This article is written by Eshan Sharma, a student of Maharshi Dayanand University, Rohtak, Delhi NCR, pursuing a Diploma in Law Firm Practice from LawSikho. This article focuses on the scenario of corporate governance in the NSE scam 2022. 

This article has been published by Oishika Banerji.


Though scams in the securities market might not be new, the repercussions of a scam are much wider for every society. The Greed of people sitting in dominant positions in order to earn huge money often tries to build tunnels, leading to such types of scams in the securities market. These scams often cause imbalances in the securities market. Due to such scams, stock markets face irregularities, affecting the economy significantly and causing a slowdown in economic growth, often weakening the economy and vanishing foreign investment, mostly done through stock exchanges. This causes foreign investors to look for other feasible options to invest and nurture their money in a place or economy they see as more trustworthy. Such was the 2022 NSE scam which made us think about the abnormalities in the present scenario of Corporate Governance in India that led to such a scam involving the Management and the Board of NSE. 

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Overview of NSE 2022 scam

The NSE known as the National Stock Exchange which is one of the leading stock exchanges in India and also the world’s largest derivatives exchange came to the limelight when SEBI (securities exchange board of India) received a complaint from a whistle-blower in 2015 about the irregularities going on in the management of the NSE. The investigations by SEBI and other statutory authorities found that the scam involved many aspects of mismanagement, collusion by senior management prominently the CEO of NSE Ms Chitra Ramakrishna, and Group Operating Officer Mr Anand Subramanian. The investigations also revealed that Ms Chitra Ramakrishna used to share the confidential data of NSE’s five-year projections, financial data, dividend ratio, business plans, agenda of board meetings, and even consulted on employee performance appraisals to a Yogi Baba which was totally against the rules and regulations of the SEBI. Also, Mr Anand Subramanian was unqualified for a top management role but was handed over key management and operational decisions.

Relevance of corporate governance in NSE scam

To understand the relevance of corporate governance in the NSE scam first we need to comprehend the concept of Corporate Governance. By knowing the concept of corporate governance, it will become much easier for us to understand the cause and the preventive measures which can be taken in the future to prevent such financial frauds. Corporate governance is a set of rules and regulations by which a company is governed to achieve its desired goals. Every company has a responsibility toward its shareholders and stakeholders including the promoters of the company, its directors, employees, and customers. To perform these responsibilities transparently it becomes necessary for the board and management to be accountable to the shareholders and promoters of the company. In the NSE 2022 scam, we see that there were crucial legal violations including the leakage of confidential data from the CEO of the NSE to an unknown person, which is in clear violation of the institutional framework of the NSE beyond the boundaries within which these functions are performed. 

Atrocious state of corporate governance

The authorities attempted to solve the problem of corporate governance to the extent that they have assured the flow of enormous amounts of capital to firms, and the actual repatriation of profits to the providers of finance. But this does not suggest that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. Corporate governance mechanisms are economic and legal mechanisms that can be altered through the political process. Corporate governance is a straightforward agency perspective sometimes referred to as the separation of ownership and control. Corporate governance influences the working of the management in a corporation. After the NSE 2022 scam came into public view, a big question mark was raised on the present scenario of corporate governance and the actual realities of what happens in the corridors of power within the corporation.

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Events leading to the breakdown of corporate governance in the 2022 NSE scam

  1. Managerial Misconduct of NSE– It can be noticed that the management of the NSE was a puppet of the CEO. The Sebi chairman summoned some officials of NSE to Sebi headquarters and revealed the misdeeds of Chitra Ramakrishna, rather than finding the truth, the NSE officials ignored the fact leading to mismanagement and omission of duty. Later Chitra Ramakrishna was given a clean chit by the NSE board which was proved wrong by the Supreme court. 
  2. Collusion by senior management of NSE– Under section 26 (1) of the Securities contract regulations act, 2012 there is a proper provision of code and conduct for directors and Key Managerial People demanding them to abide by the code of ethics set up for proper functioning of the management in the interest of the corporation, public, and stakeholders. Hence it is seen that the regulation based on the ethical approach of management is proving ineffective in making board puppets of management.
  3. Board of directors suppressing information– Board of Directors whose work interest and loyalty should be aligned toward the public and not the executives, have done a huge cover-up to hide information from authorities. The role of the Board of Directors is under great concern. After the board was informed about the irregularities in Mr Subramanian’s appointment, rather than discussing the matter it chose to keep the discussions out of board meetings on grounds of confidentiality and the sensitivity of the matter.
  4. Undue appointments– The former MD Mrs Chitra Ramakrishnan appointed Anand Subramanian AS who was an unqualified person for a top management role was handed over key management and operational decisions to him without being designated as a Key Managerial Personnel (KMP) with the purpose of avoiding the required legal mandate and accountability. According to the complaints, initially, Anand Subramanian was hired as an advisor to Chitra Ramakrishna but then soon was promoted to the rank of Chief Operating officer (COO). At such a senior position without having any proper experience in the finance sector Anand Subramanian was withdrawing a salary of more than Rs 4 crore per annum which was much higher than most of the seniors at NSE.
  5. Role of Independent Directors– Independent Directors are supposed to act in the public interest and there is clear evidence that they intentionally didn’t take their job seriously. As in this case, despite having ample knowledge of the NSE’s co-location scam and associated mismanagement, the Independent Directors failed to initiate appropriate actions against the Board or report to the SEBI. The failure of IDs’ role in checking the powers of the Board and the Management could be attributed to the systemic gaps in the legislative framework.
  6. Absence of Internal checks and balances– The absence of checks and balances led to an ineffective Board, sharing of confidential information, and Independent Directors failing to report mismanagement to Sebi resulting in the collapse of corporate governance. Interestingly, Subramanian was offered exponentially high compensation and perks which were unheard of within the NSE and even the industry in general. 
  7. Devotion and alignment of executive management towards CEO– Chief Revenue Officer who has the power to directly report any instance to the regulator (SEBI) did not perform his duty, this is the entire issue with corporate governance in which the institutional mechanism in the structure is not being utilized because of individual’s loyalty to the CEO.
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Tips to improve corporate governance in stock exchanges

  1. Monitoring and Internal control- So, it is time to look at appointing only executive chairmen for such organizations to rebalance the responsibilities between the chairman and the CEO. A corporate structure where power is distributed, rather than concentrated, would act as a check on the kind of appointments made at the NSE where such a key person ended up with unbridled power. Indeed, it is unfortunate the regulator has diluted its order to separate the roles of the chairman and managing director.
  2. Policies and regulatory framework- After the scam came to light, the Sebi imposed a 5-crore penalty each on Chitra Ramakrishnan and Anand Subramanian and also barred the NSE from introducing new services for the next 6 months. Although the penalty imposed by Sebi was insufficient, more strict penalty provisions and criminal proceedings must be introduced in the regulatory framework so as to prevent future fraud in the security markets. The current policy and regulatory framework governing corporate governance have become outdated. There is a need for structural reforms in corporate governance. With new amendments, a new policy should be framed, for promoting, encouraging, and providing protection to the whistle-blower. 
  3. Sebi needs to improve its slow and lethargic way of working- It took 7 years for Sebi to find out the main culprits in the NSE scam. In the investigations by CBI, it was found that Sebi officials already knew about the mismanagement going on in NSE but did not take any action. It is the duty of Sebi to ensure the active role of independent directors in the management. In the NSE scam, there were findings that even Sebi officials took bribes to suppress the information of misconduct in NSE.
  4. Accountability of Regulators- Regulators themselves must be held to account. There is a need for periodic independent audits of all regulators by a panel of eminent persons. The audits must evaluate the regulator’s performance in relation to its objectives. It is also necessary to conduct the board’s performance evaluation in the corporation. It is necessary to set clear responsibilities for regulators and Board members should be held accountable for every malfeasance in the corporation.
  5. Regulators should be given a wide range of powers- Regulators should be handed over a wide range of structural penalties like the removal of directors from the board. Regulators should seek to balance the need for startup flexibility with that for best practices and accountability. Regulators should be given the power to conduct surprise Corporate Governance audits apart as a proactive risk mitigation tool.
  6. Increasing the powers of Independent Directors- To prevent the monopoly of the chairman on the board independent directors play an essential role. The appointment of independent directors should be governed by a proper mechanism. 50% by management, and the remaining 50 % by stakeholders, and employees under a proper voting system. Top management should not be allowed to choose not more than 50% of independent directors. It is also imperative that new IDs of repute be immediately appointed to the board by the regulator and an audit committee of IDs be formed to ensure they safeguard the interests of the company by acting promptly.
  7. Diversity in the selection of board members– As long as the top management selects all board members or can influence their selection, there is little hope of any active challenge to management. The top management must be allowed to choose not more than 50% of the independent directors. The rest must be chosen by various other stakeholders — financial institutions, banks, small shareholders, employees, etc. 


The article critically explores Corporate Governance in the stock exchanges.  We know what consequences a country’s economy can face when there is a lapse in Corporate Governance. By going through the events which caused the breakdown of Corporate Governance it is way easier to understand and find out the remedies for efficient working of Corporate Governance in the stock exchanges. Abuse of power by the CEO and the Board of Directors, suppressing the information has raised concerns about corporate governance by neglecting the necessity of accountability to regulators and stakeholders which is against the functioning of corporate governance. Moreover, the leakage of confidential information to a third party and the wrongful appointment of Mr Anand Subramanian also triggered a fresh debate on the sustainable working of corporate governance and which can be achieved the only solution to these issues is Institutional reforms in the corporation. Corporate Governance at that level does not mean that it is entirely solved but definitely can be improved. Later on, Sebi barred Chitra Ramakrishnan and Anand Subramanian from associating with any market infrastructure, and a monetary penalty of 3 crores was imposed with forfeiture of leave-in-catchment of 1.5 crores and a deferred bonus of 2.3 Crores.



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