Running a company is not just about making money. It’s also about running the company the right way — with accountability, transparency, and fairness to all stakeholders.
That’s what corporate governance in India is all about. It’s the system of rules, processes, and practices by which a company is directed and controlled.
Good corporate governance protects shareholders, attracts investors, prevents fraud, and keeps the company on the right side of the law. Poor governance — as many high-profile Indian corporate scandals have shown — can destroy decades of value overnight.
Why Corporate Governance Matters in India
India’s corporate governance framework has evolved significantly over the last two decades. The Satyam fraud of 2009 was a turning point. It exposed weaknesses in audit independence and board oversight. In response, India strengthened its corporate governance laws — particularly through the Companies Act, 2013, and SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015.
Today, any company — whether listed or not — that fails to follow basic governance rules faces penalties, investor mistrust, and potential legal action.
For companies planning to raise capital, go public, or enter M&A deals, strong governance is not optional. Legal checks for M&A deals in India include a thorough governance audit.
Key Elements of Corporate Governance in India
1. Board of Directors
The board of directors is the top governing body of a company. Under the Companies Act, 2013:
- A private limited company must have at least 2 directors
- A public company must have at least 3 directors
- A listed company must have at least 6 directors
Independent Directors: Listed companies must have at least one-third of the board as independent directors (i.e., not connected to the promoters or the company’s business). Independent directors are supposed to represent the interests of minority shareholders.
Woman Director: All listed companies and certain public companies must have at least one woman director on the board.
Board Meetings: A company must hold at least 4 board meetings per year, with no more than 120 days gap between two consecutive meetings.
Audit Committee: Listed companies must have an audit committee with at least 3 directors, majority independent, with a financial background. This committee oversees financial reporting and auditor appointments.
2. Shareholder Rights
Shareholders are the owners of the company. Corporate governance ensures their rights are protected:
- Right to vote at general meetings
- Right to receive dividends
- Right to inspect company documents
- Right to appoint and remove directors
- Right to information about company affairs
The Companies Act requires certain resolutions to be passed by ordinary resolution (simple majority) and others by special resolution (75% majority). Major decisions — like changing the company’s objects, buy-back of shares, or related party transactions above thresholds — require special resolutions.
3. Related Party Transactions (RPT)
One of the biggest governance risks in Indian companies is improper related party transactions — where a company does business with companies or people connected to its promoters, at unfair prices.
The Companies Act and SEBI LODR require all material related party transactions to be:
- Disclosed to the board and shareholders
- Approved by the Audit Committee
- In some cases, approved by shareholders through a resolution (where the related parties cannot vote)
Our general corporate legal services team helps companies set up RPT policies and ensure compliance.
4. Statutory Auditors
Every company must appoint a Chartered Accountant as its statutory auditor. Listed companies and large public companies must rotate their audit firms every 5 years for individual auditors and every 10 years for firms.
Auditor independence is a cornerstone of governance. The auditor’s job is to independently verify the company’s financial statements — and report any fraud, irregularity, or non-compliance they find.
5. Annual Filing and Disclosures
Companies must file annual returns and financial statements with the Registrar of Companies (ROC) every year. Listed companies have additional continuous disclosure requirements under SEBI LODR — they must disclose material events to the stock exchange within 24 hours.
Missing ROC filings attracts penalties. And for listed companies, failing to make timely disclosures can result in regulatory action from SEBI.
6. Key Managerial Personnel (KMP)
Certain companies are required to appoint key managerial personnel, including:
- Managing Director / Whole-Time Director / Manager
- Company Secretary: Every listed company and public company with paid-up capital above ₹10 crore must appoint a full-time Company Secretary
A Company Secretary is not just about paperwork — they are responsible for governance compliance, board meeting procedures, and regulatory filings.
Corporate Governance for Listed Companies (SEBI LODR)
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 impose a comprehensive governance framework on listed companies. Key requirements include:
- Board Composition: At least 50% non-executive directors; at least one-third independent directors
- Audit Committee: Mandatory, with specific terms of reference
- Nomination and Remuneration Committee: Oversees director appointments and compensation
- Risk Management Committee: For top 1000 listed companies by market cap
- Vigil Mechanism / Whistle Blower Policy: Mandatory for listed companies
- Corporate Governance Report: Must be part of the Annual Report, certified by a practicing Company Secretary
SEBI has been increasingly strict in enforcing these norms. Companies that fail to meet even one requirement face warnings, fines, and ultimately trading suspension.
Our capital markets legal services team advises listed and pre-IPO companies on SEBI compliance.
Corporate Governance Best Practices Beyond the Minimum
Good governance isn’t just about ticking boxes. The best-run Indian companies go beyond the minimum legal requirements:
- Diverse boards: Multiple perspectives reduce groupthink and improve decision-making
- Separate Chairman and CEO roles: Prevents concentration of power in one person
- Transparent communication: Regular investor updates, not just mandatory disclosures
- Anti-corruption policy: Zero tolerance for bribery, with clear procedures
- Data protection: Handling customer and employee data responsibly (important ahead of India’s Data Protection law)
- ESG (Environmental, Social, Governance): Increasingly important for institutional investors
What Happens When Corporate Governance Fails?
The consequences of poor governance range from regulatory penalties to criminal prosecution of directors:
- SEBI can impose fines, ban individuals from capital markets, or delist a company
- NCLT can order investigation into company affairs under Section 213 of the Companies Act
- The Serious Fraud Investigation Office (SFIO) can investigate and prosecute directors for fraud
- Shareholders can bring class action suits under Section 245 of the Companies Act
- Directors who approve fraudulent financial statements can be personally liable
The competition law services we offer are also relevant here — because anti-competitive behaviour (like cartelisation or bid-rigging) is fundamentally a governance failure.
Final Thoughts
Corporate governance in India has come a long way. The laws are strong. The regulators are active. But laws alone cannot create good governance — it has to be part of the company culture.
Companies that invest in governance early — proper board processes, independent oversight, transparent disclosures — not only avoid regulatory trouble but also attract better investors and build long-term trust.
If you’re unsure about your company’s governance compliance, or need help setting up governance structures for your startup or growing business, contact our team at Sharma & Sharma Law Chambers LLP.