INTRODUCTION
Corporate governance determines the manner in which a company operates and encompasses the rules, regulations, policies, and standards adopted to ensure accountability, transparency, and overall corporate integrity. In India, the enactment of the Securities and Exchange Board of India Act, 1992 marked an important step toward strengthening the financial environment and the securities market. The Act was introduced in response to programs developed by the World Bank and the International Monetary Fund, both of which focus on global financial systems. In the era of globalization, businesses across the world are interconnected and interdependent, and the Indian government sought a strong regulatory framework to promote modern corporate governance standards.1
SEBI functions as the regulator that sets the standards for the securities market, protecting the rights of both issuers and investors. It has the authority to investigate circumstances that affect the market or its participants and can issue directions to ensure compliance with regulatory requirements. An appeals mechanism further reinforces accountability and transparency. Entities that do not adhere to SEBI’s governance norms may be excluded from the securities market.
The primary objective behind SEBI’s establishment was to curb malpractices such as lack of transparency in trading operations, improper pricing, delays or failure in issuing contract notes, delayed payments and delivery of shares, persistence of odd-lot shares, insider trading, price rigging, unofficial premiums on new issues, and violations of stock exchange rules and listing standards.2 These issues led investors to lose confidence in the stock market. High-profile corporate governance failures including the stock market fraud, the UTI scam, the Ketan Parikh scam, and the Satyam scandal further highlighted the urgent need for stronger governance mechanisms in India.
This Paper therefore examines the role of SEBI in ensuring good corporate governance and evaluates the effectiveness of the Listing Obligations and Disclosure Requirements (LODR) Regulations in combating financial frauds.
ROLE OF SEBI
SEBI, since its inception has been playing an active role by appointing various committees and taking up a number of initiatives by bringing timely amendments (to Clause 35B and Clause 49 of LODR). To best describe SEBI’s role we must take a look into the above stated clauses. SEBI makes a religious effort to constantly align Indian standards with international standards. The listing agreement’s recent revisions to Clauses 35B and 49 make Governance more effective and rigorous in preserving the interests of all stakeholders.3 The new Companies Act, 2013, aligns the updated Clause 49 of the listing agreement with the new Companies Act, 2013. This condition applies to listed firms, but according to a SEBI clarification, it will also apply to non-listed corporations in the future.
A. Clause 35B
This clause lays forth certain obligations on an entity, such as: Providing the option to vote through e-voting in respect of all shareholders’ resolutions, to be passed at General Meetings or postal ballot. The corporation must send notifications of meetings to all members, auditors, and directors through POST, Registered e-mail, or Courier, and post the notices on the firm’s official website. The notice of meeting should also state that the firm offers electronic voting and postal balloting to its members. A significant number of shareholders can participate in the selection of board members under this clause.
B. Board Composition
This sub-clause provides for the number and type of members to be present on a board i.e its composition. Non-executive directors must make up at least half of the board, and there must be at least one woman on the board. It further specifies that if the Chairman is an executive director, half of the Board must be made up of independent directors. If the Chairman is a nonexecutive director, then 1/3 of the board members must be independent.4
C. Restrictions on Independent Directors
This is a revised clause which places a limit on number of directorships an independent director can hold. No one can serve on the boards of more than seven publicly traded companies as an independent director. If a person is a full-time director of a publicly traded company, he or she may not serve as an independent director of more than three publicly traded companies. According to the requirements of the new Companies Act, 2013, independent directors would have a five-year term. The proposed revision to clause 49 of the listing agreement also makes significant changes to the remuneration and reporting of nonexecutive directors. This is done as an attempt to keep intact the unbiased nature of an independent director.5
D. Stock Exchanges
Law students often undermine or fail to realize the true importance of stock exchanges as they play a very important, if not the most important role in an economy.The stock exchange is a specialized trading place and a leading institution in the security market. Its primary purpose is to create a platform for exchanging securities that previously existed at that fair and equitable price. The stock exchange not only aids private-sector businesses, but also the government in the raising and control of public debt. It is to the government not just during peacetime but also during wartime. It is also required for the effective operation of private corporate enterprises. It allows cash to move around and directs it to lucrative and successful businesses.6
In the Lok Sabha in 1955, the then-Finance Minister made the following comment. The economic benefits that a well-structured and well-run securities market may provide to a country with a big private sector functioning under the typical incentives and impulses of private firms are significant. First and foremost, only a structured securities market can offer adequate marketability and price consistency for shares, which is critical for the investor’s demands. Second, it is only such a market that can guarantee an acceptable level of safety and fairness in the buying and selling of securities. Third, a properly managed stock exchange aids in a relatively accurate appraisal of assets in terms of their true worth by allowing demand for securities to interact with supply. Finally, by evaluating securities in this manner, the stock exchange aids in the orderly flow and distribution of savings among various forms of competitive investment. The stock market is the capital market’s backbone. India is a country that has various committees for the growth of the security market have been created. The Alley Stock Exchange Enquiry Committee was established in 1923, followed by the Morrison Enquiry Committee in 1936, the Departmental Committee in 1948, the Gorwala Committee4 in 1951, the Patel Enquiry Committee in 1984, the Pherwan Committee5 in 1991, and the Hussain Committee in 1993.7
India inherited one of the world’s poorest economies, but one with a manufacturing sector accounting for a tenth of GDP, four functioning stock markets with clearly defined rules governing listing, trading, and settlement, a well-developed equity culture among the urban wealthy, and a banking system replete with well-developed lending norms and recovery procedures when it gained independence. As a result, India emerged as being more equipped than most other colonies in terms of business laws and financial systems.8
Good corporate governance procedures increase a company’s value and stakeholders’ confidence, resulting in a more strong capital market, economy, and the creation of a lively and constructive shareholder activism. On the subject of corporate governance, the ministry of corporate affairs reviewed committee findings as well as comments received from other stakeholders. Keeping in mind that the issue of corporate governance may extend beyond the law and that enforcing many elements of corporate governance through legislative and regulatory measures has inherent limits. It was deemed essential to produce and disseminate a set of optional guidelines called Corporate Governance Voluntary 2009 that are applicable in the current setting for discussion and implementation by corporations.9
Industrial securities such as equity shares, preference shares, debentures, and bonds of listed public limited corporations, as well as government securities, are exchanged on an exchange. Members of the exchange deal in listed securities on the floor of the stock market on behalf of their clients. The stock exchange is a professional trading place and a leading institution in the security market. Its primary purpose is to create a platform for exchanging securities that previously existed at that fair and equitable price. The stock exchange not only aids private-sector businesses, but it also aids public-sector businesses.
Many companies are said to have raised objections to how management control of the company should be vested in the hands of a majority of independent directors who have no financial stake in the ventures, as a result of the Regulatory Provision introduced by SEBI in the listing agreement, which requires the companies to have a majority of independent directors. The Stock Exchange is the only place where securities may be traded. The regulatory system significantly favours them, practically prohibiting securities trading outside of exchange.
CONTEMPORARY CHALLENGES & SEBI’S RESPONSE (2021–2024)
While SEBI’s foundational framework through Clauses 35B and 49 of the LODR Regulations established critical governance norms, the post-2020 financial landscape has presented unprecedented challenges. High-profile institutional collapses such as Infrastructure Leasing & Financial Services (IL&FS), Dewan Housing Finance Corporation Ltd. (DHFL), and Yes Bank have exposed critical weaknesses in risk governance, audit quality, and related-party transaction oversight within systemically important non-banking financial companies (NBFCs) and listed entities.10 Simultaneously, the accelerating digital transformation of markets, the emergence of new asset classes, and the global emphasis on sustainability have necessitated a responsive and forward-looking regulatory approach. In this context, SEBI has undertaken significant reforms to strengthen India’s corporate governance ecosystem, moving beyond prescriptive compliance towards integrated, principles-based, and technology-enabled supervision.11
A. Enhancing Transparency and Accountability
Stricter Disclosures and Audit Reforms In response to governance failures rooted in opaque financial reporting, SEBI has significantly tightened disclosure requirements and audit oversight. Key initiatives include:
Business Responsibility and Sustainability Reporting (BRSR)
Effective from the financial year 2022–23, SEBI mandated the top 1,000 listed entities to file BRSR reports, integrating Environmental, Social, and Governance (ESG) factors into mainstream corporate disclosure.12 The framework requires detailed reporting on leadership commitment, stakeholder engagement, and performance across nine key ESG principles, moving beyond voluntary ESG reporting to assured, quantitative disclosures.13
Strengthened Audit Committee Governance
Post the IL&FS crisis, SEBI enhanced the role and responsibility of audit committees. Regulations now require the audit committee to approve all related-party transactions (RPTs) and explicitly oversee the financial reporting process, internal controls, and auditor independence.14 Furthermore, listed entities must now disclose the detailed rationale for auditor resignations within 24 hours, a measure aimed at preventing last-minute exits that obscure underlying governance issues.15
B. Embracing Digital Governance and Cybersecurity
Recognizing that digital infrastructure is a critical governance concern, SEBI has moved to institutionalize cybersecurity resilience and digital shareholder engagement.
Cyber Security and Cyber Resilience Framework (2023)
SEBI mandated all listed entities, market infrastructure institutions, and intermediaries to implement a robust cybersecurity policy, appoint a Chief Information Security Officer (CISO), and report cyber security incidents within six hours of detection.16 This framework treats cyber risk as a board-level strategic risk, requiring regular audits and reporting to the audit committee.
Digital Empowerment of Shareholders
Building on Clause 35B’s e-voting mandate, SEBI has encouraged virtual shareholder meetings (VSMs) as a permanent feature, enhancing shareholder participation irrespective of geographical constraints.17 The regulator has also streamlined the process for electronic issuance of securities (e-IPO) and mandated the use of blockchain technology for security creation and monitoring in certain debt markets, enhancing transparency and reducing fraud.18
C. Regulatory Technology (RegTech) for Market Integrity
To keep pace with market complexity and high-frequency trading, SEBI has increasingly leveraged technology for surveillance and supervision.
Advanced Surveillance Mechanisms: SEBI’s Integrated Market Surveillance System (IMSS) and the Data Analytics and Red Flag Identification tools employ artificial intelligence to detect patterns of market manipulation, insider trading, and front-running in real-time.19
Regulation of ESG Rating Providers (2023)
To prevent “greenwashing” and ensure reliability of ESG claims, SEBI brought ESG rating providers under a formal regulatory framework, requiring registration and adherence to disclosure norms.20
Governance of Algorithmic Trading
SEBI has issued guidelines governing algorithmic trading by institutional investors to ensure these systems do not disrupt market stability, mandating audits, kill switches, and detailed reporting to exchanges.21
These targeted interventions demonstrate SEBI’s evolving role from a traditional market regulator to a proactive governance architect, actively shaping corporate conduct to meet the demands of a digital, sustainable, and interconnected global economy.
SECURITIES CONTRACT (REGULATION) ACT, 1956
By controlling the business of dealing in securities, this Act was designed to avoid unfavourable transactions and to curb speculation in securities. Any stock exchange that wishes to be recognised must submit an application to the Central Government in the approved format. Every application must include all required information and be supported by a copy of the stock exchange’s bye-laws for contract regulation and control, as well as a copy of the regulations governing the stock exchange’s constitution in general.22
First, the governing body of such stock exchange, its constitution and management powers, and the manner in which its business is to be conducted; second, the powers and duties of the stock exchange’s office bearers; third, the admission into the stock exchange of various classes of members, the qualifications for membership, and the exclusion, suspension, expulsion, and re-admission of members there from or the exclusion, suspension, expulsion and re-admission of members there from. fourth, the method for registering partnerships as stock exchange members, when the regulations allow it; and the nomination and appointment of authorised representatives and clerks.23
Every recognised stock exchange must provide a copy of its annual report to the Central Government, which must include such information as may be required. It has the authority to adopt regulations or alter existing rules to address any or all of the following issues: –
i. the limitation of voting rights to members exclusively in connection with any item brought before the stock exchange at any meeting;
ii. the restriction on a member’s right to appoint another person as his proxy to attend and vote at a stock exchange meeting;
iii. the regulation of voting rights in respect of any matter placed before the stock exchange at any meeting, so that each member may be entitled to only one vote, regardless of his share of the stock exchange’s paid-up equity capital; etc. If, in the opinion of the Central Government, an emergency has arisen and it is deemed necessary to respond to the emergency, the Central Government may do so.
SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992
This Act was created to safeguard the interests of securities investors, to encourage the growth of, and to regulate the securities market, as well as for matters related to or incidental thereto. The SEBI (the Board) specifies: I the matters pertaining to the issue of capital, the transfer of securities, and other things ancillary thereto; and (b) the way in which such matters should be declared by the firms, by regulation. No stockbroker, subbroker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser, or other intermediary who may be associated with the securities market shall buy, sell, or deal in securities unless under the terms of a certificate of registration obtained from the Board in accordance with the regulations.24 No depository, participant, custodian of securities, foreign institutional investor, credit rating agency, or other intermediary associated with the securities market as the Board may specify by notification in this regard shall buy, sell, or deal in securities unless under and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this section.25
Furthermore, no person shall sponsor or cause to be sponsored, or carry on or cause to be carried on, any venture capital funds or collective investment schemes, including mutual funds, unless the Board issues a certificate of registration in accordance with the regulations. Every application for registration must be made in the manner and with the fees stipulated by rules. The Board may suspend or terminate a certificate of registration in a regulated manner, as established by rules enacted under this Act, by order. No order shall be imposed, however, until the individual affected has been given a reasonable chance to respond.
CONCLUSION
The Securities and Exchange Board of India (SEBI) has demonstrated itself to be a pivotal force in shaping India’s corporate governance landscape. Through a dynamic regulatory framework most notably the Listing Obligations and Disclosure Requirements (LODR) Regulations and key clauses such as 35B and 49 SEBI has systematically strengthened transparency, accountability, and investor protection. Its mandate extends beyond mere legal compliance to include proactive market development, robust oversight of intermediaries, and the promotion of equitable shareholder engagement.
While statutory mechanisms such as the SCORES (SEBI Complaints Redress System) portal have enhanced grievance redressal, the true efficacy of corporate governance depends on cultivating an intrinsic culture of ethical conduct within organizations. SEBI’s regulatory evolution marked by a gradual shift from prescriptive rules toward principles-based oversight reflects an adaptive approach suited to increasingly complex and globalized capital markets. However, persistent challenges such as emerging financial technologies, digital assets, cross-border transactions, and sophisticated corporate frauds demand continued vigilance and innovation in regulatory strategy.
Recommendations
To further solidify India’s corporate governance framework and align it with global best practices, the following measures are recommended:
i. Integrate ESG Metrics into Executive Compensation: A measurable portion of executive remuneration should be linked to the achievement of verifiable Environmental, Social, and Governance (ESG) targets, aligning managerial incentives with long-term sustainable value creation.
ii. Strengthen Whistleblower Protections: SEBI should establish a centralized, secure, and anonymous digital platform for reporting governance violations, backed by statutory safeguards against retaliation to encourage genuine disclosures.
iii. Leverage Regulatory Technology (RegTech): SEBI should expand the deployment of artificial intelligence and data analytics for real-time surveillance of related-party transactions, insider trading patterns, and unusual market activities to enhance detection capabilities and preventive oversight.
iv. Re-examine the Regulatory Architecture: A formal review should be commissioned to evaluate the feasibility of a more integrated financial regulatory model akin to the UK’s Financial Conduct Authority (FCA) to mitigate jurisdictional overlaps between SEBI, the Reserve Bank of India (RBI), and the Ministry of Corporate Affairs (MCA) in supervising complex financial conglomerates.
v. Mandate Continuous Director Education: Independent and non-executive directors should be required to undergo annual certification programs on emerging governance risks, including cybersecurity, climate-related financial disclosures, algorithmic governance, and digital asset regulation.
The future of corporate governance in India hinges on agile, forward-looking regulation that embraces technological integration while fostering a culture of integrity and ethical leadership. SEBI’s ongoing evolution in this direction will be crucial not only for safeguarding investor confidence but also for sustaining India’s economic growth and competitiveness in the global arena.
*****
Footnotes
1. OECD, G20/OECD Principles of Corporate Governance 7 (2023), https://www.oecd.org/corporate/principles-corporate-governance/.
2. Securities & Exchange Bd. of India, Master Circular: Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 ¶ 2.1 (2023), https://www.sebi.gov.in/sebi_data/attachdocs/dec-2023/1702970913589.pdf.
3. SEBI, Report of the Committee on Corporate Governance (Uday Kotak Committee) 25–30 (2017), https://www.sebi.gov.in/reports/reports/oct-2017/report-of-the-committee-on-corporate-governance_36177.html.
4. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, reg. 17 (India) (Board Composition).
5. SEBI, Consultation Paper on Review of Corporate Governance Norms for Listed Entities 5–8 (2021), https://www.sebi.gov.in/reports/reports/nov-2021/consultation-paper-on-review-of-corporate-governance-norms-for-listed-entities_53316.html.
6. Ipsita Das, Growth of sebi as a regulator of the indian capital market, PALARCH, file:///C:/Users/lenovo/Downloads/5814-Article%20Text-11331-1-10-20210122.pdf
7. SEBI, Circular on Business Responsibility and Sustainability Reporting (BRSR), SEBI/HO/CFD/CMD-2/P/CIR/2021/562 (May 10, 2021).
8. Amit Tandon, SEBI Amendment to Clause 35B and 45 of Equity Listing Agreement, ABACUS, https://abcaus.in/sebi/ListingAgreementClause35Band49.html
9. Soumya Jain, Laws governing the stock market in India, IPLEADERS, https://blog.ipleaders.in/laws-governing-the-stock-market-in-india/
10. Re: Infrastructure Leasing & Fin. Servs. Ltd., [2020] 222 Comp Cas 1 (NCLT) (India); Yes Bank Ltd. v. Reserve Bank of India, 2020 SCC OnLine Bom 690 (India).
11. SEBI, Cyber Security and Cyber Resilience Framework for Stock Brokers/Depository Participants, SEBI/HO/MIRSD/CRADT/CIR/P/2023/122 (July 6, 2023).
12. SEBI, Circular on Business Responsibility and Sustainability Reporting (BRSR), SEBI/HO/CFD/CMD-2/P/CIR/2021/562, P 3 (May 10, 2021).
13. SEBI, Circular on Business Responsibility and Sustainability Reporting (BRSR), SEBI/HO/CFD/CMD-2/P/CIR/2021/562 (May 10, 2021).
14. SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2021, reg. 18 (India).
15. SEBI, Disclosure of Events or Information, SEBI/HO/CFD/CMD2/CIR/P/2023/42, ¶ 4.2 (Mar. 10, 2023).
16. SEBI, Cyber Security and Cyber Resilience Framework for Listed Entities, SEBI/HO/CFD/CMD-2/P/CIR/2023/122, ¶ 5 (July 6, 2023).
17. SEBI, Circular on Virtual Shareholder Meetings, SEBI/HO/CFD/CMD1/CIR/P/2022/79 (June 23, 2022).
18. Vijay Pal Singh, Regulatory Technology (RegTech): The Future of Financial Supervision, 15 J. Fin. Reg. & Compliance 45, 50–52 (2022).
19. SEBI Ann. Rep. 2022–23, at 45–47 (2023), https://www.sebi.gov.in/reports/annual-reports/jul-2023/annual-report-2022-23_73652.html.
20. SEBI, Circular on Governance of Algorithmic Trading, SEBI/HO/MRD/DP/CIR/P/2023/98 (May 18, 2023).
21. Id
22. Sandeep Singh, Explained: How new SEBI regulations benefit listed company employees, THE INDIAN EXPRESS, https://indianexpress.com/article/explained/how-new-sebi-regulations-benefit-listed-company-employees-7472747/
23. Priya Sharma, ESG Integration in Indian Corporate Governance: The Road Ahead, 28 Indian J. Corp. L. 112, 118–120 (2023).
24. BusinessStandard, Abid Hussain Panel Report On Ssis Favours Dereservation Of Ssi, BUSINESS STANDARD, https://www.business-standard.com/article/specials/abid- hussain-panel-report-on-ssis-favours-dereservation-of-ssi-197010701089_1.html
25. A Historical Perspective of the Securities Market Reforms in India, speeches in Mar 23, 2004, https://www.sebi.gov.in/media/speeches/mar-2004/a-historical-perspective-of-the-securities- marketreforms_2882.