1. Cadbury Committee[1] ( U.K.), 1992 has defined corporate governance as such :
“Corporate governance is the system by which companies are directed and controlled. It
encompasses the entire mechanics of the functioning of a company and attempts to put in
place a system of checks and balances between the shareholders, directors, employees,
auditor and the management.”
2. “Corporate governance is the system by which business corporations are directed and
controlled. The corporate governance structure specifies the distribution of rights and
responsibilities among different participants in the corporation, such as, the board, managers,
shareholders and spells out the rules and procedures for making decisions on corporate
affairs. By doing this, it also provides this; it also provides the structure through which the
company objectives are set, and the means of attaining those objectives and monitoring
3. Definition of corporate governance by the Institute of Company Secretaries of India is as
under :
“Corporate Governance is the application of best Management practices, Compliance of law
in true letter and spirit and adherence to ethical standards for Effective Management and
distribution of wealth and discharge of social Responsibility for sustainable development of
all stakeholders”.

Corporate governance concept emerged in India after the second half of 1996 due to
economic liberalization and deregulation of industry and business. With the changing times,
there was also need for greater accountability of companies to their shareholders and
customers. The report of Cadbury Committee on the financial aspects of corporate
Governance in the U.K. has given rise to the debate of Corporate Governance in India.
Need for corporate governance arises due to separation of management from the ownership.
For a firm success, it needs to concentrate on both economical and social aspect. It needs to
be fair with producers, shareholders, customers etc. It has various responsibilities towards
employees, customers, communities and at last towards governance and it needs to serve its
responsibilities at the best at all aspects.
The “corporate governance concept” dwells in India from the Arthshastra time instead of
CEO at that time there were kings and subjects. Today, corporate and shareholders replace
them but the principles still remain same, unchanged i.e. good governance.
20th century witnessed the glossy of Indian Economy due to liberalization, globalization, and
privatization. Indian economy for the 1st time here was together with world economy for
product, capital and lab our market and which resulted into world of capitalization, corporate
culture, business ethics which was found important for the existence of corporation in the
world market place


2. The CII Code
For over a decade, the Confederation of Indian Industry (CII) has been at the forefront of the
corporate governance movement in India. In April 1998, it released a Task Force report
entitled “Desirable Corporate Governance: A Code”, which outlined a series of voluntary
recommendations regarding best-inclass practices of corporate governance for listed
companies. It is worth noting that most of the CII Code was subsequently incorporated in
SEBI’s Kumar Mangalam Birla Committee Report and thereafter in Clause 49 of the Listing
Agreement. Moreover, the CII Code was the first and probably a unique instance where an
industry association took the lead in prescribing corporate governance standards for listed
Corporate governance guidelines - both mandated and voluntary - have evolved since 1998,
thanks to the efforts of several committees appointed by the Ministry of Corporate Affairs
(MCA) and the SEBI. Indeed, it is fair to say that in terms of norms, guidelines and standards
set for the board of directors, financial and non-financial disclosures and information to be
shared by the management to stakeholders and the wider public, Indian corporate governance
standards rank among the best in the world. And CII is privileged to be a part of this
Satyam is a one-off incident - especially considering the size of the malfeasance. The
overwhelming majority of corporate India is well run, well regulated and does business in a
sound and legal manner. However, the Satyam episode has prompted a relook at our
corporate governance norms and how industry can go a step further through some voluntary
With this in mind, the CII set up a Task Force under Mr Naresh Chandra in February 2009 to
recommend ways of further improving corporate governance standards and practices both in
letter and spirit.
The recommendations of the Naresh Chandra Task Force evolved over a series of meetings.
The leitmotif of the report is to enunciate additional principles that can improve corporate
governance in spirit and in practice. The report enumerates a set of voluntary
recommendations with an objective to establish higher standards of probity and corporate
governance in the country.
The recommendations outlined in this report are aimed at listed companies and wholly owned
subsidiaries of listed companies.


3. The Sarbanes-Olexy Act 2002
Sarbanes–Oxley was named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S.
Representative Michael G. Oxley (R-OH). As a result of SOX, top management must
individually certify the accuracy of financial information. In addition, penalties for fraudulent
financial activity are much more severe. Also, SOX increased the oversight role of boards of
directors and the independence of the outside auditors who review the accuracy of corporate
financial statements.
The bill, which contains eleven sections, was enacted as a reaction to a number of
major corporate and accounting scandals, including those affecting Enron, Tyco
International,Adelphia, Peregrine Systems, and WorldCom. These scandals cost investors
billions of dollars when the share prices of affected companies collapsed, and shook public
confidence in the US securities markets.
The act contains eleven titles, or sections, ranging from additional corporate board
responsibilities to criminal penalties, and requires the Securities and Exchange
Commission (SEC) to implement rulings on requirements to comply with the law. Harvey
Pitt, the 26th chairman of the SEC, led the SEC in the adoption of dozens of rules to
implement the Sarbanes–Oxley Act. It created a new, quasi-public agency, the Public
Company Accounting Oversight Board, or PCAOB, charged with overseeing, regulating,
inspecting, and disciplining accounting firms in their roles as auditors of public companies.
The act also covers issues such as auditor independence, corporate governance, internal
control assessment, and enhanced financial disclosure. The nonprofit arm of Financial
Executives International (FEI), Financial Executives Research Foundation (FERF),
completed extensive research studies to help support the foundations of the act.
The act was approved by the House by a vote of 423 in favor, 3 opposed, and 8
abstaining and by the Senate with a vote of 99 in favor and 1 abstaining. President George W.
Bush signed it into law, stating it included "the most far-reaching reforms of American
business practices since the time of Franklin D. Roosevelt. The era of low standards and false
profits is over; no boardroom in America is above or beyond the law."
The 10th anniversary of SOX coincided with the passing of the Jumpstart Our Business
Startups (JOBS) Act, designed to give emerging companies an economic boost, and cutting
back on a number of regulatory requirements.


4. Satyam Scam
The Satyam Computer Services scandal is a corporate scandal that worked in India in 2009
where chairman Ramalinga Raju confessed that the company's accounts had been falsified.
The Global corporate community was shocked and scandalised when the chairman of
Satyam, Ramalinga Raju resigned on 7 January 2009 and confessed that he had manipulated
the accounts by US$1.47-Billion. In February 2009, CBI took over the investigation and filed
three charge sheets (on 7 April 2009, 24 November 2009 and 7 January 2010), which were
later clubbed into one. On 10 April 2015, Ramalinga Raju was convicted with 10 other
Role of Auditors:
PricewaterhouseCoopers affiliates served as independent auditors of Satyam Computer
Services when the report of scandal in the account books of Satyam Computer Services
broke. The Indian arm of PwC was fined $6 million by the SEC (US Securities and Exchange
Commission) for not following the code of conduct and auditing standards in the
performance of its duties related to the auditing of the accounts of Satyam Computer
Ramalinga Raju along with 2 other accused of the scandal, had been granted bail from
Supreme court on 4 November 2011 as the investigation agency CBI failed to file the
chargesheet even after more than 33 months Raju being arrested.
Raju had appointed a task force to address the Maytas situation in the last few days before
revealing the news of the accounting fraud. After the scandal broke, the then-board members
elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's
website said:
On 10 January 2009, the Company Law Board decided to bar the current board of Satyam
from functioning and appoint 10 nominal directors. "The current board has failed to do what
they are supposed to do. The credibility of the IT industry should not be allowed to suffer."
said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI
issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts
fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.
On 11 January 2009, the government nominated noted banker Deepak Parekh,
former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's
The founder of Satyam was arrested two days after he admitted to falsifying the firm's
accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy,
breach of trust, and forgery.
Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998,
compared to a high of 544 rupees in 2008. In New York Stock Exchange Satyam shares
peaked in 2008 at US$29.10; by March 2009 they were trading around US$1.80.


The Indian Government has stated that it may provide temporary direct or indirect liquidity
support to the company. However, whether employment will continue at pre-crisis levels,
particularly for new recruits, is questionable .
On 22 January 2009, CID told in court that the actual number of employees is only 40,000
and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing ₹200
million (US$3 million) every month for paying these 13,000 non-existent employees.
The Indian government deginated A. S. Murthy became the new CEO of Satyam effective 5
February 2009. Special advisors were also appointed, Homi Khusrokhan of Tata
Chemicals and Chartered Accountant Partho Datta.
On 15 September 2014, the special CBI court hearing the case has asked the concerned
parties to appear before the court on 27 October. Date of judgement will be indicated later on
that day.
On 9 April 2015: Raju and nine others found guilty of collaborating to inflate the company's
revenue, falsifying accounts and income tax returns and fabricating invoices among other
things and sentenced seven years imprisonment by Hyderabad court. Raju and his brother
were also fined by the court 55 million rupees ($883,960) each.

5. Corporate Governance Under Act 1956
Evolution of Corporate Governance framework in India: Companies Act, 1956 provides for
basic framework for regulation of all the companies. Certain provisions were incorporated in
the Act itself to provide for checks and balances over the powers of Board viz.:

Loan to directors or relatives or associated entities (need CG permission) (Sec 295)
Interested contract needs Board resolution and to be entered in register (Sec 297)
Interested directors not to participate or vote (Sec 300)
Appointment of director or relatives for office or place of profit needs approval by
shareholders. If the remuneration exceeds prescribed limit , CG approval required
(Sec 314)
Audit Committee for Public companies having paid-up capital of Rs. 5 Crores (Sec
292A)  Shareholders holding 10% can appeal to Court in case of oppression or
mismanagement (397/398).

2.2. In Companies Act, 1956, SEBI has been given power only to administer provisions
pertaining to issue and transfer of securities and non-payment of dividend.
2.3. Apart from the basic provisions of the Companies Act, every listed company needs to
comply with the provisions of the listing agreement as per Section 21 of Securities.
Contract Regulations Act, 1956. Non-compliance with the same, would lead to delisting
under Section 22A or monetary penalties under Section 23 E of the said Act.
2.4. Further, SEBI is empowered under Section 11 and Section 11A of SEBI Act to prescribe
conditions for listing. However, Section 32 of the SEBI Act, 1992 states that the provisions of
the SEBI Act, 1992 shall be in addition to, and not in derogation of, the provisions of any
other law for the time being in force.

2.5. Considering the emergence of code of best Corporate Governance practices all over the
world (like Cadbury Greenbury and Hampel Committee reports), in 1999, SEBI constituted a
Committee on Corporate Governance under the Chairmanship of Shri Kumar Mangalam
Birla, to promote and raise the standard of Corporate Governance in respect of listed
companies. SEBI’s Board, in its meeting held on January 25, 2000, considered the
recommendations of the Committee and decided to make the amendments to the listing
agreement on February 21, 2000 for incorporating the recommendations of the committee by
inserting a new clause in the Equity Listing Agreement – i.e. Clause 49
3. Clause 49:
3.1. Clause 49 of the Equity Listing Agreement consists of mandatory as well as
nonmandatory provisions. Those which are absolutely essential for corporate governance can
be defined with precision and which can be enforced without any legislative amendments are
classified as mandatory. Others, which are either desirable or which may require change of
laws are classified as non-mandatory. The non-mandatory requirements may be implemented
at the discretion of the company. However, the disclosures of the compliance with mandatory
requirements and adoption (and compliance) / non-adoption of the non-mandatory
requirements shall be made in the section on corporate governance of the Annual Report. Gist
of Cause 49 is as follows:
 Mandatory provisions comprises of the following:
 Composition of Board and its procedure - frequency of meeting, number of
directors, code of conduct for Board of directors and senior
 Audit Committee, its composition, and role
 Provision relating to Subsidiary Companies
 Disclosure to Audit committee, Board and the Shareholders
 CEO/CFO certification o Quarterly report on corporate governance
 Annual compliance certificate
 Non-mandatory provisions consist of the following:

Constitution of Remuneration Committee o Despatch of Half-yearly results
Training of Board members
Peer evaluation of Board members
Whistle Blower policy

Apart from Clause 49 of the Equity Listing Agreement, there are certain other clauses in the
listing agreement, which are protecting the minority share holders and ensuring proper
 Disclosure of Shareholding Pattern
 Maintenance of minimum public shareholding (25%) o Disclosure and publication of
periodical results
 Disclosure of Price Sensitive Information o Disclosure and open offer requirements
under SAST