Decriminalisation, ESG and Digital Governance: Is India Moving Towards a Trust-Based Corporate Regulatory Regime?

Introduction

For decades, India’s corporate governance framework has been shaped largely by the provisions of the Companies Act, 2013[1], which placed a strong emphasis on procedural compliance backed by criminal sanctions for defaults. This approach aimed to ensure strict adherence to statutory requirements, but over time it also exposed several practical limitations. Many businesses, especially small and medium-sized enterprises, found themselves navigating a complex web of filing obligations and technical requirements, where even inadvertent delays could lead to prosecution. The result was an increase in litigation overloaded tribunals and courts, and rising costs for both regulators and companies.

In response to these challenges, policymakers and regulators have taken steps to rethink the framework governing corporate conduct. Three broad reform trends are now emerging at the centre of India’s corporate law landscape. First, a number of minor procedural defaults are being removed from the realm of criminal liability and converted into civil penalties. Second, environmental, social and governance (ESG) considerations are gaining greater prominence, with more detailed disclosure requirements under frameworks such as SEBI’s Business and Responsibility and sustainability Reporting regime[2]. Finally, the government’s ongoing digitalisation of compliance processes, through platforms like MCA 21[3], is transforming how firms interact with regulators.

Taken together, these developments point towards a shift away from a regime focused on punishment and paperwork, and towards one that emphasises trust, performance and transparent corporate oversight.

Historical Background of Corporate Governance in India

Before 2013, India’s company law framework was governed by the companies Act, 1956 [4], which itself was a comprehensive statute but was widely considered outdated for a rapidly modernising economy. The Companies Act. 2013 replaced the 1956 regime to provide a more robust structure for corporate governance, investor protection, and accountability.

Under the Companies Act, 2013, Indian corporate law introduced a detailed set of compliance requirements ranging from maintenance of books and records to timelines for filing annual returns, appointment of independent directors, and disclosures for key managerial personnel. The legislative intent was to strengthen oversight and deter misconduct, and therefore many procedural defaults were accompanied by criminal penalties, including fines and even imprisonment for officers in default. For serious contraventions such as fraud or making misleading statements in official documents, the Act prescribed stringent criminal consequences in addition to monetary penalties.

However, the expansive scope of penal provisions also meant that even minor technical lapses could become matters for prosecution. Defaults such as late filing of annual returns, failure to maintain board minute books, or missing filing deadlines were all treated as offences warranting sanctions. This punitive orientation contributed to an increase in litigation and burdened the criminal justice system, as thousands of cases moved through Special Courts and other judicial fora.

Regulatory oversight in India has also been fragmented across multiple authorities. The Ministry of Corporate Affairs (MCA) enforces compliance for companies registered under company law; The Securities and Exchange Board of India (SEBI) Regulates listed entities and capital markets; The Reserve Bank of India (RBI) [5] oversees banking and non-bank financial companies; and The Insurance Regulatory and Development Authority (IRDAI) [6] governs insurance firms. Each of these regulators imposes its own set of reporting and governance standards, which has, at times, led to overlapping compliance obligations.

Smaller businesses, particularly those without specialises compliance teams found this environment especially challenging. High costs associated with legal defence, repeated court appearances, and administrative penalties discouraged entrepreneurial activity. As a result, the corporate sector and policy thinkers began to push for calibration in enforcement distinguishing between serious wrongdoing and technical defaults that do not warrant criminal sanctions.

The historical backdrop sets the stage for the reforms that India has since undertaken, aiming to rebalance its corporate governance regime.

Decriminalisation of corporate offences

In recent years, India’s corporate governance landscape has seen a marked shift towards embedding Environmental, Social and Governance (ESG) reporting into mainstream compliance. What began as a voluntary practice has evolved into a structured and gradually mandatory framework under the Securities and Exchange Board of India’s (SEBI) Business Responsibility and Sustainability Reporting (BRSR) regime. Initially focused on the largest listed firms, ESG disclosure is now a central pillar of regulatory compliance for many public companies in India.

Under current norms, the top 1,000 listed companies by market capitalisation are required to file detailed BRSR reports, covering key indicators related to environmental stewardship, social impact and governance practices. Recognising the importance of reliable data, SEBI introduced BRSR core a reporting standard backed by clear metrics and third party verification which aims to ensure that sustainability disclosures are consistent, credible, and comparable across entities.

The framework has expanded in stages. From FY 2025-26, top 250 listed companies must include ESG data covering at least 75% of their supply chain partners by value. Over the next two years, mandatory assurance requirements and broader reporting obligations are being phased in for larger cohorts of companies signaling that ESG disclosure is becoming as integral as financial reporting in India.

SEBI has also introduced innovations such as green credit reporting, where companies disclose credits generated through environmental activities like afforestation, and has redefined “value chain partners” to encompass upstream and downstream entities that constitute at least 2% of total purchase or sales.

These developments show that ESG reporting is no longer a peripheral exercise. It now influences investment decisions, corporate strategy, and stakeholder trust, with regulators emphasising transparency, accountability and measurable sustainability outcomes.

ESG- Environmental, Social, & Governance reporting in India

In India, ESG reporting has evolved into a structured regulatory requirement for large listed companies. Recognising the importance of consistent non-financial disclosures, the Securities and Exchange Board of India (SEBI) introduced the Business Responsibility and Sustainability Report (BRSR) under the SEBI Regulations, 2015. Under this mandate, the top 1,000 listed companies by market capitalisation are required to prepare and file BRSRs as part of their annal reporting cycle.

The BRSR framework is designed around the nine principles of the National guidelines on Responsible conduct ( NGRBC)[7]. It requires companies to disclose key environmental indicators such as, greenhouse gas emissions, energy consumption and water usage along with social metrics, including workforce diversity, employee health and safety, and community engagement, Governance disclosures cover board composition, risk oversight and transparency in stakeholder grievance mechanisms.

ESG reporting under BRSR goes beyond traditional corporate social responsibility (CSR) obligations. While CSR focuses on specified social spend, BRSR integrates sustainability into governance and strategy, making non-financial performance an element of enterprise risk management and investor decision-making.

As institutional investors increasingly weigh ESG data in evaluations, BRSR aligns Indian practice with global reporting norms and supports comparability with frameworks such as the Global Reporting Initiative (GRI) and emerging IFRS Sustainability Standards (ISSB)[8].

Digital Enforcement and the MCA21 Paradigm

The Ministry of corporate affairs has ushered in a new era of digital compliance with the full launch of MCA21 Version (V3) an online platform that now serves as the primary gateway for statutory filings under the Companies Act, 2013 and the LLP Act, 2008. This move marks a clear shift from paper-based procedures to a real-time, data-driven enforcement regime.

Under MCA21 V3, Companies file annual returns, financial statements and other statutory forms directly through the portal. The system incorporates field level validations and pre-filled master data, which help reduce errors at the submission stage itself. By eliminating manual uploads and physical forms, the platform enhances accuracy and consistency in corporate filings. A major feature of the new system is its Compliance Monitoring Module, which tracks statutory deadlines and identifies deviations automatically. Where filings are late or incomplete, the portal generates alerts that regulators and companies can both access, enabling quicker corrective action without waiting for periodic reviews.

MCA21 V3 also supports e-adjudication, allowing notices, responses and penalty orders to be issued and managed online. This reduces procedural delays and means that regulatory action can proceed without the need for in-person hearings or repeated physical communication.

The impact of these digital reforms is tangible:

• Faster processing: Filings are validated and accepted in real time, reducing procedural lag.

• Improved Transparency: Compliance status and filing history are visible through the portal, strengthening oversight.

• Data Reliability: System validations increase the accuracy of filed information, making regulatory data more dependable.

• Reduced Manual Burden:  Companies no longer need to navigate multiple stages of physical submission and verification.

However, digital systems are not risk free. Automated validations and alerts may sometimes flag compliant filings due to rigid rule checks, leading to additional follow-ups. Smaller firms unfamiliar with advanced digital workflows may also find the transition challenging initially.

In sum, MCA21 V3 has moved corporate compliance toward a data centric enforcement framework. Real-time monitoring, automated analyses and digital adjudication together promote efficient compliance while enhancing regulatory oversight- a foundational step in modernising corporate regulation in India.

Synthesis: Trust-Based Corporate Regulatory Regime

India’s corporate regulatory framework is gradually moving away from a predominantly punitive model toward one that emphasises transparency, accountability and performance.

The momentum for this shift began with the de-criminalisation of minor procedural defaults under the Companies Act, 2013. Recent amendments have converted many technical contraventions, once punishable by prosecution into civil defaults governed by monetary penalties and adjudication processes. This change recognises that not all lapses in compliance are intentional and that disproportionate punishment for procedural errors can impede business activity.

At the same time, corporate reporting in India has expanded beyond financial disclosures to include Environmental, Social and Governance (ESG) metrics. Under the Securities and Exchange Board of India, Business Responsibility and Sustainability Reporting (BRSR) framework, the largest listed companies are required to publish structured ESG information alongside traditional annual reports. These disclosures cover areas such as emissions, energy use, workforce diversity and board oversight, and serve as a measurable basis for assessing long-term business sustainability.

Technological advancements have further strengthened this shift. With the implementation of MCA21 V3, statutory filings, compliance checks and adjudication processes have migrated to a single digital platform. Automated validations, real-time compliance tracking and digital adjudication reduce manual oversight, speeding up compliance and improving data integrity. This enables regulators to identify issues early while giving companies clear visibility of their compliance status.

Taken together, these reforms reflect a regulatory philosophy that supports trust-based compliance, one where enforcement is balanced with facilitation, and where transparency and performance metrics guide corporate behaviour. India is thus evolving toward a governance regime that values informed compliance and strategic accountability over mere punishment for procedural lapses.

Practical Implications for Practitioners

India’s evolving corporate regulatory framework particularly under the Companies Act, 2013. SEBI’s Business Responsibility and Sustainability Reporting (BRSR) requirements, and the MCA21 V3, system demands a sharper and more structured compliance approach from both law firms and in-house teams.

1. Integrated Compliance Frameworks:

Compliance must move beyond routine filings. Statutory obligations, ESG disclosures and digital reporting requirements must be aligned within with in a single risk-based compliance structure.

2. Digital Litigation Risk:

MCA21 V3 enables real-time validations and automated scrutiny of filings. Errors are detected instantly, increasing the likelihood of regulatory queries if not addressed promptly.

3. ESG as strategic Governance:

SEBI’S BRSR framework has made ESG reporting mandatory for top listed entities. Disclosures now directly impact investor perception and board accountability.

4. Data Governance & Audit preparedness:

Digital filings create permanent audit trails. Inaccurate or unsupported disclosures may expose companies to regulatory action and reputational risk.

Actionable takeaways for legal teams and corporate compliance officers include:

• Conduct periodic legal compliance audits that cover procedural, ESG and digital filing obligations.

• Implement ESG readiness reviews with dedicated board oversight to ensure sustainable governance narratives are not just thematic, but verifiable.

• Establish integral digital compliance dashboards for early detection of gaps in statutory filings or reporting.

• Invest in training on digital reporting tools to ensure that corporate teams can navigate platforms like MCA21 V3 and BRSR filings confidently.

These practical measures equip organisations to stay ahead of compliance requisites, manage risk proactively and demonstrate robust governance in an increasingly transparent regulatory environment

Conclusion

India’s corporate regulatory framework is steadily evolving towards a more balanced and accountable model of governance. Reforms such as decriminalisation of procedural lapses, mandatory ESG disclosures under SEBI’s BRSR framework, and digital monitoring through MCA21 V3 reflect a shift from rigid enforcement to structured, technology- driven oversight.

The objective is clear to promote ease of doing business while strengthening transparency, sustainability and investor confidence. While challenges in implementation, data accuracy and ESG standardisation persist, the direction of reform indicates a move towards trust-based regulation supported by digital accountability.

Corporate governance today is no longer confined to statutory compliance. It has become central to risk management, stakeholder confidence and long-term business continuity. In this changing regulatory climate, governance must be viewed not merely as a legal obligation, but as a foundation for strategic corporate resilience.

Author: Nitya Singh, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

[1] Companies Act, 2013

[2] Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015

[3] Ministry of Corporate Affairs, ‘MCA21 Version 3.0’ (Government of India) https://www.mca.gov.in 

[4] Companies Act 1956

[5] Reserve Bank of India Act 1934

[6] Insurance Regulatory and Development Authority Act 1999, s 14.

[7] Ministry of Corporate Affairs, National Guidelines on Responsible Business Conduct (2019).

[8] International Sustainability Standards Board, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (2023); Global Reporting Initiative, GRI Standards (2021).