The development of Corporate Governance in India can be studied under two broad timelines
- Pre- Liberalization Era
- Post- Liberalization Era
Pre Liberalization Era:
During that time, the corporate governance practices were based upon the Gandhian Principles of Trusteeship and directives from the Indian Constitution. One of the most landmark rise from such system of corporate governance included the emergence of JRD Tata and TATA Groups.
Post Liberalization Era:
The Era of Liberalization gave vast changes to the working of the Principles of Corporate Governance. The most important development that facilitated the working of corporate governance by protecting the rights of the Minority investors’ during this era was the establishment of the Security and Exchange Board of India (1992).
The next landmark development in the area came after the Satyam Scam of 2007, post which there came a series of regulations for Auditors, Directors, Independent Directors, Promoters and Regulators.
INDIAN LEGISLATIONS GOVERNING THE SYSTEM OF CORPORATE GOVERNANCE
The current laws and provisions directly or indirectly dealing with the concept and working of Corporate Governance may be provided as follows:
- SEBI Act, 1992:
The Act establishes SEBI as an autonomous and Independent body regulating the capital market. SEBI, by virtue of the authority conferred by this act, has provided certain guidelines for the regulation of corporate governance and firms: For the companies whose shares are listed into the stock exchange, SEBI has provided for Standard Listing Agreement for Stock Exchange. Apart from the guidelines of SEBI, there lies Accounting Standards issued by Institute of Charted Accountants of India, which is again an autonomous body. The guidelines provide for the disclosure of financial information. In addition, the Secretariat standards issued by the Institute of Company Secretaries in India, again an autonomous body, facilitate the process.
- Companies Act 2013:
The major overhaul in the area of Corporate Governance, done by the new act is permitting the maximum limit of the number of shareholders in a private limited company to rise from 50 to 200. Other important provisions and concepts include the following Section 135 of the Act FastTrack MergerNCLT, Etc.
IMPORTANT COMMITTEES FORMED FOR FACILITATING CORPORATE GOVERNANCE IN INDIA
- Rahul Bajaj Committee (1995): The Committee was set up by CII, it came up with a voluntary code called “Desirable Corporate Governance” in 1998.
- Kumarmanlagal Birla Committee (2000): This committee was set up by SEBI and covered issues such as protection of investor’s interests, transparency enhancement, building international standards with respect to the disclosure of information. The SEBI, in consonance with the recommendation of the committee, enacted Clause 49.
- Naresh Chandra Committee Report: It exclusively covered relationship between the auditor and the company.
- Narayan Murthy Committee (2003): It was also set up by SEBI with the aim to review the ongoing standards and working of Corporate Governance Practices back then.
- UdayKotak Panel: This was also selected by SEBI in the light of Tata and Infosys episodes with the purpose to enhance Corporate Governance in India.