Corporate Governance in India 2026: Board Compliance Guide

TL;DR Summary:
Corporate governance in India is governed by the Companies Act, 2013 and SEBI LODR Regulations, 2015. Listed companies face stricter requirements, and where both frameworks apply, the stricter provision prevails. Board composition rules mandate independent directors based on your company type and listing status. Qualifying companies must constitute an audit committee with a majority of independent members. All RPTs need prior audit committee approval; material RPTs require shareholder approval as well. Non-compliance attracts penalties from MCA, SEBI, or both.CA firms help companies stay compliant year-round.

Corporate governance in India is a regulatory requirement with serious consequences for non-compliance. The Companies Act, 2013 and SEBI’s LODR Regulations, 2015 together set a detailed framework that every qualifying company must follow.

This blog covers the key requirements: board composition and independent director rules, audit committee mandates, related party transaction compliance. Also, understand how CA firms help companies build governance frameworks that hold up to scrutiny.

What is Corporate Governance and Why It Matters

Corporate governance in India is the operating system for how companies are directed and controlled.

It defines who makes decisions, who is accountable for them, and how the interests of shareholders, creditors, employees, and regulators are balanced within a legal framework.

Here is what corporate governance actually does for a company:

Sets decision-making rules: Who approves what, when, and how
Defines accountability: Who answers for results and failures
Protects stakeholder interests: Shareholders, employees, creditors, and the public
Prevents misuse of power: Separating personal interests from corporate funds

Poor governance doesn’t always show up immediately. But when it does, the consequences are significant: regulatory penalties, loss of investor confidence, litigation, or worse.

Strong corporate governance compliance in India is a strategic asset.Companies with mature governance frameworks see: faster transaction execution, higher valuation multiples , and sustained stakeholder confidence

They raise capital more easily. They attract better talent. They survive leadership transitions without chaos.

Who it applies to:

Company Type	Applicable Framework
Listed companies	Companies Act, 2013 + SEBI LODR, 2015
Unlisted public companies	Companies Act, 2013
Private limited companies	Companies Act, 2013 (select provisions)
Large unlisted companies (paid-up capital ≥ ₹10 crore or turnover ≥ ₹100 crore)	Additional disclosures under Companies Act

The scale and type of your governance obligations depend on your company’s size, listing status, and sector. But the core principles: transparency, accountability, fairness, and compliance, apply across the board.

At PKC, we help businesses build their foundation with mature governance frameworks. We work with companies at every stage, from startups establishing their first governance structures to established businesses strengthening compliance.

Regulatory Framework: Companies Act and SEBI

Two laws govern corporate governance in India: The Companies Act, 2013 applies to every registered company. SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 apply only to listed companies.

You need to know both.

The Companies Act, 2013: The Foundation

The Act contains provisions for strengthening corporate governance and transparency in company management .

It establishes accountability through three levels: Key Managerial Personnel (KMP), Board of directors, and shareholders.

Here is what the Act requires from every company:

Maintain books of account, returns, and registers at registered offices
Comply with applicable accounting standards
Forward general meeting notices with explanatory statements for shareholder decision-making
File documents, resolution copies, and returns with the Registrar
Disclose risk management, financial statements, and annual returns in the Board’s report

Section 166(2) of the Act introduced the pluralistic approach. Directors owe fiduciary duties to stakeholders. This means your board cannot ignore employees, creditors, or the community when making decisions.

The Act also includes Sections to address oppression and mismanagement. You should know that oppression includes visible departure from fair play, unjust or harsh burden on complaining shareholders, or lack of probity and fair dealing .

If controlling shareholders or directors act unfairly toward minority shareholders, the Tribunal can intervene.

SEBI LODR: The Stricter Standard

SEBI framed the LODR Regulations in 2015 replaced older listing agreements and created a uniform framework for all listed entities.

The regulations rest on 6 core principles:

Principle	What It Means For You
Shareholder rights	Facilitate voting, protect minority shareholders, address grievances
Timely information	Disclose meeting dates, agendas, and capital structures before investors acquire shares
Equitable treatment	Same rules for all shareholders of same class, prevent insider trading
Stakeholder role	Respect stakeholder rights, maintain whistleblower policy
Disclosure	Minutes must record dissenting opinions
Board responsibility	Monitor conflicts, ensure audit integrity, challenge management assumptions

The LODR Regulations impose specific filing requirements:

Regulation 7(3): Compliance certificate for share transfer facility, within one month of each half-year end
Regulation 13(3): Statement of investor complaints, within 21 days of each quarter end
Regulation 27(2): Corporate governance compliance report, within 21 days of each quarter end

The Companies Act remains the baseline, SEBI LODR builds on top of it. If you are a listed company, both apply. If you are unlisted, the Act alone governs you, but many investors will expect LODR-equivalent standards anyway.

Board Composition and Independent Director Rules

Your board’s composition determines how decisions get made and who checks whom. Indian law sets specific numbers, ratios, and independence criteria you must comply with.

Minimum Board Requirements Under The Companies Act

Every company must have a minimum number of directors based on its type:

Private limited company: minimum 2 directors
Public limited company: minimum 3 directors
One Person Company: 1 director

The maximum is 15 directors for any company, extendable beyond 15 by passing a special resolution.

At least one director must be a resident in India, defined as a person who has stayed in India for at least 182 days in the previous calendar year.

Independent Directors: Who Needs Them And How Many

Independent directors are required for:

Company Type	Independent Directors Required?	How Many?
Listed Public Company	Yes	1/3 of total board
Unlisted Public Company (₹10cr+ capital)	Yes	2 directors
Unlisted Public Company (₹100cr+ turnover)	Yes	2 directors
Unlisted Public Company (₹50cr+ loans/deposits)	Yes	2 directors
Private Company	No	Not mandatory (unless CSR committee needed)

For listed companies, SEBI LODR sets the following:

At least one-third of the board must be independent directors where the chairperson is a non-executive director
At least half the board must be independent directors where the chairperson is an executive director or promoter

Additionally, the top 1,000 listed companies by market capitalisation must have at least one independent woman director on the board.

Who Qualifies as an Independent Director:

Section 149(6) of the Companies Act lays out the eligibility criteria. An independent director must:

Not be a promoter or related to promoters or directors of the company
Not have a material pecuniary relationship with the company during the last two financial years
Not be or have been an employee, partner, or executive of the statutory auditor in the last three years
Not hold more than 2% of the total voting power in the company
Not be a CEO, MD, or whole-time director of any other company where any of the company’s directors is a non-executive director

SEBI added further conditions under LODR, including that a person cannot be considered independent if they are a nominee director of any financial institution.

Additionally, a person cannot be considered independent if they are part of the promoter group of any listed entity in which any director of the company is also a director.

Tenure and Term Limits:

An independent director can serve for a maximum of 2 consecutive terms of five years each.

After completing 2 terms, a cooling-off period of 3 years is mandatory before reappointment to the same company.

The Data Bank Requirement:

From 2019, individuals wishing to be appointed as independent directors must register with the Independent Directors Data Bank maintained by the Indian Institute of Corporate Affairs (IICA).

They must also pass an online proficiency self-assessment test within 2 years of registration. This is a hard requirement, non-compliance renders the appointment invalid.

Audit Committee: Mandate and Responsibilities

The audit committee is one of the most consequential governance structures a company can have or fail to have.

When it functions well, it acts as the primary oversight mechanism between management, auditors, and the board. When treated as a formality, it becomes the first place regulators look when things go wrong.

Who Must Constitute an Audit Committee

Under Section 177 of the Companies Act, 2013, the following companies are required to constitute an audit committee:

Every listed company
All public companies with paid-up share capital of ₹10 crore or more
All public companies with turnover of ₹100 crore or more
All public companies with aggregate outstanding loans, debentures, and deposits exceeding ₹50 crore

Composition Requirements:

Requirement	Companies Act, 2013	SEBI LODR, 2015
Minimum members	3 directors	3 directors
Independent director majority	Majority must be independent	Minimum ⅔ rd must be independent
Chairperson	Must be an independent director	Must be an independent director; must be present at AGM
Financial literacy	Majority must be financially literate	All members must be financially literate; at least one must have accounting or financial management expertise

All audit committee members must be financially literate, meaning they can read and understand basic financial statements. At least one member must have expertise in accounting or financial management.

Mandate And Scope Of Responsibilities Of Audit Committee

The audit committee’s responsibilities span financial oversight, auditor oversight, and internal controls. Under both the Companies Act and LODR, its core functions include:

Reviewing the company’s financial statements and auditor’s report before submission to the board
Recommending the appointment, reappointment, and removal of statutory auditors, and fixing their remuneration
Reviewing and approving related party transactions, both individual transactions and the overall RPT(Related Party Transaction) policy
Overseeing the internal audit function: approving the appointment of the internal auditor, reviewing internal audit reports, and assessing the adequacy of internal controls
Scrutinising inter-corporate loans and investments
Evaluating the functioning of the whistle-blower mechanism
Reviewing management discussion and analysis of financial conditions
Reviewing statement of significant related party transactions submitted by management

Under LODR, the audit committee also has oversight over financial statements of subsidiaries and must review the utilisation of loans or advances from the company to subsidiaries.

Meetings and Quorum:

The audit committee must meet at least 4 times a year, with a maximum gap of 120 days between two consecutive meetings.

The quorum for a meeting is 2 members or ⅓ rd of total members, whichever is higher, with at least 2 independent directors present.

The statutory auditor, internal auditor, and chief financial officer are usually invited to attend meetings. They are not members but are present to respond to committee queries.

Pre-approval of Auditor Services:

One area where audit committees often fall short is the pre-approval of non-audit services rendered by the statutory auditor.

Both the Companies Act and SEBI require that any non-audit services: consulting, tax advisory, certifications, provided by the statutory auditor to the company must be pre-approved by the audit committee.

This is a conflict-of-interest safeguard, and SEBI has flagged instances where it was not followed.

Related Party Transactions: Compliance Requirements

Related party transactions or RPTs are among the most scrutinised areas of corporate governance in India.

The concern is, when a company transacts with an entity connected to its promoters, directors, or key managerial personnel, there is an inherent risk that the terms may favour the related party rather than the company and its shareholders.

Regulators do not prohibit RPTs, they require that such transactions are identified correctly, approved through the right process, and disclosed transparently.

Who Qualifies as a Related Party:

Under the Companies Act, 2013, a related party includes:

Directors and their relatives
Key Managerial Personnel (KMP) and their relatives
Firms in which a director or KMP is a partner
Private companies in which a director or KMP is a member or director
Public companies in which a director or KMP holds more than 2% of paid-up share capital
Holding, subsidiary, and associate companies
Any body corporate whose board is accustomed to act on the directions of the company’s directors

SEBI LODR expanded this definition for listed companies. It now includes any person or entity that is part of the promoter or promoter group, and any person who has the ability to exercise significant influence over the listed entity.

Subsidiaries of the listed entity and entities in which the listed entity has significant influence are also covered. This broader definition came into effect following SEBI’s 2022 amendments.

What Transactions Require Approval:

Under Section 188 of the Companies Act, board approval is required for RPTs involving:

Sale, purchase, or supply of goods or materials
Sale or purchase of property
Leasing of property
Availing or rendering of services
Appointment to an office or place of profit
Underwriting of securities

Shareholder approval through an ordinary resolution is required where the transaction value crosses prescribed thresholds: for example, sale or purchase of goods exceeding 10% of turnover or ₹100 crore, whichever is lower.

Under SEBI LODR, all RPTs require prior approval of the audit committee. Transactions that are material require shareholder approval as well.

Materiality Threshold Under LODR:

SEBI revised the materiality threshold in 2022. A transaction is considered material if it individually or taken together with previous transactions during a financial year exceeds:

10% of the annual consolidated turnover of the listed entity as per the last audited financial statements

This replaced the earlier dual threshold (10% of turnover or ₹1,000 crore). The current single threshold applies uniformly and has brought a larger number of transactions under the shareholder approval requirement.

Shareholder approval for material RPTs requires a resolution where related parties are not permitted to vote, whether they hold shares as promoters or in any other capacity.

The RPT Policy

Every listed company is required to have a board-approved RPT policy. This policy must define:

Process for identifying related parties and related party transactions
Materiality threshold applied by the company
Approval matrix: which transactions go to the audit committee, which go to the board, and which require shareholder approval
Review and monitoring mechanism

The policy must be disclosed on the company’s website and reviewed periodically.

SEBI’s 2022 amendments also require that the policy cover transactions of subsidiaries with related parties of the listed entity, an area that was frequently used to route transactions outside the approval framework.

Omnibus Approval:

The audit committee may grant omnibus approval for RPTs that are repetitive in nature.

For example, ongoing purchase or supply arrangements with group companies. Omnibus approvals are subject to conditions:

The approval must specify the maximum value of transactions
It is valid for one financial year only and must be renewed annually
Transactions that are unforeseen at the time of omnibus approval must come back to the audit committee individually
The audit committee must review a statement of actual RPTs against omnibus approvals at least once every quarter

Disclosure Requirements:

Listed companies must disclose RPTs in the following formats and timelines:

Disclosure	Frequency	Regulation
Statement of RPTs to audit committee	Quarterly	SEBI LODR Reg. 23
Disclosure of RPTs on stock exchange	Quarterly, within 15 days of quarter ends	SEBI LODR Reg. 23(9)
RPT disclosures in financial statements	Annual	Companies Act / Ind AS 24
Material RPT: shareholder approval	Prior to entering transaction	SEBI LODR Reg. 23(4)

Audit Committee: Where Companies Get This Wrong

The most common compliance failures in RPT management are structural:

Related party registers not updated when promoter group structures change
Transactions with subsidiaries of related parties not captured because the mapping stops one level deep
Omnibus approvals granted without value caps or renewed automatically without fresh audit committee review
Half-yearly disclosures filed late or with incomplete transaction details
Shareholder resolutions passed without excluding related party votes, invalidating the approval

How CA Firms Support Governance

Corporate governance compliance in India runs across the financial year: board meetings, committee meetings, filings, disclosures, audits, policy reviews, and shareholder approvals all follow their own timelines and regulatory requirements.

For most companies, managing this without structured external support leads to gaps.

Chartered Accountant firms: particularly those with a governance and compliance practice, play a practical role in helping companies build and maintain governance frameworks that hold up to regulatory scrutiny.

Statutory Audit:

The most direct governance contribution of a CA firm is the statutory audit.

Every company must appoint a statutory auditor under the Companies Act. The audit reviews financial statements, checks Ind AS compliance, and produces an opinion on whether the financials give a true and fair view.

But the audit process also surfaces governance issues: RPTs that bypassed the approval process, internal control weaknesses, or disclosure gaps in the Board’s Report.

For listed companies, the statutory auditor additionally reports on internal financial controls under Section 143(3)(i), with findings going directly to the audit committee and board.

Regulatory Compliance Management:

CA firms help companies stay on top of their MCA and SEBI compliance calendars. This covers:

filing annual returns and financial statements with the MCA
drafting board and committee resolutions and minutes
tracking SEBI deadlines for listed companies
quarterly governance reports
half-yearly RPT disclosures
annual corporate governance reports
advising on the correct approval route for specific transactions

A missed filing, an incorrectly passed resolution, or a shareholder approval that failed to exclude related party votes each carry direct regulatory consequences. Getting the process right consistently is where most companies need support.

Internal Audit:

Many mid-sized companies do not maintain a full in-house internal audit function. CA firms step in as internal auditors, reviewing internal controls, assessing process compliance, and reporting findings to the audit committee.

Under SEBI LODR, the audit committee is responsible for overseeing the internal audit function, including approving the internal auditor’s appointment and reviewing their reports. A CA firm in this role provides the independent perspective the committee needs to discharge that responsibility effectively.

RPT Identification and Review:

Maintaining an accurate related party register and ensuring every transaction goes through the right approval process is one of the more demanding governance tasks.

CA firms support this by mapping group structures to identify all related parties under both the Companies Act and LODR definitions, reviewing contracts and transaction data to catch RPTs that may have been missed, preparing quarterly RPT statements for audit committee review, and drafting the half-yearly disclosure.

This mapping is more complex, particularly for companies with large promoter groups or layered subsidiary structures.

Policy Drafting and Board Support:

The Companies Act and SEBI LODR require several mandatory governance policies:

RPT policy,
whistle-blower policy,
board diversity policy,
remuneration policy,
risk management policy for applicable companies

CA firms draft these policies, align them with current regulations, and flag when updates are needed.

Some firms also support board committees directly, advising on independent director eligibility, assisting with annual board evaluations, and preparing the corporate governance report for the Annual Report.

PKC India’s Governance Advisory

PKC Management Consulting, has worked with businesses across sectors to effectively implement governance frameworks.

For corporate governance specifically, we offer service verticals that map directly to your compliance needs.

Board governance and oversight frameworks:

We help companies design governance structures that are functional. This includes board composition reviews, committee structuring, independent director eligibility assessments, policy drafting, and board effectiveness reviews.

For companies preparing for listing or navigating a change in promoter structure, getting this right from the outset avoids costly corrections later.

Enterprise Risk Management:

PKC works with companies to identify and prioritise risks, build risk appetite frameworks, and establish monitoring mechanisms that give the board and audit committee real visibility into risk exposure.

This is particularly relevant for companies in the top 1,000 listed entities required to maintain a Risk Management Committee under SEBI LODR Regulation 21.

Compliance and Control Frameworks:

Our team conducts regulatory compliance assessments, reviews internal control adequacy, and supports companies with regulatory filings across both MCA and SEBI.

The objective is to identify and close gaps before they attract regulatory attention.

Risk Control Matrix development:

We build process-level risk and control matrices that map business activities, the risks associated with them, and the controls in place to mitigate those risks.

This gives the audit committee a structured basis for oversight and makes internal audit engagements more targeted and effective.

FAQs

What are the corporate governance requirements in India?

Corporate governance requirements in India are primarily governed by the Companies Act, 2013 and SEBI LODR Regulations, 2015.

Key requirements include appointing independent directors, constituting board committees (audit, nomination and remuneration, stakeholders relationship), maintaining mandatory governance policies, disclosing related party transactions, and filing regular compliance reports with MCA and SEBI. Listed companies face additional obligations under LODR.

Is an audit committee mandatory for Indian companies?

Yes, for certain companies. Under Section 177 of the Companies Act, an audit committee is mandatory for all listed companies.
Public companies with paid-up share capital of ₹10 crore or more, public companies with turnover of ₹100 crore or more, and public companies with outstanding loans, debentures, and deposits exceeding ₹50 crore.

What role does a CA play in corporate governance?

A CA firm supports governance through statutory audit, internal audit, RPT identification and review, compliance calendar management, governance policy drafting, and board committee support.
For mid-sized companies without in-house compliance teams, a CA firm is often the primary mechanism through which governance obligations are tracked and met consistently.

What are the related party transaction rules in India?

Under Section 188 of the Companies Act and SEBI LODR Regulation 23, all RPTs require prior audit committee approval.
Material RPTs: those exceeding 10% of annual consolidated turnover require shareholder approval, with related parties barred from voting. Listed companies must disclose RPTs half-yearly to stock exchanges and maintain a board-approved RPT policy.

What are the consequences of non-compliance with corporate governance norms in India?

Non-compliance with the Companies Act can result in MCA prosecution, director disqualification, or company strike-off. SEBI non-compliance for listed companies can attract adjudication orders, financial penalties, and in serious cases, suspension of trading.
Beyond regulatory penalties, governance failures damage investor confidence and often trigger broader scrutiny of the company’s financial reporting and related party transactions.

Corporate Governance in India: What Boards Need to Know in 2026