Author: Vipin Mandloi, student at Renaissance University, Indore
Corporate governance has emerged as a defining feature of the modern corporate world. In a rapidly globalizing economy, companies are no longer judged merely by profits, but also by their governance practices, accountability structures, and ethical standards. The global financial crises of the early 2000s, as well as corporate scandals in India such as the Satyam Computer Services scam (2009), demonstrated how governance failures can destroy investor trust and destabilize markets.
In India, the Securities and Exchange Board of India (SEBI) stands as the principal regulator ensuring that listed entities adhere to transparent and ethical practices. Empowered by the SEBI Act, 1992, SEBI has consistently introduced reforms that enhance disclosure, promote board independence, safeguard minority investors, and align Indian corporate practices with international benchmarks.
This paper examines SEBI’s evolving role in corporate governance, its statutory basis, reforms, judicial recognition, challenges, and the road ahead.
SEBI: Mandate and Legal Authority
The SEBI Act, 1992 transformed SEBI from a non-statutory advisory body into a powerful regulator. Section 11 of the Act sets out its objectives:
1. Protect the interests of investors,
2. Promote market development, and
3. Regulate the securities market.
In fulfilling this mandate, SEBI’s powers extend beyond mere securities regulation. It now serves as a guardian of corporate governance, particularly in the case of listed companies where public money is at stake.
Evolution of Corporate Governance in India
The concept of corporate governance gained traction in India in the late 1990s. The Kumar Mangalam Birla Committee Report (2000), established by SEBI, recommended significant reforms such as independent directors and audit committees. This led to the introduction of Clause 49 of the Listing Agreement, the precursor to today’s LODR Regulations, 2015.
SEBI’s Regulatory Role in Corporate Governance
1. Disclosure and Transparency Norms
Transparency is at the heart of governance. The LODR Regulations, 2015 require listed entities to disclose:
Quarterly and annual financial statements,
Shareholding patterns,
Related-party transactions,
Details of board meetings and director attendance,
Material events under Regulation 30.
These provisions ensure investors are kept informed of a company’s functioning, minimizing asymmetry. SEBI has also mandated submission of a Corporate Governance Report by top listed entities.¹
2. Board Independence and Diversity
Board independence is crucial for unbiased decision-making. SEBI mandates:
At least one-third independent directors on boards,²
Compulsory committees—Audit, Nomination & Remuneration, and Stakeholders’ Committees—chaired by independent directors,
Appointment of at least one woman director.
These measures prevent promoter dominance and foster inclusivity.
3. Investor Protection
Investor protection has been central to SEBI’s mission. Its initiatives include:
The SCORES platform for efficient online grievance redressal,
Regulation of related-party transactions to curb abuse by majority shareholders.
4. Kotak Committee Reforms (2017–2018)
Acting on the Uday Kotak Committee’s recommendations, SEBI implemented sweeping reforms, such as:
Enhanced role and accountability of independent directors,
Requirement of disclosures for auditor resignations,
Stricter oversight on related-party transactions (shareholder approval in certain cases),
Mandate for separation of Chairperson and MD/CEO roles (later voluntary).⁴
5. Insider Trading Regulations
Key features include:
Defining unpublished price-sensitive information (UPSI),
Prohibition on trading by insiders possessing UPSI,
Creation of structured digital databases to track communication of UPSI.⁵
Such measures safeguard investor confidence and market fairness.
6. Oversight of Auditors
Mandating auditor rotation after a fixed period,
Requiring disclosure of reasons for auditor resignations,
Working with the National Financial Reporting Authority (NFRA) for oversight.
This strengthens trust in financial reporting and reduces risks of collusion.
Case Laws on SEBI and Corporate Governance
1. Sahara India Real Estate Corp. Ltd. v. SEBI, (2013) 1 SCC 1 – The Supreme Court upheld SEBI’s jurisdiction over companies raising funds through “hybrid instruments,” affirming its wide protective authority.
2. SEBI v. Shri Ram Mutual Fund, (2006) 5 SCC 361 – The Court held that intention (mens rea) is irrelevant for penalties under SEBI law, bolstering regulatory deterrence.
3. Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd., (2021) 9 SCC 449 – The Court emphasized the significance of minority rights and boardroom transparency, echoing governance principles SEBI enforces for listed companies.
4. SEBI v. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753 – The Supreme Court upheld SEBI’s finding of “circular trading” as manipulative, affirming its proactive role in curbing market abuse.
Challenges Faced by SEBI
Despite its progress, SEBI faces several hurdles:
1. Compliance vs. Substance – Many companies view governance as a checklist, not a cultural value.
2. Promoter Dominance – Family-owned businesses continue to dilute board independence.
3. Judicial Delays – Appeals in SAT and higher courts often slow enforcement.
4. Auditor Pressure – Independence of auditors is not always practical despite regulations.
5. Balancing Ease of Doing Business – Overregulation may discourage market participation.
SEBI’s Impact on Corporate Governance
The regulatory actions of SEBI have transformed India’s corporate governance framework:
Enhanced investor confidence by ensuring transparency,
Closer alignment with global standards such as the OECD Principles of Corporate Governance,
Reduction in fraud and insider trading,
Encouragement of a governance culture, where companies treat governance as a strategic advantage.
Conclusion
Corporate governance is essential for the credibility of markets and the protection of investors. In India, SEBI has been instrumental in strengthening this framework through disclosure obligations, board independence norms, investor protection mechanisms, insider trading regulations, and auditor accountability.
However, the journey is ongoing. For SEBI’s governance framework to succeed, there must be a shift from mere legal compliance to genuine ethical practice. Judicial delays and promoter dominance remain significant hurdles. With continuous refinement, SEBI can ensure that corporate governance becomes deeply embedded in India’s corporate culture, ultimately boosting investor trust and economic growth.
FAQS
Q1. What is SEBI’s primary role in corporate governance?
SEBI enforces disclosure norms, regulates boards, protects minority investors, and penalizes misconduct to ensure fairness in listed companies.
Q2. How does SEBI safeguard minority investors?
Through independent director requirements, regulation of related-party transactions, and disclosure norms that prevent promoter exploitation.
Q3. Can SEBI penalize companies?
Yes. SEBI can impose monetary fines, suspend trading, debar directors, and approach courts for stronger remedies.
Q4. How did the Satyam scam affect SEBI?
It exposed flaws in corporate oversight, prompting SEBI to strengthen auditor regulation, mandate rotation, and tighten disclosure requirements.
Q5. Is SEBI’s governance framework comparable to global standards?
Yes, especially after the Kotak reforms, SEBI’s framework aligns closely with OECD principles and practices in the UK and US.
References
1. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
2. Id., Regulation 17.
3. Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016.
4. SEBI, Report of the Committee on Corporate Governance (2017) (Uday Kotak Committee).
5. Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.
6. Sahara India Real Estate Corp. Ltd. v. SEBI, (2013) 1 SCC 1.
7. SEBI v. Shri Ram Mutual Fund, (2006) 5 SCC 361.
8. Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd., (2021) 9 SCC 449.
9. Sterlite Industries v. SEBI, (2001) 34 SCL 485 (SAT).
10. SEBI v. Rakhi Trading Pvt. Ltd., (2018) 13 SCC 753.
