Chandra, and Narayana Murthy

• Enactment of the Companies Act, 2013, which statutorily codified governance principles

• Introduction of SEBI (LODR) Regulations, 2015

• Recent focus on ESG, BRSR, audit trail, and risk-based supervision

These reforms repositioned governance from promoter dominance to board-led stewardship.

3. Legal & Regulatory Framework

3.1 Companies Act, 2013

The Act establishes a comprehensive governance architecture through:

• Section 149 – Independent Directors

• Section 166 – Duties of Directors

• Section 177 – Audit Committee & Vigil Mechanism

• Section 178 – NRC

• Section 188 – Related Party Transactions

• Section 134 – Directors’ Responsibility Statement

• Section 204 – Secretarial Audit

Directors are no longer ceremonial figures; they are fiduciaries with enforceable duties.

3.2 SEBI (LODR) Regulations, 2015

For listed entities, LODR mandates:

• Board composition and independence

• Disclosure and transparency norms

• Risk management frameworks

• Accountability of CEO/CFO and board committees

  
  

3.3 Supporting Governance Instruments

• Secretarial Standards (SS-1 & SS-2)

• Accounting Standards & Audit Trail Rules

• Insolvency and Bankruptcy Code, 2016

• Judicial precedents on director responsibility

  
  

4. Board of Directors: Duties and Accountability

The Board is the custodian of corporate governance.

Core fiduciary responsibilities:

• Strategic oversight

• Risk management

• Internal controls and financial integrity

• Ethical leadership

• Protection of stakeholder interests

Independent Directors, Audit Committees, and Risk Committees play a critical balancing role, particularly in promoter-led entities.

5. Case Studies: Governance Failures and Actionable Way Forward

5.1 Satyam Computer Services

Failure: Financial misstatement, ineffective board oversight

Way Forward / Action Points

• Strengthen internal financial controls and audit trails

• Enhance Audit Committee vigilance

• Periodic forensic and internal audits

• Robust whistle-blower mechanisms

• True independence of auditors and directors

5.2 IL&FS

Failure: Risk governance and liquidity oversight failure

Way Forward / Action Points

• Board-owned Enterprise Risk Management (ERM) framework

• Group-level governance and subsidiary oversight

• Liquidity stress testing and early-warning systems

• Clear accountability matrices

  
  

5.3 Yes Bank

Failure: Credit risk governance and board supervision lapse

Way Forward / Action Points

• Independent and empowered Risk Committees

• Clear risk appetite statements

• Periodic external risk reviews

• Performance-linked accountability

6. Penalty Exposure & Director Liability Mapping

Indian corporate law has decisively moved towards personal accountability.

Key Liability Provisions:

• Section 166 – Breach of director duties (fine up to ₹5 lakh)

• Section 134(8) – Failure in Directors’ Responsibility Statement

• Section 149(12) – Independent Director liability for lack of due diligence

• Section 447 – Fraud (imprisonment and heavy fines)

• Section 448 – False statements

Practical Implication:

Directors are liable not only for active wrongdoing, but also for passive inaction and lack of diligence.

7. Independent Directors: Protection through Diligence

Independent Directors are protected only when they:

• Actively participate in board proceedings

• Seek clarifications and expert opinions

• Record dissent where required

• Demonstrate documented due diligence

Governance today rewards engagement, not silence.

8. Corporate Governance & ESG

Governance is the foundation of ESG.

Key developments include:

• Mandatory Business Responsibility & Sustainability Reporting (BRSR)

• Board-level ESG oversight

• Focus on ethics, diversity, data protection, and cyber governance

Strong governance directly influences investor confidence and valuation.

9. Future Outlook

The future of corporate governance in India will be shaped by:

• Principle-based regulation

• Technology-driven governance

• Increased director accountability

• Stakeholder capitalism

• Expanded advisory role of governance professionals

Boards that adopt governance as a strategic function will outperform those that treat it as a compliance obligation.

10. Conclusion

Corporate governance in India has matured into a robust legal and institutional framework. However, effective governance is achieved not by compliance alone, but by ethical leadership, proactive risk management, and accountable decision-making.

For boards and management, governance is no longer about avoiding penalties—it is about building resilient and trusted institutions.

Legal References

1. Companies Act, 2013

2. SEBI (LODR) Regulations, 2015

3. Insolvency and Bankruptcy Code, 2016

4. Secretarial Standards (ICSI)

5. MCA & SEBI circulars and judicial precedents