INTRODUCTION: THE PRESIDENT GOVERNANCE DEFICIT
For decades, India’s economic desire has been overshadowed by a recurring weakness: the spectacular failure of the Corporate Governance Mechanisms in India. In 2009 the $2.2 billion Satyam fraud to the most recent collapses of IL&FS, DHLP, and multiple governance scandals exposed by the National Financial Authority (NFRA) in 2024-25, the story remains the same: India Inc.’s boardrooms have failed spectacularly at corporate governance. This blog examines our recent governance failures, determines their root causes, and extracts the critical lessons for stakeholders.[1]
THE REGULATORY ARCHITECTURE: A BRIEF OVERVIEW
India’s Corporate Governance Structure relies on three important pillars: the Companies Act 2013, the SEBI Regulations 2015 and the National Financial Reporting Authority (NFRA) as the audit inspector. The Act introduced many authority-like provisions, such as independent directors, mandatory audit committees, stricter related party transaction (RPT) norms under Section 188, and improved declaration requirements and Section 134. The SEBI LODR order requires audit committee approval for all RPTs (Regulation 23) and establishes corporate thresholds. In spite of this robust structure, the governance failures continue, indicating enforcement and implementation gaps.[2]
CASE STUDY 1: THE IL & FS COLLAPSE: A SYSTEMATIC CRISIS
The Infrastructure Leasing & Financial Services (IL&FS) disaster of 2018 remains a milestone moment in Indian Corporate Governance. Mr Ravi Parthasarathy, who ran the IL&FS as his fiefdom, had created a network of over 300 companies to take loans from banks, mutual funds, and pension pools. The forensic audit by Grant Thornton revealed shocking information that the management knew about the terrible financial situation as early as 2016, tried to approach the RBI for a restructuring plan outside the IBC framework, and was involved in circular transactions to round-trip loans.
The audit report drew attention to the fact that ITNL, IL&FS’s transportation subsidiary, had recorded a profit tax of Rs. 78.86 crore, which included the profit on the sale of investments of Rs. 140.93 crore, without which it might have shown a loss of Rs. 62.14 crore. The management deceived the regulators, hid the cash flow stress, and used the contractors as the channel for the fund routing.
CASE STUDY 2: NFRA’S 2024-25 FINDINGS: AUDIT FAILURES ACROSS MARQUEE COMPANIES
NFRA’S Annual report for the year 2024-25 has issued 23 punishment orders that point to “severely deficient” audit work, ignored fraud indicators, and repeated infringement of the standards on Auditing (SAs) and the Companies Act.
Here the key findings include –
Coffee Day Group: Auditors were found “grossly negligent” while examining Rs. 3,535 crore exposure; it failed to assess Rs. 1,055 Crore in loans, and also audit documentation was modified in the post-sign-off in infringement of SA 230 and SQC 1.
Reliance Capital: Auditors have ignored the fraud flags in a Rs.12,571 crore loan and have made investment exposure; it failed independently to confirm the fraud identified by a joint auditor, and it did not assess the recoverability of Rs. 6,557 Crore of loans.
Zee Limited: Auditors have failed to describe the major related party transaction, the group chairman and a private bank, it did not challenge the management despite the evidence of unauthorised guarantees, early FD closures, and misuse of the funds.
The NFRA have noticed that in many companies, the audit firms “did not exercise the professional judgement and disbelief” and failed to get the enough suitable audit evidence before signing audit opinions, a direct infringement of SA 200 and SA 230.[3]
CASE STUDY 3: THE PNB-NIRAV MODI FRAUD –BANKING GOVERNANCE FAILURES
In 2018, the Punjab National Bank fraud, involved in Rs.13,570 showed the failures of governance at multiple levels. The CBI chargesheet disclosed that four senior officials “misled the Reserve Bank of India” by sending a false reply to a survey in 2016, and it “failed to take meaningful and corrective measures”. Despite the Reserve Bank of India issuing the three circulars in August and November 2016 after finding a similar fraud, the [4]officials did not execute them. The RBI in reply said that “all outward SWIFT messages are being sent only after making entry in CBS”, a declaration that CBI termed it as “misleading”.
Ms Usha Ananthasubramanian, the former managing director and chief executive officer of the Punjab National Bank, was charged with Criminal misconduct for “Unauthorisedly delegating the Reserve Bank of India guideline work to her subordinate without any follow-up action”. This case indicates how governance fails, in a cascade from the boardroom indifference to the operational blindness.
CASE STUDY 4: SATYAM COMPUTER SERVICES: THE ORIGINAL SIN
In 2009, the Satyam scandal remains the blueprint for corporate fraud in India. The founder, Mr Ramalinga Raju, admitted that profit had been inflated by over Rs.7,000 crore with deceptive assets and non-existent cash. The CFO, Mr Srinivas Vadlamani, was accused of signing off on manipulated financials. The Institute of Chartered Accountants of India (ICAI) found Mr Srinivas Vadlamani guilty of professional misconduct and negligence. Especially, Satyam’s board contained worthies from Harvard and Silicon Valley, all of whom remained unaware that the funds were being siphoned off.
ANALYSIS: COMMON PATTERNS AND ROOT CAUSES
Some common threads that emerge from these failures –
Collusive Failure of Gatekeepers: The Auditors, independent directors, and CFOs- the three gatekeepers have frequently failed. In the case of Cox & Kings, the CFO, Mr Anil Khandelwal have fabricated over Rs. 9,000 Crore of Sales to non-existent customers. In the case of DHFL, the CFO, Mr Santosh Sharma, has maintained parallel accounts called as ‘Bandra Books’ showing over Rs 11,000 crore as loans to the shell Companies.[5]
Related Party Transactions as siphoning vehicles: The Related Party Transactions remain the primary tool for the fund deviation. The Coffee Day group diverted Rs. 3,535 Crore from the Seven Subsidiaries to the promoter-controlled organisation via complex circular transactions. In the Companies Act, under section 188, RPTs need board and shareholder approval, with associated parties excluded from voting, and enforcement remains weak.
Audit Independence Compromised: The National Financial Reporting Authority (NFRA) discovered the systematic audit failures. In CMI Limited, there was no physical inventory verification done for three consecutive years. In DB Realty, the auditors buried Rs. 6,972 Crore for critical issues into an “Emphasis of Matter” paragraph while highlighting an immaterial Rs. 1.92 lakh item.
Board Passivity: The independent directors have mostly functioned as an Ornamental appointment rather than active monitors. The IL&FS case has shown that shareholders having the nominees on the board have never pulled up Parthasarathy. Companies Act 2013, section 149(6) explains independence, but it does not ensure active oversight.
LEGAL AND REGULATORY RESPONSES
The National Financial Reporting Authority (NFRA) has come out as the credible enforcement authority that issues disqualifications and monetary penalties. The Companies Act 2013, Section 132 authorize the NFRA to control audit quality, yet some gaps remain. The decriminalisation of Certain offences in the Companies (Amendment) Act, 2019, while easing the compliance burdens, might reduce the deterrence.[6]
The SEBI LODR Amendment of 2023 lowered the RPT materiality threshold for shareholder approval from 10% to 5% of turnover and introduced stricter disclosure norms. High Value Debt Listed Entities (HVDLEs) from 1 April 2025, material RPTs need a No-objection Certificate from Debenture Trustees.
LESSONS FOR THE STAKEHOLDERS
For Regulators: The National Financial Reporting Authority (NFRA) have issued Suo Motu investigations that should be expanded. The Reserve Bank of India (RBI) must revisit NBFC governance, especially the group-owned NBFCs, where diversion risks are very high.
For Boards: The Independent Directors should be held personally liable for wilful negligence. The Companies Act 2013, Section 166 codifies the director duties, but enforcement against the independent directors remains rare. The Boards should mandate forensic audits periodically, not only when fraud is suspected.
For Auditors: The National Financial Reporting Authority orders to send a clear message, SA 240 (auditor’s responsibility relating to fraud) must be taken seriously. Audit firms must Establish a robust Engagement Quality Control Review (EQCR) mechanisms and document audit evidence meticulously[7].
For Investors: Due Diligence must extend beyond the financial statements to governance scores, auditor track records, and related party transaction patterns.
CONCLUSION
In India, corporate governance failures follow a predictable pattern: dominant promoters, private boards, compromised auditors, and regulators playing catch-up. The Satyam, IL&FS, PNB, and NFRA cases of 2024-25 reveal that the problem is not in the absence of Law, but failure of enforcement and Culture. As Nandan Nilekani observed after Satyam, “It shows that it is not enough to have rules”.
The Lesson is clear that governance cannot be outsourced to independent directors or auditors; it must permeate the organisational culture. Until India Inc. internalises this truth, the cycle of scandal and regret will continue. For legal practitioners, these cases underscore the need for proactive compliance programs, rigorous due diligence, and a zero-tolerance approach to governance deviations. The law is sufficient; what remains insufficient is the will to enforce and the courage to dissent.
Author: Anish Tandi (Centurion University of Technology and Management)
References:
[1] NFRA Annual Report 2024-25; disciplinary orders under sections 132 and 133 of Companies Act, 2013
[2] SEBI LODR Regulations, 2015, Regulation 23
[3] SA 200, SA 230 (ICAI Standards on Auditing)
[4] CBI Chargesheet in PNB fraud case (2018)
[5] Cox and kings Ltd. V. SAP India Pvt. Ltd. (2023)
[6] Companies Act 2013, Section 2 (76), 188, 149(6), 166, 134,
[7] SA 240 (ICAI Standards on Auditing)
