Corporate governance is an important element of current business practices and determines how organizations function and interact with stakeholders. It refers to the system of rules, practices, and processes through which a company is directed and controlled. This framework not only prescribes methods for setting and achieving corporate objectives but also keeps track of company performance so as to promote transparency, accountability, and fairness in all its dealings. In the field of corporate law, corporate governance is invaluable because it affects legal obligations, corporate responsibilities, as well as the general integrity of business operations.

Understanding Corporate Governance:

Corporate governance is about the relationship that exists among a company's management, board, stockholders as well as its other stakeholders. It creates a framework for setting corporate aims, achieving them, and assessing results. The principal objective of corporate governance is to guarantee that corporations work in favor of their shareholders and all other stake holders so as to promote growth which is sustainable in the long-run.

Typically, the governance structure of any organization includes management, shareholders, board of directors and various other stakeholders. The board is responsible for supervising the management and making sure that the organization complies with the laid down policies and procedures while aligning itself with both legal and moral acts.

Key Components of Corporate Governance:

Board of Directors:

• Composition and Independence: All boards should have a minimum of 3 directors for public companies, 2 for privately held firms, and just 1 for single member organizations, with a maximum of fifteen. At least one of the directors should be an Indian national, and listed firms should have at least one female director on their board, as well as one third of its members being independent.
• Independent Directors: These individuals must not possess or maintain any significant financial or personal ties with the company so that they do not interfere in objective management supervision.

Board Committees:

• Audit Committee: Supervises reporting and disclosing financial data. Ensures that financial statements are accurate, constitute an honest representation of the company's performance, comply with accounting regulations, and are provided with sufficient coverage.
• Serious Fraud Investigation Office (SFIO): According to Section 211 (1) of the Companies Act, 2013, companies shall set up an office known as the Serious Fraud Investigation Office for investigating frauds related to the company. SFIO is given powers under this act to investigate into the affairs of a company either himself or upon receipt of a report from the registrar or inspector, in public interest, or upon request from any department in central or state government.
• Nominating Committee: Responsible for identifying candidates for positions on the board of directors and making recommendations about them. It ensures that only competent individuals with sufficient expertise, who can maintain independence from management, are on its panel.

Shareholders and Stakeholders:

• Shareholder Rights: Shareholders have the right to vote on important issues such as electing directors, approving mergers and acquisitions, and making changes to the company's articles of incorporation. They also have the right to dividends and access to the company's financial records, which keeps them informed of its performance and governance.
• Minority Shareholder Protection: Minority shareholders with less than 50% ownership of a corporation still enjoy significant rights. They can voice their opinions on decisions affecting the firm, hold directors and officers liable for their actions, and seek justice if their rights are threatened. Protecting minority shareholders is crucial for ensuring equity and avoiding oppression by majority stockholders.

Disclosure and Transparency:

• Financial Reporting: Reports that provide users with information on the financial health of the company as well as its performance over a specific period of time include the balance sheet, income statement, and cash flow statement.

Accounting Standards are defined as those norms governing financial reporting like, Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Therefore, there is uniformity, comparability and dependability of financial statements across companies and across borders.

In contrast, non-financial disclosure includes Environmental, Social and Governance (ESG) Practices which consists of one of the aspects covered by this sort of information when companies disclose their non-financial reports which lean towards environmental sustainability (the green bit), social responsibility (the caring part) and good governance (the fair bit). Company's ESG disclosures also portray the surroundings on which they operate hence making people realize how much they contribute to society or meld into it, depending on its ethical conduct and delivery.

Corporate Governance vis-à-vis Companies Act, 2013

The Companies Act, 2013 was one of the prominent markers in the line of development of corporate governance in India. It was laid down by Rajya Sabha on August 8, 2013 and received Presidential assent on August 29, 2013 which replaced Companies Act of 1956 that had been in force for 57 years. This new piece of legislation aimed at converging Indian corporate governance practices with global standards by improving transparency and accountability among managers.

The revolutionizing reforms undertaken by Companies Act, 2013 on corporate governance spectrum include introducing a more transparent as well as simplified regulation with special focus on minority shareholders' interests. Among major dealings in this Act is given priority to enhance mechanism for corporate governance particularly through increasing participation of independent directors in board operations. Here, these directors are expected to improve over sight on functioning boards so that all influences detrimental to interest of other external ones are avoided and ethical trade practices promoted.

In addition, it enhances whistle-blower protection thereby making a statement about accountability and ethical behavior in corporations.This was aimed at giving employees and other stakeholders an opportunity to report any acts of misconduct or illegality free from fear thus maintaining organizational integrity.

Significant Reforms Under the Companies Act, 2013

• Board Composition:
  • Number of Directors: In accordance with Companies Act 2013, the minimum number of directors required for a company depends on its type:
    • A One Person Company (OPC) should have at least one director.
    • The Companies Act, 2013 specifies that the maximum number of directors a company can have is 15. This is a shift from Companies Act, 1956 which allowed companies to determine their maximum number of directors through articles of association.
    • Unlike Companies Act, 1956 where public companies needed to get Central Government's approval to increase the number of directors beyond twelve, Companies Act, 2013 allows them to appoint more than fifteen directors by passing a special resolution, simplifying the board expansion process.
• Independent Directors:
  • Independent directors must be appointed by listed companies according to Companies Act, 2013, which builds on the previous Listing Agreement's requirements.
    • As per the Listing Agreement, independent directors were required based on the chairman of the board. If the chairman was a non-executive director, then a minimum of one-third of its members must be independent. If the chairman was an executive director, then 50% or more members should be independent.
    • Companies Act, 2013 insists that even companies that are not publicly quoted need objectivity and fairness in making decisions at their boards.
• Independent Directors' Qualification Standards:
  • Integrity coupled with relevant expertise and experience should characterize an independent director. The person in question should neither be nor have ever been a promoter of the company or associated with its promoters or directors.
  • Additionally, during any two preceding financial years before the current fiscal year, there should not be any pecuniary relationship between them and the firm, any of their holding companies, subsidiaries or affiliates, as well as their promoters and board members.
• Women Directors:
  • Under the board structure of Companies Act, 2013, listed companies and other public companies are required to have at least one woman director. This rule applies to firms formed under this Act within six months after their formation.
  • Under Companies Act, 1956, companies were required to comply within one year from when the act commenced.

Therefore, Companies Act 2013 aims at improving corporate governance, advocating for diversity in company boards and integrating independent members into company boards.

Judicial Pronouncements on Corporate Governance:

1. Satyam Scandal, 2009 (Securities and Exchange Board of India (SEBI) v. Satyam Computer Services Ltd.)
   This case involved one of India's largest corporate frauds, where the chairman of Satyam Computers, Ramalinga Raju, confessed to inflating the company's financial statements by over $1 billion. The scandal exposed severe lapses in corporate governance, particularly in audit practices, board oversight, and internal controls.
   
   The Satyam scandal led to the introduction of stricter corporate governance norms, including the appointment of independent directors, improved transparency, and enhanced accountability measures. It also accelerated the implementation of the Companies Act, 2013, which introduced comprehensive reforms in corporate governance.
    
2. Tata-Mistry Case,2016 (Tata Consultancy Services Limited vs Cyrus Investments Pvt Ltd)
   This case revolved around the ousting of Cyrus Mistry as the Chairman of Tata Sons by the board. Mistry challenged his removal, alleging oppression and mismanagement under Section 241 of the Companies Act, 2013. The case highlighted issues of boardroom power dynamics, the role of independent directors, and the rights of minority shareholders.
   
   The case underscored the importance of transparency in board decisions and the protection of minority shareholder rights. It also brought to light the need for clear governance structures in family-run businesses and conglomerates.
    
3. Saurashtra Cement Ltd. And Anr. vs Union Of India, (2007)2GLR1384
   In the case of Saurashtra Cement Ltd. & Anr. vs Union of India, a series of writ petitions were filed before the Gujarat High Court which the court dismissed. While passing the order of dismissal, the court had not granted interest on the amounts which were involved in those petitions. However, the court in one such case granted the payment of interest at the rate of 18% per year, which was on the higher side.
   
   Later, other petitioners requested that the court revisit its earlier decision, and it likewise granted them an extension of the 18% interest rate. The companies manifested their belief that such interest was inordinate by appealing such order.
   
   When the case reached the High Court, the justices agreed that 18% was unreasonable and ordered the interest rate to be 9% per year.
   This case underscores the necessity for equitable and open decision-making in corporate governance. Ideal corporate governance guarantees that enterprises prioritize the welfare of all stakeholders, including investors, personnel, as well as society.
   
   The court's original ruling to put a high-interest rate was unfair to firms and might thus have adverse effect on their fiscal well-being; which ultimately affect their owners and workers.The Supreme Court therefore lowered the interest rate demonstrating that balanced and rational decisions must be made in line with corporate governance principles
    
4. Vodafone International Holdings By v. Union Of India, (2012) 6 SCC 613:
   The Vodafone International Holdings B.V. v. Union of India case concerns Vodafone's 2007 acquisition of a 67% stake in Hutchison Essar, an Indian telecom firm, through an offshore deal. Indian tax authorities sought capital gains tax on the transaction, but Vodafone argued it was not taxable under Indian law.
   
   The Supreme Court ruled in 2012 that the deal was not subject to Indian tax laws due to its offshore nature. Later, the Indian government introduced retrospective tax amendments, leading to further controversy.The retrospective tax changes demonstrated how sudden regulatory shifts can affect investor confidence and stability, emphasizing the need for a predictable legal environment in corporate governance.
    

Significance of Ethical Corporate Governance

Ethical corporate governance minimizes fraudulent activities and ensures the accountability of a firm. Good governance ensures that an appropriate governance structure comprises of directors, management, and employees who work within the legal and ethical boundaries that protect the rights and interests of its shareholders and stakeholders. Good governance instills confidence in investors through the transparency of operations and includes internal controls that minimize risks in the future.

In this regard, Companies Act 2013 concentrates on ethical governance where every director and key management personnel is made responsible for unlawful act.

Conclusion
It follows, therefore, from above that it is of essence that good governance practices must be effectively implemented and enforced preferably by self-regulation and voluntary adoption of ethical code of business conduct and if necessary through relevant regulatory laws and rules framed by Govern­ment or its agencies such as SFBI, RBI.

Further, in the context of liberalization and globalization there is growing realization in the emerging economies including India that a country's business environment must be maintained and operated in a manner that is conducive to investors' confidence so that both domestic and foreign investors are induced to make adequate investment in corporate companies. In essence good corporate governance forms the bedrock for successful and sustainable business, upon which trust and accountability, and long-term prosperity is founded in an ever-increasingly complicated global marketplace.

References:

1. Satyam Scandal, 2009 (Securities and Exchange Board of India (SEBI) v. Satyam Computer Services Ltd.)
2. Tata-Mistry Case, 2016 (Tata Consultancy Services Limited v Cyrus Investments Pvt Ltd)
3. Saurashtra Cement Ltd. And Anr. vs Union Of India, (2007) 2 GLR 1384
4. Vodafone International Holdings By v. Union Of India, (2012) 6 SCC 613
5. Companies Act, 2013
6. Securities and Exchange Board of India (SEBI) Regulations