Author: Unnati Parati Manikchand Pahade Law College, Chh Sambhajinagar
ABSTRACT
Corporate governance can be understood as the framework of principles, policies, and mechanisms through which a company is managed, supervised, and held accountable.. In India, despite having a strong regulatory framework under the Companies Act, 2013 and SEBI regulations, several high-profile corporate scandals have exposed serious governance failures. Cases such as Satyam, IL&FS, Yes Bank, and DHFL highlight issues like weak board oversight, lack of transparency, auditor negligence, and regulatory lapses. This article examines the meaning of corporate governance, analyses major governance failures in India, discusses the legal framework and judicial approach, and evaluates the need for stronger enforcement to protect stakeholders and restore investor confidence.
INTRODUCTION
Corporate governance is the backbone of a healthy corporate sector. It ensures accountability, transparency, and ethical management of companies. In India, corporate governance failures have not only caused huge financial losses but have also shaken public trust in corporate institutions.
Despite detailed laws and regulations, repeated corporate scandals indicate that governance failures are often due to poor implementation rather than absence of law. This article critically analyses corporate governance failures in India and highlights the lessons that must be learned to strengthen the corporate ecosystem.
MEANING AND IMPORTANCE OF CORPORATE GOVERNANCE
Corporate governance refers to the framework through which companies are managed and controlled, balancing the interests of shareholders, management, customers, lenders, government, and society.
Key Objectives of Corporate Governance
Ensuring transparency in financial reporting
Protecting shareholder and investor interests
Preventing misuse of corporate power
Promoting ethical business practices
Strengthening board accountability
Strong corporate governance is essential for:
Attracting foreign investment
Maintaining market stability
Ensuring sustainable business growth
LEGAL FRAMEWORK FOR CORPORATE GOVERNANCE IN INDIA
India has a comprehensive governance framework, including:
Companies Act, 2013
Duties of directors (Section 166)
Independent directors (Section 149)
Audit committees (Section 177)
SEBI (LODR) Regulations, 2015
SEBI Act, 1992
Listing Agreement requirements
ICAI auditing standards
However, governance failures show that legal compliance often remains superficial.
MAJOR CORPORATE GOVERNANCE FAILURES IN INDIA
1. Satyam Computer Services Scam (2009)
The Satyam scandal is the biggest example of governance failure in India.
Fake profits, inflated cash balances, and bogus invoices were created
Raju admitted to long-term manipulation of Satyam’s financial statements.
Board failed to question unusual financial growth
Auditors (PwC) failed to verify bank statements
This case exposed:
Weak board independence
Auditor negligence
Failure of internal controls
2. IL&FS Crisis (2018)
IL&FS, a major infrastructure finance company, collapsed due to:
Excessive borrowing
Poor risk management
Complex group structure hiding real liabilities
Failure of independent directors
The crisis affected banks, mutual funds, and the entire financial system.
3. Yes Bank Crisis (2020)
Yes Bank suffered due to:
Aggressive lending without adequate checks
Under-reporting of NPAs
Weak oversight by the board
Delayed regulatory intervention
This showed how governance failures in banks can threaten financial stability.
4. DHFL Scam
DHFL was involved in:
Diversion of funds
Fake loan accounts
Connected-party transactions
The case highlighted failure of:
Credit monitoring
Auditor vigilance
Regulatory supervision
COMMON CORPORATE GOVERNANCE FAILURES IDENTIFIED
1. Weak Board Oversight
Boards often fail to:
Question management decisions
Detect early warning signs
Act independently
2. Lack of Transparency
Manipulated financial statements mislead:
Investors
Lenders
Regulators
3. Auditor Negligence
Auditors sometimes:
Rely on management data
Fail to conduct independent verification
4. Conflict of Interest
Promoters dominate decision-making, sidelining minority shareholders.
5. Regulatory Delays
Delayed action by regulators worsens damage.
USE OF LEGAL JARGON (ANALYTICAL APPROACH)
Corporate governance failures involve:
Breach of fiduciary duties
Lack of due diligence
Violation of disclosure norms
Corporate fraud and misrepresentation
Failure of internal control mechanisms
Regulatory non-compliance
These failures undermine the principle of stakeholder protection and corporate accountability.
THE PROOF: IMPACT OF GOVERNANCE FAILURES
The consequences of poor corporate governance are severe:
Loss of investor confidence
Financial instability
Collapse of companies
Job losses
Burden on taxpayers and public institutions
The Satyam scam alone wiped out thousands of crores of shareholder wealth.
ROLE OF INDEPENDENT DIRECTORS
Independent directors are meant to act as safeguards, but many failures show:
Lack of true independence
Inadequate expertise
Passive participation
This raises questions about the effectiveness of board structures under Indian corporate law.
CASE LAWS
1. Satyam Computer Services Ltd. Case (2009)
Established the importance of transparent accounting and board accountability.
2. SEBI v. Ramalinga Raju
Reinforced strict liability for corporate fraud and misrepresentation.
3. Sahara India Real Estate Corp. v. SEBI (2012)
Emphasized investor protection and regulatory powers of SEBI.
4. Tata Sons v. Cyrus Mistry (2021)
Highlighted governance disputes and board powers in corporate decision-making.
REGULATORY AND LEGAL REFORMS AFTER FAILURES
Strengthening SEBI’s enforcement powers
Mandatory rotation of auditors
Enhanced disclosure requirements
Improved whistle-blower mechanisms
Greater accountability of independent directors
However, enforcement remains the key challenge.
CRITICAL ANALYSIS
India does not suffer from lack of corporate governance laws, but from:
Weak enforcement
Promoter dominance
Compliance-driven governance rather than ethical governance
True corporate governance requires:
Ethical leadership
Strong internal controls
Active board participation
CONCLUSION
Corporate governance failures in India serve as a warning that laws alone cannot ensure ethical corporate conduct. While India has a robust legal framework, repeated scandals show gaps in implementation, oversight, and accountability. Strengthening board independence, auditor responsibility, and regulatory vigilance is essential to prevent future failures. Effective corporate governance is not just a legal obligation but a business necessity for sustainable economic growth and investor trust.
FAQs (Frequently Asked Questions)
1. What is corporate governance?
It is the system through which companies are directed and controlled to ensure accountability and transparency.
2. Why do corporate governance failures occur in India?
Due to weak enforcement, promoter dominance, auditor negligence, and poor board oversight.
3. Which is the biggest corporate governance failure in India?
The Satyam scam is considered the biggest corporate governance failure.
4. What laws regulate corporate governance in India?
Companies Act, 2013 and SEBI (LODR) Regulations.
5. How can governance failures be prevented?
By strengthening board independence, enforcing laws strictly, and promoting ethical corporate culture.
