Corporate reform with regulatory risks

The Corporate Laws (Amendment) Bill, 2026, is part of a larger effort to ease regulatory compliance, limit criminal sanctions for procedural violations, and enhance the country’s efficiency as a viable investment option. The move is not unjustified. In an economy aspiring to strengthen its capital markets and cultivate entrepreneurship, a regulatory regime that is too rigid can have significant economic costs.

However, a critical examination of the Bill indicates that its most significant implications may not be in simplifying corporate governance obligations but in reconfiguring the locus of regulatory authority in the system. Several provisions in the Bill appear to shift corporate responsibility away from rigid legislative guidelines and regulatory autonomy towards executive discretion.

Most of the debate has been centred on amending CSR spending thresholds. However, a more fundamental change appears in the enabling clause, which grants the central government power to exempt ‘such class or classes of companies... as may be prescribed’ from CSR spending. This appears to make a legislative requirement policy-dependent.

In the Indian context, CSR spending has been a governance requirement but also a quasi-developmental requirement in some sectors. If CSR spending is made contingent upon executive-level classification, rather than legislative standards, there may be a greater tendency for social spending by corporations to be influenced by regulatory cues. This may lead to a diminution in the predictability and normative consistency of CSR spending.

The concern increases as the small company’s scope expands, widening the range of businesses considered to have fewer regulations, lower penalties, and easier procedures. There is a possibility that relaxing regulations for small businesses could boost economic activity, but it also leads to a multi-layered system of compliance. A significant segment of businesses might operate under a relaxed governance system, which could affect transparency and investor confidence in mid-tier companies.

The importance of the institutional oversight process is similar. The modified legislative changes for the National Financial Reporting Authority provide for the central government to give policy directions that are binding in nature, thus handing over to the executive the ultimate responsibility to decide upon policy issues. From the perspective of the theory of regulatory design, the legitimate authority of the oversight bodies depends on the proper balance between accountability and operational autonomy. Tighter control hierarchies without procedural safeguards may result in nominal autonomy.

Credible enforcement

The provisions permitting override of the regulator in cases of deemed public interest increase such concerns. Such power may shape market perceptions of the regulator’s autonomy from political interference. In sectors where the quality of financial reporting is a key determinant of market confidence, even limited changes in autonomy can have disproportionate effects.

The establishment of a structured settlement system in cases involving corporate penalties further reflects the Bill’s emphasis on administrative dispute resolution. This may promote efficiency and relieve tribunals of some burdens. Nevertheless, there are questions about procedural equality in relation to the executive’s role in defining settlement powers, as well as a lack of avenues for appeal. Sophisticated corporations may take full advantage of discretion in enforcing regulations, which may exacerbate existing inequalities in the corporate sphere.

These provisions may represent a significant shift in the regulatory state in India. In many countries, the regulatory state has become increasingly skeletal, leaving much of the responsibility to the executive in the determination of regulations. This also creates concerns around the constitutional role of government in regulatory states.

Corporate law reform in India is inevitable and necessary to contribute to economic development. For India to become a key player in the global economy, it needs to integrate into global capital markets. By providing a more streamlined system of compliance, penalties, and restructuring, corporate law reform can make a valuable contribution to economic development. However, the success of the regulatory state may depend on the credibility of the enforcement authorities. If the discretionary power of the regulatory state increases, a more important contribution may be made to creating a state of regulatory uncertainty rather than procedural clarity. For all investors, corporations, and regulatory authorities, trust in the regulatory state may depend as much on the structure of the state as on the costs of compliance.

The importance of the Bill will depend on the use of discretion in the future. A stronger regulatory state may contribute to economic development, but it may also necessitate considering accountability.

The writers are students at the Gujarat National Law University, Gandhinagar

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)