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Library - Codes and Rules - India



  1. Laws
  2. Accounting Standards
  3. Listing Rules
  4. Official Codes and Guidelines
  5. Private Codes and Guidelines
  6. Policy Committees

1. Laws

Companies Bill 2008
On October 23, 2008, the Minister for Corporate Affairs introduced the new Companies Bill 2008 into Parliament. The new bill, if passed, will replace the Companies Act 1956, and modernise the structure for corporate regulation in India, according to the government. In its press release, the government stated: "The Companies Bill, 2008 seeks to enable the corporate sector in India to operate in a regulatory environment of best international practices that foster entrepreneurship, investment and growth". A number of corporate governance improvements are also being proposed in the new bill, including allowing for board meetings to be conducted via video conferencing and recognising votes cast through email.

The Companies (Amendment) Bill, 2003
The Department of Company Affairs (DCA)* has amended the Companies Act, 1956** several times in recent years to improve corporate governance and modernise India’s company law. In 1999, it introduced provisions relating to “nomination facilities for shareholders” while further amendments in 2000 covered postal ballots and audit committees. A committee was set up in 2002 to take a fresh look at the Companies Bill, 1997 -- a comprehensive revision of the 1956 Act that had been pending in parliament for several years -- and suggest further changes. A report was submitted by the committee in September 2002.

On December 2, 2004, the Government constituted an Expert Committee on Company Law under the Chairmanship of Dr. J.J. Irani to make recommendations on a number of issues concerning the Company Law. Dr. Irani presented the report on May 31, 2005. (See below) Amendments to the Law are still pending.

For more details on all these developments, go to the MCA website.

*The Department of Company Affairs (DCA) is now known as the Ministry of Company Affairs.
**Note: The full text of The Companies Act, 1956 can be found under Acts on the MCA website and is provided in two parts.

Securities Law
Two Acts mainly govern the securities transactions in India: The Securities Contract (Regulations) Act, 1956; and The Securities and Exchange Board of India (SEBI) Act, 1992. The Securities Contract Act originally kept a watch on all the Indian Stock Exchanges and was administered by the Central Government but with the SEBI Act coming into effect in 1992, administration of the Act came under the Securities and Exchange Board of India (SEBI). A number of amendments have been enacted since then, with the latest one in 2002.

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2. Accounting Standards

Accounting & Auditing Standards
The accounting and auditing standards, including interpretations of the the accounting standards and recent opinions of expert advisory, are provided on this page.

Prime Minister Manmohan Singh said in March 18, 2006 that the government will introduce a new Company Law that includes aligning Indian accounting standards with International Financial Reporting Standards (IFRSs).

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3. Listing Rules

Amendments to the Equity Listing Agreement

On September 4, 2008, SEBI issued amendments to clauses 16, 19, 24 and 41 of the Equity Listing Agreement. The highlights of the amendments were:

  • In order to safeguard the interest of shareholders, the listed company as well as the unlisted company which are getting merged shall each be required to appoint an independent merchant banker for giving a fairness opinion on the valuation done by valuers. Further, the “Fairness opinion” of the merchant bankers shall be made available to the shareholders at the time of approving the resolution under Clause 24.
  • In order to bring more efficiency in the disclosures of financial results, certain amendments have been made with regard to timeline for submitting consolidated financial results to the stock exchange, publication thereof, and submission and placing of limited review reports before Board/Committee.

Clause 41 Amendment of the Listing Agreement

On July 10, 2007, SEBI issued an amendment to Clause 41 of the listing agreement, which deals with quarterly reporting. SEBI has now made it optional for companies to either present an unaudited or audited quarterly result and year to date financial results to the Stock Exchange within one month from the end of each quarter. If the option is for an unaudited result, then the results will be subject to a limited review, and the report will have to be submitted to the Stock Exchange two months from the end of the quarter.

Clarification on Revised Clause 49 (January 2006)
In January, the Securities and Exchange Board of India (SEBI), the main securities market regulator, issued a clarification on "Clause 49", the section of the Listing Agreement relating to corporate governance. SEBI said that henceforth:

  • The maximum time gap between board meetings of a listed company could be increased from three to four months;
  • Sitting fees paid to non-executive directors would not require the previous approval of shareholders; and
  • Certification of internal controls and internal control systems by CEOs and CFOs would cover financial reporting only. Previous versions of Clause 49 did not make clear what the certification was intended to cover.

These clarifications follow significant revisions made to Clause 49 by SEBI in October 2004. Those changes included a tighter definition of independent directors, enhanced responsibilities for audit committees, and a requirement that boards adopt a formal code of conduct. SEBI originally set April 2005 as the date for full compliance, but extended this to December 31, 2005 after pressure from companies.

Revised Clause 49 (March 2005)
In October 2004, the Securities and Exchange Board of India (SEBI) published a revised Clause 49 of the Listing Agreement relating to corporate governance, setting forth a schedule for newly listing companies and listed companies to comply with the revisions. However, in March 2005, SEBI extended the date set for compliance with these new provisions to December 31, 2005, since a large number of companies were unprepared to fully implement the changes. Major changes in the clause include amendments/additions to provisions relating to definition of independent directors, strengthening the responsibilities of audit committees, and requiring Boards to adopt a formal code of conduct.

Clause 49 (February 2000)
In February 2000, the Securities and Exchange Board of India (SEBI) revised its Listing Agreement to incorporate the recommendations of the country’s new code on corporate governance, produced in late 1999 by the Birla Committee. These rules—contained in a new section, Clause 49, of the Listing Agreement—took effect in phases over 2000-2003.

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4. Official Codes and Guidelines

National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business (July 12, 2011)
On July 12, the Ministry of Corporate Affairs published the "National Voluntary Guidelines for the Social, Environmental and Economic Responsibilities of Business", which are a refinement on the earlier "Corporate Social Responsibility Voluntary Guidelines 2009". They are designed for all businesses irrespective of size, sector or location.

The guidelines have 9 basic principles, including:

  • Businesses should conduct and govern themselves with Ethics, Transparency and Accountability;
  • Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle;
  • Businesses should promote the well-being of all employees;
  • Businesses should respect the interests of, and be responsible towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised;
  • Businesses should respect and promote human rights;
  • Business should respect, protect, and make efforts to restore the environment;
  • Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner;
  • Businesses should support inclusive growth and equitable development;
  • Businesses should engage with and provide value to their customers and consumers in a responsible manner.

Corporate Governance Voluntary Guidelines 2009 (December 24, 2009)
On December 24, the Ministry of Corporate Affairs (MCA) published the "Corporate Governance Voluntary Guidelines 2009". While the Ministry sought recommendations from a number of parties for these Guidelines, they are based mainly on recommendations from two reports: the Naresh Chandra-Confederation of Indian Industry (CII) corporate governance task force report, and the "ICSI (Institute of Company Secretaries India) Recommendations to Strengthen Corporate Governance Framework".

The six issues the Guidelines cover are:

  • Board of directors;
  • Responsibilities of the board;
  • Audit committee of the board;
  • Auditors;
  • Secretarial audit; and
  • Institution of mechanism for whistle blowing.

The Ministry has stated that it will visit the Guidelines again in a year after it receives feedback from various quarters.

Guidelines on Corporate Governance for Central Public Sector Enterprises 2007 (June 2007)
Reform of central public sector enterprises (CPSEs) is high on the Indian government’s agenda as they are essential in “employment generation and as an important source of R& D in our industrial sector”. Strong PSEs, the government believes, would be better prepared to enter the capital market to raise funds, which means practices must be in place to ensure accountability. The push by the government has resulted in these guidelines issued by the Department of Public Enterprises in June 2007.

The main issues these guidelines cover are:

  • Board of Directors
  • Setting up of Audit Committees and its roles and powers
  • Issues relating to subsidiary companies
  • Disclosures
  • Accounting Standards
  • Risk Management

Even though the guidelines are voluntary, all CPSEs, both listed and non-listed, are meant to follow them, with compliance of these guidelines to be referred to in the Directors’ report, Annual report and the chairman’s speech during the Annual General Meeting. The Department will grade the companies on the basis of their compliance with the guidelines.

Issued on an experimental basis for a year, they will be revised “in the light of experience gained”.

Enhanced Disclosure and Investor Protection Guidelines (November 2002)
In late 2002, the Malegam Committee, a standing committee of the Securities and Exchange Board of India (SEBI) under the chairmanship of Shri Y H Malegam, Managing Partner of S.B.Billimoria & Company, produced a series of 18 recommendations for enhancing disclosure and investor-protection requirements in offer documents for public listings and rights issues. As a result, the SEBI (Disclosure and Investor Protection) Guidelines, 2000 were amended.

National Code on Corporate Governance (1999)
In late 1999, a government-appointed committee under the leadership of Shri Kumar Mangalam Birla, Chairman, Aditya Birla Group, released a draft of India’s first national code on corporate governance for listed companies. The committee’s recommendations, many of which were mandatory, were closely aligned to international best practices on corporate governance—and set higher standards than most other parts of the region at that time. The code was approved by the Securities and Exchange Board of India (SEBI) in early 2000 and was implemented in stages over the following two years (applying first to newly listed and large companies). It also led to changes in the stock exchange listing rules.

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5. Private Codes and Guidelines

CII Code on Corporate Governance (April 1998)

In April 1998, India produced the first substantial code of best practice on corporate governance after the start of the Asian financial crisis in mid-1997. Titled "Desirable Corporate Governance: A Code", this document was written not by the government, but by the Confederation of Indian Industries (CII).

CII began working on this document prior to the financial crisis. It is one of the few codes in Asia that explicitly discusses domestic corporate governance problems and seeks to apply best-practice ideas to their solution. Most codes are abstract statements of principle with equally general recommendations, and say little about local conditions.

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6. Policy Committees

Expert Group Headed by Justice M H Kania (former chief justice of India) for Suggesting Amendments to SEBI Act, 1992 (July 2005)

The SEBI Act 1992 has been amended three times, in 1995, 1999 and 2002 to reflect the changes and developments in the securities market. However, it was felt more was needed to be done to remove any ambiguities that exist and to bring the ACT in line with IOSCO, the World Bank and the IMF's benchmark Financial Services Assessment Programme (FSAP) standards. An internal group consisting of SEBI senior officers proposed amendments to the SEBI Act to achieve this, and in 2004 the SEBI Board formed an expert group under Justice M H Kania, former chief justice of India, to study the proposals. One of the proposals studied was the consolidation of existing securities laws into one Act along the lines of the Financial Services and Market Act, 2000 of the UK.

The committee, consisting of relevant stakeholders, produced its final report in July 2005. Some key recommendations included establishing a separate investor protection to promote investor education and awareness and to compensate small investors who are victims of among other things fraud, adding a provision that ensures monies or securities that clients have with an intermediary be held in the form of a trust, which could not be attached or seized by any authority. However, it fell short of endorsing the consolidation of securities laws, instead stating that the Central Government should make the decision through a policy statement. All its recommendations were approved by SEBI in March 2006 and the report has been forwarded to the Law Ministry.

Expert Committee on Company Law (May 2005)
In December, 2004, the Ministry of Company Affairs set up the Expert Committee under the Chairmanship of Dr. J. J. Irani, Director, Tata Sons, to advise the Government on proposed revisions to the Companies Act, 1965. The Government wanted "to have a simplified compact law that will be able to address the changes taking place in the national and international scenario, enable adoption of internationally accepted best practices as well as provide adequate flexibility for timely evolution of new arrangements in response to the requirements of ever-changing business models".

Prior to the setting up of the Committee, a Concept Paper was produced in-house by the Ministry of Company Affairs and put up on its website. Interested parties then gave their feedback, and it was this Paper with the suggestions from a number of organisations, professional bodies and individuals which was given to the Committee to deliberate on, with the proviso "not to feel constrained or limited by the concept paper or feedback".

The Expert Committee consisted of 13 members and 6 special invitees. They included members from trade and industry, chambers of commerce, professional institutes, representatives of Banks and lawyers, while Government Ministries and regulatory bodies concerned with the subject were represented through special invitees.

Murthy Committee on Corporate Governance (February 2003)
In late 2002, the Securities and Exchange Board of India (SEBI), in response to rapidly evolving international standards and corporate collapses in the US and elsewhere, formed a new committee to "evaluate the adequacy of existing corporate governance practices and further improve these practices". Chaired by Shri N.R Narayana Murthy, Chairman and Chief Mentor of Infosys, the committee examined a range of issues relating to audit committees and reports, independent directors, related party transactions, risk management, director compensation, codes of conduct and financial disclosure. It then made a series of recommendations that aim to encourage companies to follow the substance, not just the form, of good governance. The committee's report was released on February 8, 2003. The intention is to incorporate its main recommendations into SEBI's Listing Agreement.

Given the overlap with the Naresh Chandra Committee formed by the then Department of Company Affairs in August 2002 (see item below), the Murthy Committee suggested that the mandatory recommendations of the Chandra Committee, as they relate to corporate governance, should also be incorporated into SEBI's Listing Agreement.

Chandra Committee on Auditing and Governance (2002)
Following the collapse of Enron in 2001 and the passing of the Sarbanes-Oxley Act in July 2002, the then Department of Company Affairs (DCA) formed a high-level committee in August 2002 to undertake a wide-ranging examination of corporate auditing and independent directors. Chaired by Shri Naresh Chandra, a former Cabinet secretary, the committee produced a report in late 2002 that made a series of strong recommendations regarding such things as the grounds for disqualifying auditors from assignments, the type of non-audit services that auditors should be prohibited from performing, the need for compulsory rotation of audit partners (but not firms), a stricter definition of "independent director" and the need for independent directors to make up no less than 50% of boards. While the committee was clearly influenced by Sarbanes-Oxley, it did not follow its dictates slavishly. We have provided a link to an executive summary of the Chandra report.

Task Force on Corporate Excellence (November 2000)
In May 2000, the then Department of Company Affairs (DCA) formed a broad-based study group under the chairmanship of Dr. P.L. Sanjeev Reddy, Chairman, DCA. The group was given the ambitious task of examining ways to "operationalise the concept of corporate excellence on a sustained basis", so as to "sharpen India's global competitive edge and to further develop corporate culture in the country". In November 2000, a task force set up by the group produced a report containing a range of recommendations for raising governance standards among all companies in India. It also suggested the setting up of a Centre for Corporate Excellence.

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