The Indian Corporate landscape has come a long way. The Liberalization in 1991 paved the way for foreign companies to set up operations in the country. It has been greatly recognized that with the passage of time, the laws evolve; hence, in the same way the regulatory legal framework of companies has also matured. One such topic of debate that has been in great discussion ever since the corporate spectacle has begun is Corporate Governance. Ever since its inception, the prospects of Corporate Governance has been under perennial change and it accounts within the learning which has been procured from different corporate mis-happenings in the past. In simple words, corporate governance can be understood as a set of rules & principles that an organization sets for its efficient functioning. The legislature under different statutes in the last two decades has put in place a very stringent set of regulatory laws for corporate governance. However, a poignant question that arises is how much of those laws are being complied with and whether the regulatory mechanism which is in place right now is good enough to hold the weight of corporate blunders?

In the last two years, we have seen fall of corporate that were considered to be unicorns of the corporate space i.e. Café Coffee Day, Jet Airways & Yes Bank. What went wrong with those companies, which on the face of it looked the sturdiest ones.


India is believed to have one of the most stringent and rigorous Corporate Governance laws in place. Primarily, the following statutes deal with them:


The Companies Act, 2013 was a modest attempt to overcome the shortcomings in the organizational structures and put in place the recommendations of various committees. It also aims to bring in measures to encourage corporate governance in totality. It introduced concepts like Independent Directors, Corporate Social Responsibilities, Audit Committee, Nomination and Remuneration Committee, Related Party Transactions, Small Scale Shareholder and many other prospects to curb the unethical practices within an organization.


The capital markets watchdog, on the recommendations of the KM Birla committee also prescribed guidelines for listed companies, which included inter-alia reporting, reviewing and disclosure requirements[1] 


 Apart from the statutes as discussed above, there are few more additional laws which have been put in place from time to time like Corporate Governance Voluntary Guidelines, 2009; SEBI (Insider Trading) Regulations, 2015; SEBI (Issue of Capital and Disclosures Requirements) Regulations, 2018; Guildeline for CSR expenditure of Central Public Sector Enterprises, 2018. Also, there are authorities in place under different statutes which have been put in place by various legislations i.e. National Company Law Tribunal (Ensuring protection of minority shareholders, oppression and mismanagement); Registrar of Companies; Regional Directors, Competition Commission of India (Checking Anti-Trust Issues) etc. 


There other market specific regulators such as Reserve Bank of India (RBI) for the banks, Insurance Regulatory Development Authority of India for Insurance Companies etc, who prescribe certain voluntary principles and practices to be followed by entities. Further it can be said that the recently enacted law on Insolvency has also given rise to companies and its board to adopt stringent governance practices as the Insolvency Law takes away the Company from the Corporate Debtor in the event of any mis-governance.


India in the recent past has seen the downfall of who were expected to be unicorns of the corporate landscape namely IL&FS, DHFL, Jet Airways, Café Coffee Day and YES Bank among the recent ones. Rumor has it, it is the legislative act that has made business difficult with the introduction of dedicated insolvency law and the tax compliances under the new Indirect Tax regime i.e. GST. However, a compromised adherence of the legislative policies and a lackadaisical approach of corporate governance mechanism cannot be sidelined as reasons for such downfall.


V. Siddhartha who belonged to a family which had a history of growing coffees for more than 140 years took the first movers advantage of opening up the Indian rival of Starbucks. The coffee day at one point had over 200 outlets across the country including some cities in the far waters. Just before the fall of the coffee giant in 2019, it was believed that the world soft drink leader coca cola was in talks to make an investment of 2500 Crores in Indian Coffee space, front runner of which was Café Coffee Day. The coffee chain was not the only business that was being managed by Siddhartha and he had his hands meddled in deep in other sectors as well. In the month of June 2019 the Coffee day founder had sold his Real Estate entity to Blackstone for a sum of Rs.2700 Crores with a hope of reinvigorating his financials. However, despite measures being taken for a relapse, the coffee giant of India failed to revive its financial health .


An airline which was started in the year 1993 by Naresh Goyal, grounded its fleet in the year 2019 at the time when the company had a human resource of 20,000 people. Reportedly, the middle-eastern commercial carrier and parent corporation i.e. Etihad Airways refused to increase its stake in Jet Airways presumably because Naresh Goyal was calling the shots.  In 2018, it is believed that the TATA group pitched an offer when the airline was in deep waters, however, the deal could not materialize since the Mr. Naresh Goyal was not ready to part ways from the board. It is believed that the flamboyance of Naresh Goyal and the compulsive ego of not letting go of the Board drove the plane into choppy waters. [2]


The Bank, which was taken over by the Reserve Bank of India a month back, now stands at the position of sixth largest bank in terms of market cap. What came to be founded as an NBFC in ’99, turned into a fully fledged bank to be known as Yes Bank later in the year 2003. Yes Banks story has just been out of the movies, the battle for supremacy on the board has taken Rana Kapoor to take the bank into the hands of the RBI which had to finally come out with a revival plan. The Bank has been popularly known to say yes to those borrowers who were rejected by all the other lenders and Mr. Rana Kappor was popular to mend holes of a sinking ship in the market. These borrowers have been those entities, which have found themselves entangled in the webs of Money Laundering and Insolvencies. The Banker’s modus operandi of keeping his books clean was to never let go of the borrower and charge an exorbitant upfront fee. Most of these borrowers were defaulters at will, which roped the bank in the mud to eventually meet with the infamous fallout. 



The American bank which was praised for having “a history of avoiding the rest of the industry’s dumbest mistakes” by fortune magazine, is said to have built its success on cultural and economic model that combines deep customer relations and an actively engaged sales culture. Cross-selling literally refers to selling an existing customer a different product. In the year 2013, the scandal was brought to light wherein it was believed that the banks employees were opening up accounts and selling debit & credit cards without the customer’s knowledge, moreover, it was reported that some employees even forged signatures to sell such financial products. The bank later on refunded closed to $2.8million, in fees relating to those accounts and a total of 5300 employees were sacked of having indulged in such practices. The banks practice of setting daily sales targets and setting up of daily sales quotas on the no. of products sold put pressure on the employees and branch managers which resulted in such unauthorized opening up of accounts. In Sep 2016, the bank admitted that its employees, over a span of 5 years had opened as many as 2 million accounts without customer authorization and paid $185 million to settle law suit filed by regulators. The root cause of the scandal, as per the independent investigation report released by the Board of Directors, greatly criticized the banks sales culture. It is also said that Wells Fargo at the time when cross selling was taking place at an unprecedented pace, had its corporate governance mechanism  place i.e. audit committees, risk management etc. However, none of the mechanism countered the unscrupulous practice such as cross selling.


“Making tomorrow a better place” read the strapline of the British multinational construction services company, which was forced into compulsory liquidation in January 2018.  A company that had 450 government projects and operations in UK, Canada and Middle East ran into financial difficulties, which resulted in its failure. Britain’s second largest construction and operations Company had annual revenue of £4.4bn. Its fall put at stake jobs of around 43000 employees and thousands of other suppliers, sub-contractors etc. Carillion, is the British example of misgovernance of a corporate giant. What led to the failure? The company’s liquidity crisis owing to low margins & high debts and the inability of the board to manage potential risks, is one of the many factors. The Financial Reporting Council (FRC) is also looking into Carillion’s auditors (KPMG) conduct since the auditors have not raised any red flag in the preceding years-audit reports relating to the financial health of the company. Shortfall of cash flow from the pension schemes & reliance on new contracts to service the losses incurred on the old ones can be identified as another factors resulting to the fall. The over-optimism of not anticipating a situation where their debts cannot be restructured does not appear to be most prudent conduct.  One of the greatest virtues of corporate governance is to have a balanced debt equity ratio which undergo a monumental change when there is an acquisition/takeover and it also end up changing the entire dynamics of capital structure. However, without a check mechanism in place, even big and established organizations face collapse. 



The Board of the companies which are predominantly occupied and dominated by a set of promoters bypasses any intervention from the independent directors and further decimates the interest of minority shareholders in the company. Moreover, the promoters adventurism compromises the long term goals of  an organization.


When a corporate undergoes a capital restructuring, the principles of corporate governance not only comes at the time of restructuring rather it should govern the very thought of capital restructuring. When a company goes under capital restructuring owing to takeovers or acquisitions, the principles of corporate governance play a significant role. For instance, presence of an independent director on the board will ensure the compliance of laws. It may not out be of place to mention that there would be instances when the takeover/ acquisition might be perpetuated by someone at the board having a dominant position when the debt to equity ratio of a company does not necessarily permit it. It will also defeat the purpose of capital restructuring which is to minimize the cost of capital and maximize the shareholders value.


The book profits are those profits which indicate accrual of inflow of cash. However, book profits can be shown in the books even when the the cash is not received so essentially, if someone is relying upon the book profits to assess the financial health of a company, he might be committing a blunder. It is ideal for someone to have a look at the cash profits as they imply realization of cash and can be only recorded in the book upon receipt of cash. 


Audit Committees in the organizations are responsible for safeguarding the shareholder’s interest in case of a fraudulent financial reporting. An efficient audit committee ensures risk management, internal audit and enhances the overall financial performance of an organization. However, if an internal director heads an audit committee then the chances of corporate governance principles getting compromised  is high.


It is also been seen as a general practice in big corporate house wherein in order to procure huge loans from financial institutions, the promoters pledge their shares with the financial institutions. Such an act primarily jeopardizes the interest of other shareholders who might not be having any say in such decisions. It also highlights an alarming situations as such instances only take place where the board  is apparently dominated by the promoters without  any intervention whatsoever. It stipulates an apparent failure of corporate governance principles.


Coincidentally, this article has been penned down during such a time when the entire world is reeling under a deadly pandemic. With the kind of news coming in, The International Monetary Fund has gone on record to state that the world economy is going under depression which would be worse than what we saw in the year 2008. One would also recall that the existing condition of the world economy had very less to cheer about even prior to this pandemic and what one would have never wanted is a shock like the one we are facing currently. Therefore, the principles of corporate governance will play a significant role to help the organizations around the world to come out from the financial misery. It can also work towards ensuring that no such prejudiced and gratifying shortcuts are taken by any of the organizations to indulge in any of the financial fallacies.  

Recently, there have been instances of corporate failures in India which stipulates not only the miscarriage to effectively implement the corporate governance mechanism but also points out the deliberate lethargy within the   mechanism to curb any personal adventurism. It is a dire need of the hour for the organizations, corporate bodies, individual etc to inculcate corporate governance principles with highest virtues so as to safeguard the interest of the people working in the organization in a nutshell and for the economy of the country in the larger perspective.

(The views expressed in this article are based on personal understanding and interpretation of the author)





Kumar Sumit and Chirag Gupta

(Authors are practicing as advocates in New Delhi)

(The views expressed in this Article are based on personal understanding and interpretation of the Authors.)

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April 2021