In 1999, spurred by efforts of the Confederation of Indian Industry, the Securities and Exchange Board of India formed its own committee on corporate governance under one of its board members, the industrialist Kumar Mangalam Birla. Members included Rohit Bhagat (Country Head, Boston Consulting Group); J. Bhagwati (Joint Secretary, Ministry of Finance); Samir Biswas (Regional Director, Western Region, Department of Company Affairs, Government of India); S. P. Chhajed (President, Institute of Chartered Accountants of India); Virender Ganda (Ex-President, Institute of Company Secretaries of India); Sumantra Ghoshal (Professor of Strategic Management, London Business School); Vijay Kalantri (President, All India Association of Industries); Pratip Kar (Executive Director, SEBI and Member-Secretary); Y. H. Malegam (Managing Partner, S.B. Billimoria & Co); N. R. Narayana Murthy (Chairman and Managing Director, Infosys Technologies Ltd.); A. K. Narayanan (President, Tamil Nadu Investor Association); Kamal Parekh (Ex-President, Calcutta Stock Exchange); R. H. Patil (Managing Director, National Stock Exchange Ltd.); Anand Rathi (President, Stock Exchange, Mumbai); D. N. Raval (Executive Director, SEBI); Rajesh Shah (Former President, Confederation of Indian Industries); L. K. Singhvi (Sr. Executive Director, SEBI); and S. S. Sodhi (Executive Director, Delhi Stock Exchange).

The Birla Committee was asked to create a code that would benefit investors and shareholders, tailored to the Indian corporate landscape. While the committee’s guidelines drew inspiration from the voluntary Confederation of Indian Industry Code of 1998, they were made mandatory. The committee believed strong corporate governance was indispensable to resilient and vibrant capital markets and was crucial for investor protection. It also highlighted the problem of insider trading and emphasized the principle of “disclose or desist”: Companies should disseminate price-sensitive information in a timely manner via proper channels to the public to inhibit insiders from transacting in their securities.

The committee’s recommendations focused on specific aspects that were to be enforced through the listing agreements, particularly via Clause 49, of stock exchanges. These guidelines applied to companies with paid-up share capital of INR 30 million or more. They covered the composition of the board of directors and audit committees, the establishment of a remuneration committee, and the requirement for regular management meetings addressing operations, industry dynamics, opportunities, threats, and internal-control systems. These changes aimed to provide investors with increased access to comprehensive and high-quality information. Listed companies were asked to comply with the initial and continuing disclosures in a phased manner (through the listing agreements) and include a delineated section on corporate governance and their compliance details in their annual reports. The committee recommended amending the Securities Contracts (Regulation) Act of 1956 to empower the Securities and Exchange Board of India and stock exchanges to take action in case the listing agreement was violated. In 2005, Clause 49 became effective, bringing all listed private and public sector companies under its purview.

The 1999 Birla Committee report established mandatory corporate governance norms, emphasizing transparency, board accountability, and investor protection, forming the basis for Clause 49 of the listing agreements with stock exchanges, which standardized governance practices across listed companies in India.