Corporate Governance is a concept and a framework of rules, relationships, systems, and processes by which a company is directed and controlled, ensuring transparency, fairness, and accountability to all stakeholders. The Securities and Exchange Board of India (SEBI) defines it as the acceptance by management of the inalienable rights of shareholders as the true owners and the management's role as trustees on their behalf. The need for a robust framework in India was largely triggered by corporate failures and scams, such as the Harshad Mehta stock market scam in 1992 and the Satyam scandal, which highlighted the problem of poor disclosure and lack of fiduciary responsibility.
The legal mechanism is primarily rooted in the Companies Act, 2013, which replaced the Companies Act, 1956, and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR). The Companies Act, 2013, provides a statutory framework, particularly in Sections 134-178, mandating structures like the Audit Committee and the appointment of Independent Directors. For listed entities, the SEBI LODR Regulations, 2015, which replaced Clause 49 of the Listing Agreement, impose stricter norms on board composition, related-party transactions, and disclosures. For instance, Section 149 of the Companies Act, 2013, mandates that every listed public company must have at least one-third independent directors to safeguard minority shareholder interests.
The framework connects to key institutions like the Ministry of Corporate Affairs (MCA) and SEBI, and is shaped by recommendations from committees like the Kumar Mangalam Birla Committee (1999) and the Kotak Committee (2017). Recently, the focus has shifted significantly towards Environmental, Social, and Governance (ESG) factors. The earlier Business Responsibility Report (BRR) was replaced by the mandatory Business Responsibility and Sustainability Reporting (BRSR) requirements for the top 1,000 listed companies, signaling a move from voluntary to mandatory sustainability reporting. While the core principles of transparency and accountability remain constant, recent amendments have tightened norms, such as the expansion of the definition of "Related Parties" under SEBI regulations and enhanced disclosure requirements for related-party transactions.