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Author: Ananya Alok, III year of B.B.A.,LL.B from Banasthali Vidyapith, Jaipur, Rajasthan.


The term corporate is basically basically taken from the Latin term corpus which means body, and the term governance implies the meaning of instructing the frameworks and procedures to fulfill the desire of a partner. In today's business and corporate world the term 'corporate governance' is a system by which a company is administrated , controlled and directed by a set of corporate process, law , customs and policies. India's corporate governance structure contains a scope of measures that generates or advances the responsibility of governance and straight forwardness of money related and other data. Moreover , the concept of corporate social responsibility has greatly focused on the concept of corporate governance for incorporating social and environmental concerns for the decision making process of the business, which will benefit not only investors (financial investors) but also to the communities , employees and consumers. In the current scenario, the corporate governance is being mostly connected with business practices and public policies that are stakeholders and shareholders friendly.

There are many changes done from the past and the present scenario regarding the concept of corporate governance by Indian government. The changes done were because of the reason of lack of management's responsibility. They lack not only towards shareholders, but also towards the public society at a large. At present the scenario, corporations are examined to be a social platform or we can say institution, which communicates with the society in many ways and affects the individuals of that society at a large. The system of corporate governance also includes the entire matrix of informal and formal interactions and relations between the member of board, shareholders, management, auditors, and other major interested parties. These kind of relations and interactions determine that how a company is governed and how risk factors returns from the corporate sector activities are determined. The present research paper will go for checking the concept of regulatory laws of corporate governance which is not given in a comprehensive manner and the rules, regulations etc. do not provide basic or standard norms or codes for the establishment and development of good corporate governance. We will basically study various kinds of research papers and books provided in the library to right this research paper. Mainly we will refer to the companies act 2013 and 1956 in the context of corporate governance structure. Which will helps us to mainly improve the understanding of laws and legal regulations regarding corporate governance in India at a glance.


Corporate governance is basically a creation which reinforces the long term supportable value for the stakeholders through socially driven business process. Corporate governance covers a wide range of disciplines and it is also known as multidisciplinary field of study. Law, management, finance, ethics, consulting, economics and accounting. The main function to be performed by it is to provide the description of the advantages and duty of the shareholders and organizations. In case if failure (disagreements) occurs due to conflict among members, it is the authority of corporate governance to bring everyone again together. It also contains the basic purpose of setting the standards against which the work can be administrated. Good corporate governance provides the maximization of the value of shareholders ethically, legally and on a sustainable basis.

In ancient times the theory was given in two contexts, the Anglo American and the continental European context. Anglo American was known to be as dispersed ownership, short term equity finance, strong shareholders rights, flexible labor markets and active markets for capital control. Second is continental European which is known to be as concentrated block holder ownership, inactive markets for capital control, weak shareholders rights, long term debt financing and rigid labor markets. No country around the whole world can adopt either fully Anglo American policies or purely continental European system. To follow the policies of any one of the ancient system of corporate governance, we should go through from the various factors such as world presence, globalization, deregulation, competition etc. Which basically decides to what extent any country should adopt any of the two systems.

The TATA group and Infosys limited were the best illustration of corporate governance in past, which had ill-famed its reputation in society due to recent issues. The board room issues of high profile of two large corporate companies in India have evaluated the desire for transparency and ensuring that the interest of minority of the shareholders should be safeguard. In the case of Infosys Company limited, the so called founders of that company fall for the values which were already established and were not considered and followed in a certain remarkable decisions. The case of TATA company is of basically interrogating or we can say change the decisions of the erstwhile chairman of the company who carry’s on to be as the controller of the shareholding trusts, and seems to have a lack of clear board processes to the issues reasonably and addressment of situations that will consider the reversal of decisions or even criteria of changing decisions between its economic and social part.


The concept of corporate governance in India, mainly arrived from the time period of economic liberalization and also from the de-regularization of business and industries. The development of corporate laws in India had been marked by the interesting contracts. The securities and exchange board of India and the ministry of corporate affairs laid on emphasis on each and every subject of importance by setting up various committees by the industry and by the examination of the reports and recommendations to the corporate governance.

The years since the time period of liberalization, it had proved the wide ranging of changes in rules, regulations and laws of driving corporate governance. It is noticeable from the various regulatory and legal frameworks and also from the committees which were set up for the corporate performance. Such regulatory frameworks, laws and guidance of the committees are as provided below:-

  1. The corporate affair in India is basically regulated through the companies’ act 1956 and the companies’ act 2013 and even other allied acts, rules and bill. It also provides or we can say renders many important services to shareholders and stakeholders. It also plays a crucial role in protecting the investors. The MCA (ministry of corporate affairs), government of India performs this crucial task. It also prohibits the adverse competition through competition act, 2002 and also elevates and sustains competition.

  2. The company's law board is a quasi-judicial body which was established under company’s act 1956. It regulates its own procedures and it also has power to do that.

  3. The fraud investigation department: - it is an interdisciplinary organization which investigates financial serious frauds. It also investigates mainly those investigations, which involves public interest, and are multidisciplinary in nature and consists many other factors too.

  4. The securities contract regulation act 1956:- it basically refers all types of government documents (tradable papers), stocks, bonds, shares, debentures and other marketable instruments or we can say securities issued by the companies. The code and conduct of stock exchange including its powers and parameters is defined by the securities contract regulation act 1956.

  5. The securities exchange and board of India: - it encourages to the expansion of the securities in the market. It also even exhibits the unfair and fraudulent trade practices relating to the securities of market and even also manages the securities market and related conflicts with it. The main and basic function of securities and exchange board of India is to secure the interest of investors in securities.

  6. The registrar of companies: - it basically serves with the primary objective of registration of companies and it also ensures that such kind of companies should comply with the statutory specifications under the act. It basically formed or we can say comes under the company’s act 1956nsparently. There doesn’t seems to have been an agreed formula at the top board level for the

  7. Enforcement directorate: - It basically falls under the ministry of finance. It is very specialized investigating agency which helps in the implementation of foreign exchange and management act (FEMA) and also helps in the elimination of money laundering act (PMCA). The PMCA is a criminal law, where the empowerment of offices are done in order to conduct queries to find out the location of attach assets.


  • The objectives are set through the enhancement of structures which is done when there is better corporate governance or by the help of a good corporate governance structure. The means of achieving such objectives are checked properly and the production is basically monitored.

  • The corporate governance also maintains a link between the company's financial reporting systems with the company’s management.

  • It also helps in shaping the future and the growth of capital markets of the economy.

  • It makes management creative in order to take innovative and creative decisions which help in the efficient functioning of the corporation within its legal frame work.

  • Safe and sound governance practices also used to make a contribution to the investor's self confidence in corporations and motivate them to stimulate long term capital.

  • Good governance also improves the international reputation of the corporate sector and also helps to raise the global capital with the help of home companies.

  • It also adds to the wealth of the economy and also enhances the effectiveness and the efficiency of the company .Thus, corporate governance is also known as the instrument of economic growth.

  • Good corporate governance also supplies sufficient and timely disclosure of reporting requisites, and code of conduct to the companies. Along with this it also helps to avoid the insider trading. Insider trading refers to when companies used to present material and price sensitive details to outsiders and also ensures that till this detail is made social, the insiders and the employees present in the organization abstains from dealing in corporate securities.

  • It also provides good support system to investors by allowing all the corporate accounting practices clear to them. A corporate enterprise also reveals the financial reporting structures in order to do that.


After the major discussions held on the topic of corporate governance, it tends to refer the three principles raised in the important documents published since 1990:-

  • The principles of corporate governance (OECD, 1998 and 2004)

  • The Cadbury report (UK, 1992)

  • The sarbanes-oxley act (2002)

The Sarbanes - Oxley act is attempts by the legislative asembly of United States in order to regulate several principles provided in the Cadbury and OECD reports. The OECD and Cadbury report basically represents the general principles through which the business operates to guarantee proper good corporate governance. Some of the principles are laid down below

  1. The proper role and authority of the board: - The board requires appropriate level and adequate size of commitment and independence. It also needs applicable skills and sufficient comprehension to challenge the management performances.

  2. Ethical behavior and integrity: - institutions should establish a basic code of conduct for their executive and director employees those who promotes in the responsible and ethical decision making And there should always be one factor present in mind to appointing the board members and corporate officers that is ' integrity ‘.

  3. Equitable and right treatment of the shareholders: - Organizations can provide help to the shareholders in order to use their indemnity by openly communicating information and also by the encouragement of shareholders so that they can involve in the general convocations.

  4. The interest of other stakeholders :- institutions should understand and acknowledge that they do contains legitimate , social , legal , and market driven accountability to non - shareholder and stakeholders which also includes investors , employees , local communities , benificiary , suppliers , policy makers and clients.

  5. Transparency and disclosure: - There should be proper disclosure of matters to concerning the organization and should also be balanced and timely in order to ensure that each and every investors has an access to clear, factual information.


In this era the rapid pace of globalization had made more need for the emergence of corporate governance in India. Due to this the national governments and firms requires some fundamental changes because corporate governance is clearly very effective and beneficiary for the firms and countries .corporations must have to change the scenario and the way in which they operate . Even the national government must also maintain and establish the proper institutional code and conduct for it. Even there are no longer restrictions are made to the activities that are public listed in the organizations present in advanced industrial economies.

Through the means of high profile corporate scandals and public attention, the board of corporations and regulatory framework has forced governments to strictly consider the fundamental issues regarding the corporate governance as an essential element for the public monetary interest. Eventually the violate and instable experience of the emergence of markets in recent times have made an observation to the corrupt maladministration and practices in the international and national systems on public expenditure.

It has been clearly seen that inefficient management practices can leads to various business collapses and financial crisis around the world .these financial crisis and business collapses have made the business world to basically think and even to make a pressure upon the importance of safe and sound perspective of corporate governance practices. It has also been seen that the investors who invests in the organization are even ready to pay the higher amount of premiums for those companies who have safe and sound corporate governance structure and practices. Recently it could be seen that the international or global lenders have understand the importance of corporate governance practices as on the economic production of the companies and even also felt that the issues regarding corporate governance bears more significance and Importance while regarding taking the investment decisions into the account . A safe and sound and an effective corporate governance practice also provides an edge to the companies to raise funds at low level cost of capital , prevents any financial collapses and potential to overcome from it , enhances the standing position in the market and also helps in improving the liquidity position and financial soundness of a company .

A good corporate governance practice also improves the country’s reputation and image by preventing the outflow of funds and by increasing the foreign capital flow. It also helps in increasing the strengthens and competitive power of the capital markets and finally increasing the chances of more prosperity by reducing and preventing the occurrence of any kind of financial crisis’ and along with that it also helps in leading of the efficient allocation of resources . Various professors and by studying at an large extent have recommended that there is no single model of the corporate governance which could be compatible to each and every country in the world has constructed on the principles of equality , responsibility , transparency, and accountability which may be accepted widely and internationally for the corporate governance structure .The term know as equality could be defined as the equal treatment of stakeholders and shareholders by the management of a company to prevent the conflicts regarding their interests . similarly the word transparency can be defined as or can be expressed as providing all the non-financial information and financial material within a durable time and at low rate cost so that it could be reliable , accurate and should be valid for the decision making process of a company. Responsibility word can be related with the compliance of all the rules and regulations which were drafted under the articles and are in the audit process and operations. On the other hand we can define the word accountability as laying down the powers of boards so that the board of directors could answer to the shareholders and stakeholders as regarding a corporate entity .Hence, to establish the corporate governance framework, various corporations such as organization for economic cooperation and development and global corporate governance forum, world bank had been assigned the task to discuss the issue regarding corporate governance. Thus, a huge number of countries in the developing and developed economy are still in the process for the reconstruction of their legislation and also reviewing them and even some of them came out of whole new law, rules and regulations.

A corporation is basically known to be various combinations of stakeholders and shareholders named as employees, customers, directors, vendor partners, society, government and investors. In such kind of situation and in the changing scenario, a corporation should be just and equitable to its shareholders in all the transactions. This is becoming very important in today's pace of globalization where organizations need to capture and preserve the best human capital and even to access the global pools of capital market. Unless and until any organization demonstrates and embraces such kind of ethical conduct, it will not be able to get success in future. Corporations also needs to acknowledge the it’s growth, and such cooperation will be enhanced by the adherence of the best governance practices.

Thus, management is required to act as trustees of the shareholders and prevent the asymmetry assistance between various sections, especially between the owner - managers and the rest of the shareholders. Effective corporate governance structure needs to be flexible according to market dynamics, so that it responds and yet it should be unwavering regarding its values and ethics.


Corporate governance is an essential factor which influences the long term economic health of the companies and it resides only in the part of larger economic context in which organizations operates. The structure depends upon the regulatory and intuitional environment, legal, awareness and business ethics of the environmental and societal interests of the constituents in which they operates. The quality of corporate governance mainly depends upon the factors mentioned below:-

  1. Ability of the Board

  2. Adequacy of the process

  3. Integrity of the management

  4. Standard of corporate reporting

  5. Involvement of shareholders in the management

  6. Commitment level of individual board members

If organizations requires full benefits of the global capital market , benefit by the economies of scale , capture efficiency gains and attract long term capital the assumption of the corporate governance standards must be consistent , credible , inspiring and coherent . The amount to which organizations should observe the basic proposition of a good corporate governance is very important factor for taking the major investment decisions. The global flow of capital helps to enable companies in seeking financial help from the larger and bigger pool of investors.


In 1991, India eventually established its progress in the direction of welcoming and open economy. Presently the role of corporate governance has very essential significance towards the economic condition of our country. From the time of 1991 onwards it was seen that there was a great trend in the dimension of the stock exchange i.e., aggregate of registered firms was intensifying consistently. It tends to emphasize more focus on transparency and shareholders value expansion because if India draws more nations for foreign direct investment, then they have to pay more focus towards it.

The concept of corporate governance in India established until 1991, only after the period when liberalization takes place. India was lagging behind. The most important startup was taken by India to improve the securities and exchange board of India in 1992. Earlier the main motive of the SEBI was to oversee and systematize stock exchange, but slowly and slowly many regulations was formed by it. The next big change happened in India was the creation of confederation of Indian industry (CII) in 1996 .which helps initially to evolve the set of certain laws rules and regulations towards corporate governance as to begin the act towards it for the Indian companies . Then afterwards clause 49 came into existence as a part of agreement for the companies listed on Indian stock exchange because of the two main leading groups Kumar mangalam Birla and Narayan murthy. As these two committees starts putting the best work practices on corporate governance. However clause 49 was forced to be amended due to some scandals done by the companies like Enron, Satyam, and World com etc. And to overcome the issues that was happened to these organizations to fall down and shatter the economies of their nation.

Clause 49 of the Indian stock exchange agreement came into existence from 2000 to 2003 .it accommodates all the set of laws , rules and regulations and even the requirements of minimum and maximum numbers of liberated directors , different necessary committees , audit committee rules , board members , and limits etc. . Those firms who were not adapting these principles mentioned in clause 49 were given financial penalties and were removed from the list.

We can differentiate here the clause 49 and sarbens –oxley act of 2002. The sarbens – oxley act of 2002 was came into existence for the corporations or companies that are listed in the US stock exchange. Clause 49 was primarily based on the concept of sarbens- oxley act of 2002. When it comes to the point of number of directors and responsibilities of management they both are similar to each other. They even also depict the same rule for the refusal of loan to directors, regarding insider trading and etc. The main and the basic difference between the two is mainly in the sarbens –oxeyl law. If fraud or any such kind of activity takes place then the person could be charges up to 20 years of imprisonment, but when it comes to clause 49 it basically lacks in the matter. There is no such legislation and condition for it but in case of clause 49 the SEBI has a right to file a criminal proceeding or punishment for not following the rules and not agreeing with clause 49 exhibits the company with the list.

Corporate governance paid emphasis not only on corporations but also to the countries in various ways as well. Unemployment can also be reduced by this as it attracts more and more firms and also directs to growth. Wealth can be generated by adapting good management practices and by much better distribution of resources. This is because of the better operational performances. By the adaption of better corporate governance it also helps in the reduction of financial crisis. As these financial crises would have been very adverse effects on the company’s economy. If the corporate governance practices are performed properly, then this will also help to create better links with the respective stakeholders and shareholders.

Corporate governance has become a major problem for all the countries around the world due to the fraudulent behavior of the corporations that had caused countries to go through the financial crisis. The pattern of following this structure is more or less the same. As we can compare also starting from the Satyam computers limited of India to Enron of the US. Failure in the performance of companies in a big amount has created a havoc in the corporate industry and also have cause the economic meltdown in ours. The Indian government felt to promote good corporate governance practices amongst the country as an intermediate action to reveal the scandals. Else for the executives of foreign multinational companies understanding corporate governance issues was also very important to execute their business and trading with India.


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