For decades after independence, the tapestry of corporate law was brocaded with socialist ideals, with the government assuming a dominant role to safeguard the public interest. The activities of private firms were tightly regulated under a host of laws: the Industries (Development and Regulation) Act of 1951, the Monopolies and Restrictive Trade Practices Act of 1969, the Foreign Exchange Regulation Act of 1973, and the Sick Industrial Companies Act of 1985. Among other things, under these laws, some measures restricted companies to specified limits of share capital and turnover, measures to prevent concentration of economic power weakened small ventures, foreign companies were prohibited from acquiring a majority stake in Indian firms, and the public sector attempted to save unviable firms. The turning point came after the 1991 reforms, when the government curtailed industrial licensing, promoted capital market growth, and made efforts to attract foreign investment.

The Confederation of Indian Industry took the institutional lead in developing a robust, overarching corporate code of conduct. To spearhead this initiative, it formed a National Task Force, headed by Rahul Bajaj, a respected industrialist and Chairman and MD of Bajaj Auto Limited. Joining him was Omkar Goswami, an expert in corporate governance. The task force presented its initial findings in 1997 and invited public input and discussion. A year later, the confederation introduced the finalized version, titled Desirable Corporate Governance: A Code. The document addressed various crucial concerns, such as safeguarding the interests of small investors, enhancing business transparency, adopting global standards for information disclosure, and building public trust in the private sector.

The code acknowledged that corporate-governance standards could not be one-size-fits-all and emphasized the need for Indian firms to embrace best practices to align with global markets. It also recognized that legislation alone could not address all issues, stressing the role of progressive-minded agents within the corporate sector in promoting effective management. The code primarily targeted large firms and outlined specific measures that are still relevant today, including the appointment of a minimum number of nonexecutive independent directors, the establishment of independent audit committees, and guidelines for shareholder disclosures. It also recommended conducting at least six board meetings annually, limiting the concentration of executive positions in a single individual, developing annual operating plans and budgets, and detailing criteria for nonexecutive directors, among other provisions. Many of these recommendations were incorporated into the report of the K. M. Birla Committee set up by the Securities and Exchange Board of India a year later. By 1999, nearly two dozen large, listed companies, representing 19 percent of India’s market capitalization, had either fully or partially adopted the recommended disclosure norms.

The code on corporate governance proposed measures to enhance transparency, protect small investors, and align Indian firms with global standards, laying the groundwork for reforms later adopted by regulatory bodies and industry leaders.