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    Evolution of Corporate Governance in India

    Bhumesh Verma, Managing Partner and Himani Singh, Student Researcher, Corp Comm Legal Cite as: (2019) PL (CL) November 69

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    HomeOp. Ed.Evolution Of Corporate Governance In India

    Evolution of Corporate Governance in India

    Bhumesh Verma, Managing Partner and Himani Singh, Student Researcher, Corp Comm Legal

    Cite as: (2019) PL (CL) November 69

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    Published on November 13, 2019By Bhumika Indulia


    Corporate administration is to a huge degree, a lot of components through which outcast financial specialists shield themselves from confiscation by insiders (La Porta et al. 2000). The theme of corporate governance has attained prominence particularly since the 1980s and all the more so after the code of corporate administration issued by the Cadbury advisory group. The well-known Cadbury Committee characterised “corporate governance” in its report (Financial Aspects of Corporate Governance, distributed in 1992) as “the framework by which organisations are coordinated and controlled”.

    In accordance with the Cadbury Council, the Kumar Mangalam Birla Committee additionally issued a code of corporate administration for organisations in India. As part of the corporate culture prevalent worldwide, directors are in charge of the administration of their organisations. The investors’ job in administration is to choose the director and the administrators and to fulfill themselves that a fitting administration structure is set up.[1]

    I. Evolution of Legal Framework of Corporate Governance in IndiaPrior to Independence and Four Decades into Independence

    Indian associations/corporate entities were bound by colonial guidelines and a large portion of the principles and guidelines took into account the impulses and likes of the British employers. The Companies Act was enacted in 1866 and was amended in 1882, 1913 and 1932.  Partnership Act was enacted in 1932. These enactments had a managing organisation model as a focus as people/business firms went into a legitimate contract with business entities to manage the latter. This period was an era of misuse/abuse of resources and shunning of obligations by managing specialists because of scattered and unprofessional proprietorship.

    Soon after independence, there was interest among industrialists for production of a lot of essential items for which the Government directed and dictated fair prices. This was the point at which the Tariff Commission and the Bureau of Industrial Costs and Prices were set up by the Government. Industries (Development and Regulation) Act and Companies Act were introduced into the legal system in 1950s. 1960s was a time of setting up of heavy industries in addition to the routine affairs. The period between 1970s to mid-1980s was a time of cost, volume and profit examination, as a vital piece of the cost accounting activities.

    Coming of Age

    India has been distinctly looked upon by the associations/organisations worldwide with the objective of making inroads into untapped new markets. Dynamic firms in India made an endeavour to put the frameworks of good corporate administration in place from the word go, whether or not any regulations were in place. However, the scenario was not too encouraging, being too promoter-centric and good governance norms given a go by for the sake of convenience or comfort of the promoters.

    Realising the need for governing the corporates more effectively and professionally to make them globally competitive, there have been a number of discourses and occasions prompting the advancement of corporate governance. The fundamental code for corporate administration was proposed by the Chamber of Indian Industries (CII) in 1998. The definition proposed by CII was—corporate governance manages laws, methods, practices and understood principles that decide an organisation’s capacity to take administrative choices—specifically its investors, banks, clients, the State and the representatives.

    II. Reformation in Corporate GovernanceThe First Phase of India’s Corporate Governance Reforms: 1996-2008

    The primary or the first phase of India’s corporate governance reforms were focussed at making Audit Committees and Boards more independent, focussed and powerful supervisor of management and also of aiding shareholders, including institutional and foreign shareholders/investors, in supervising management. These reform efforts were channelled through a number of different paths with both the Ministry of Corporate Affairs (MCA) and the Securities and Exchange Board of India (SEBI) playing important roles.

    (a) CII—1996

    In 1996, CII taking up the first institutional initiative in the Indian industry took a special step on corporate governance. The aim was to promote and develop a code for companies, be in the public sectors or private sectors, financial institutions or banks, all the corporate entities. The steps taken by CII addressed public concerns regarding the security of the interest and concern of investors, especially the small investors; the promotion and encouragement of transparency within industry and business, the necessity to proceed towards international standards of disclosure of information by corporate bodies, and through all of this to build a high level of people’s confidence in business and industry. The final draft of this Code was introduced in April 1998[2]

    स्रोत : www.scconline.com

    History of Corporate Governance in India

    The article enumerates the concept of corporate governance and how it has been recognized under the Indian scenario

    History of Corporate Governance in India

    BY: LEXPEEPS ON: AUGUST 31, 2020

    This article has been written by Prithiv Raj Sahu, a student of KIIT School of Law, Bhubaneswar (4th year). The article enumerates the concept of corporate governance and its history in India.

    Corporate Governance

    Corporate governance is not a law it’s a mechanism. Corporate Governance refers to the set of system, principles and processes by which a company is governed. Corporate Governance is based on principles such as

    Conducting the business with all integrity & fairness,

    Being transparent with regard to all the transactions,

    making all necessary disclosures,

    Complying with applicable Law,

    Accountability & responsibility towers the stakeholder.

    History of Corporate Governance in India

    The concept of good governance is very old in India dating back to third century B.C. where Chanakya (Vazir of Parliputra) elaborated fourfold duties of a king viz. Raksha, Vriddhi, Palana and Yogakshema. Substituting the king of the State with the Company CEO or Board of Directors the principles of Corporate Governance refers to protecting shareholders wealth (Raksha), enhancing the wealth by proper utilization of assets (Vriddhi), maintenance of wealth through profitable ventures (Palana) and above all safeguarding the interests of the shareholders (Yogakshema or safeguard). Corporate Governance was not in agenda of Indian Companies until early 1990s and no one would find much reference to this subject in book of law till then. In India, weakness in the system such as undesirable stock market practices, boards of directors without adequate fiduciary responsibilities, poor disclosure practices, lack of transparency and chronic capitalism were all crying for reforms and improved governance. The most important initiative of 1992 was the reform of Securities and Exchange Board of India (SEBI). The main objective of SEBI was to supervise and standardize stock trading, but it gradually formed many corporate governance rules and regulations. The initiative in India was initially driven by an industry association, the confederation of Indian industry. In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997. In April 1998, the code was released. It was called Desirable Corporate Governance – A Code. Between 1998 and 2000, over 25 leading companies voluntarily followed the code – Bajaj Auto, Infosys, BSES, HDFC, ICICI and many others.

    In India, the CII took the lead in framing a desirable code of corporate governance in April 1998. This was followed by the recommendations of the Kumar Mangalam Birla Committee on corporate governance. This committee was appointed by SEBI. The recommendations were accepted by SEBI in December 1999 and now enshrined in Clause 49 of the listing agreement of every Indian Stock Exchange.

    Clause 49 of listing agreement

    Listing agreement deals with the complete guidelines for corporate governance. Following are the provisions, a company, must comply to implement effective corporate governance.

    Board Independence: Boards of directors of listed companies must have a minimum number of independent directors.

    Audit Committees: Listed companies must have audit committees of the board with a minimum of three directors, two-thirds of whom must be independent.

    Disclosure: Listed companies must periodically make various disclosures regarding financial and other matters to ensure transparency.

    We can compare the Sarbanes-Oxley Act of 2002 and Clause 49. Clause 49 was based on the principles of Sarbanes-Oxley Act of 2002. It was developed for the companies listed on the US stock exchanges. As far as the responsibilities of management and number of directors were concerned, they are both the same. They also have same rules regarding insider trading, refusal of loans to directors and so on. The important difference between the two is under Sarbanes-Oxley legislation if fraud or annihilation of reports takes place up to 20 years of imprisonment can be charged, but in case of Clause 49, there is no such condition. Being the controller of the market SEBI can commence a criminal proceeding. If in case SEBI decides to give a severe punishment then it can commence a criminal proceeding or raise the fine for not agreeing with Clause 49, which automatically delists the company.

    Amendments to the Companies Act, 1956

    India took up its economic reforms programme in 1990s. Again a need was felt for a comprehensive review of the Companies Act, 1956 which has become the bulkiest and archaic with 781 sections and 25 schedules by this time. Three unsuccessful attempts were made in 1993, 1997 and then in 2003 to rewrite the company law. Companies (Amendment) Bill, 2003 which contained several important provisions relating to corporate governance was withdrawn by the Government in anticipation of another comprehensive review of the law. As many as 24 amendments to this Act were made since 1956, of which the 52 amendments pertaining to corporate governance and corporate sector development through the Companies (Amendments) Act, 1999, the Companies (Amendment) Act, 2000 and the Companies (Amendment) Act, 2001.

    स्रोत : lexpeeps.in

    Corporate Governance in India

    Corporate governance is the matter which involves a set of rules, principles, ethics, values, regulations, and procedures. Corporate governance Sets up a system of where directors and directors...

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    Corporate Governance in India

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    Corporate governance is the matter which involves a set of rules, principles, ethics, values, regulations, and procedures. Corporate governance Sets up a system of where directors and directors are entrusted with duties and responsibilities in relation to the direction of company matters. For effective corporate governance, its policies need to be such that the directors of the company should not abuse their power and instead should understand their duties and responsibilities towards the company and should act in the best interests of the company in the broadest sense.

    The concept of corporate governance is not an end; it is just a beginning towards growth of company for long term prosperity. In this article we will learn about the History pf corporate governance and then we will talk about evolution of corporate and all governing bodies which have legal authority towards corporate governance and case law finally It ends with a conclusion.

    HistoryEmergence of corporate governance happened in India after mid 1996 when economic liberalization and deregulation of business and industries came into picture. Concept of corporate governance India exists from a long back also can be said as Arthshastra . Earlier instead of CEO India kings and subjects used to exist but now are replaced with shareholders but still principles still are the same.

    After independence, there was interest among industrialists and Businessmen for production of a lot of necessary products for which the Government directed and recited fair prices. This was the point at which the Bureau of Industrial costs and prices and Tariff Commissions were set up by the Government.  Industries (Development and Regulation) Act and  corporations Act were introduced into the system in 1950. 1960s was a time of setting up of big industries in addition to the existing routine affairs. The period between 1970 to mid-1980 was a time of cost, volume, and profit examination, as a vital piece of the cost accounting activities.

    Reformation To Corporate GovernanceFirst phase of India's corporate Governance reform 1996-2008

    The initial or first phase of India's corporate governance reform aimed at making Boards and Audit committees much more transparent and Independent, they aimed at building more focused and powerful supervisors of management they were also aiding shareholders which includes both foreign and institutional shareholders. Efforts of this reform were channeled in number of different paths under Securities and exchange board of India (SEBI) and Ministry of corporate affairs (MCA)


    In 1996, CII took up the very first initiative in the Indian industry and made an essential step towards corporate governance. The basic aim was regarding promotion and development of a code of companies, irrespective of whether it is a public sector or private sectors, financial institutions, or all corporate entities.

    The initiative taken by CII addressed the public concern regarding the security of interest and concern of investors which includes especially small investors, the promotion of transparency within business and industry, it was required for the as it was necessary to procced towards International standards of disclosure information by corporate bodies. Through this way a confidence will be developed in business and industry. Final draft of code was introduced in April,1998.

    Report of Committee on Corporate governance

    Renowned Industrialist,  Mr. Kumar Mangalam Birla was appointed by SEBI to provide an aspect towards a concern of insider trading to secure the rights of our investors. The companies were asked to show their annual report separately, A report on corporate governance mentioning the steps taken to comply with the recommendations of the committee. The objection was to allow the shareholders to know in which company they have invested and stand with the initiative that are taken to ensure robust corporate governance.


    There was realization about the importance of auditing body to the committee and many specific suggestions were made related to constitution and board Audit committees. These rules and regulations were mentioned in  Clause 49, new section of the listing agreement which came into force in phases of 2000 and 2003.

    Report of the consultive group of directors of banks April 2001

    Reserve bank of India constituted the corporate governance of directors of banks and financial institutions to review the supervisory roles played by the board of banks and financial institutions and to get a feedback on activities of the board that is regarding compliance, disclosure, transparency, and audit committee etc. Also provide with ways for making the role of board of directors much more of effective with a perspective to reduce the risks.

    Report of the committee on corporate Audit and governance committee- December 2002  

    The committee took the responsibility to analyze and suggest some changes like statutory Auditor, company relationship, appointment of auditor and audit fee measures to ensure that management and companies put forth a true and fair statement of financial affairs of the company.

    SEBI report on corporate governance ( N.R Narayan Murthy) Feb-2003

    स्रोत : www.legalserviceindia.com

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