Indian corporate governance is going through an important shift. Independent directors [IDs] are no longer expected to serve merely as symbolic members of the board who attend meetings, review papers, and rely on management to drive governance. Rather, they are increasingly expected to demonstrate that their independence is substantive through the manner in which they assess promoter influence, respond to risk, engage with ESG disclosures and governance decisions.
Section 149(4) of the Companies Act, 2013 [CA,2013] mandates the appointment of independent directors for certain classes of companies. Every listed public company must have at least one-third of its total directors as IDs. Further, the Central Government may prescribe, the minimum number of IDs in case of any class or classes of public companies.
Sub-section (12) of Section 149 lays down the liability as IDs are only to be held liable for acts of omission or commission by a company that occurred with their knowledge and consent or connivance, or where they did not act diligently.
Section 150 of the CA, 2013 provides for the manner of selection and the maintenance of a databank of independent directors.
Further, Regulation 16(1)(b) of the Listing Obligations and Disclosure Requirements[LODR Regulations] defines an “independent director” as a non-executive director, other than a nominee director, who meets comprehensive eligibility and independence requirements relating to integrity, expertise, financial and business independence, absence of promoter or management affiliations, restrictions on pecuniary and professional relationships, prescribed limits on shareholding and voting rights, and other criteria designed to safeguard the director’s objectivity and independence in the governance of the listed entity.
Section 166 of the Companies Act, 2013 lays down the fiduciary duties applicable to all directors, including independent directors, requiring them to act in good faith, exercise due care, skill, diligence and independent judgment, avoid conflicts of interest, and promote the best interests of the company and its stakeholders.
These provisions constitute the statutory foundation for the evolving role of independent directors.
Two contemporary developments are at the centre of this shift. First, SEBI’s informal guidance under the SEBI (Informal Guidance) Scheme, 2025 has clarified how independence is to be assessed under Regulation 16 in practical situations. Second, the Corporate Laws (Amendment) Bill, 2026 proposes to decriminalize several technical defaults under company law while keeping accountability intact for substantive governance failures.
Together, these developments reflect a shift towards a more substantive, accountability-oriented role for independent directors.
In March 2026, SEBI, through an Informal Guidance, addressed a request from Maithan Alloys Limited: Could a cousin of a promoter-group member, who does not fall within the statutory definition of “relative,” be appointed as an independent director? SEBI examined section 2(77) of the Companies Act, 2013 which provides the definition of “relative” with reference to any person means, if (i) they are members of a Hindu Undivided Family; (ii)they are husband and wife; or (iii) one person is related to the other in such manner as may be prescribed. Rule 4 of the Companies (Specification of Definitions Details) Rules, 2014 provides for List of relatives in terms of clause (77) of section 2.- A person shall be deemed to be the relative of another, if he or she is related to another in the following manner, namely: -
and Regulation 2(1)(zd) of the LODR Regulations which states that “relative” means relative as defined under sub-section (77) of section 2 of the Companies Act, 2013 and rules prescribed there under: Provided this definition shall not be applicable for the units issued by mutual fund which are listed on a recognised stock exchange(s).
Accordingly, SEBI confirmed that “relative” is confined to close family relationships such as spouse, parents, children, siblings, and specified lineal ascendants and descendants.
On this basis, SEBI concluded that a cousin does not fall within the statutory definition of “relative” and is not automatically disqualified on that ground. However, importantly, SEBI went on to emphasize that independence cannot be assessed only by reference to one clause. So, the listed entity must still verify compliance with all the conditions under Regulation 16(1)(b), including the absence of material pecuniary relationships, appropriate shareholding limits, and restrictions on cross-directorship patterns that could impair independence. Read together with Section 149(6) of the Companies Act, this informal guidance lays down that independence is not simply about whether a person’s name appears in a statutory list of relatives. Read as a whole, however, it is about whether the proposed director is genuinely capable of exercising independent judgment despite promoter ties, group-wide relationships, and financial links.
This establishes a more stringent standard than merely checking whether a name appears on a disqualification list.
The Corporate Laws (Amendment) Bill, 2026 is trying to solve a long-standing problem. Many professionals have been reluctant to accept appointments as independent directors because even a procedural lapse could, in some cases, expose them to criminal proceedings. The Bill responds to this by shifting several minor defaults from criminal prosecution to civil penalty and e-adjudication mechanisms. These are largely technical matters, such as late filings or failures to furnish information, rather than serious fraud or concealment.
That change is important because it acknowledges a simple reality that not every corporate mistake deserves criminal treatment. A late filing should not be placed in the same category as siphoning of funds, falsification of accounts, or deliberate suppression of material facts. If the law treats every error as a potential criminal matter, it creates defensive governance. Consequently, directors become overly cautious not because they are exercising sound judgment, but because they are afraid of personal exposure.
The Bill does not weaken governance; rather, it seeks to make governance more realistic. It conveys to the independent directors that they should not fear punishment for every procedural slip. At the same time, it makes clear that real oversight failures will still attract serious consequences. In that sense, the Bill separates routine compliance from substantive accountability.
The fear surrounding independent directors was not created in a vacuum. India’s major corporate scandals made it crystal clear how much can go wrong when boards are too trusting or too passive.
Satyam Computer Services fraud remains the most famous example. In this case, independent directors were criticized for failing to detect or challenge a financial story that later proved to be grossly misleading, which raised serious questions about the discharge of duties expected under sections 149 and 166 of the Companies Act, 2013 and the governance role mentioned under the SEBI framework.
IL&FS financial crisis brought a different but equally serious lesson. It showed how complex group structures, stressed borrowings, and poor oversight can allow problems to spread across entities before boards fully grasp the scale of the risk. It also demonstrated that independent directors cannot hide behind the formal structure of a board when the economic reality of the group is deteriorating.
Even in the case of Infosys, which is widely seen as relatively well governed, the role of independent directors came under scrutiny when whistleblower allegations raised questions about board response and management accountability. The broader lesson from these episodes is not that independent directors are always at fault. It is that once a board is facing a major issue, the director’s real value lies in whether they asked the hard questions early enough.
That is why decriminalization matters. It may help attract more serious and capable professionals to board positions, because they are less likely to see the role as a legal trap. But it also raises the expectation that if they do accept the position, they must actually exercise independent judgment.
While company law is easing the burden of technical offences, SEBI has been steadily increasing the importance of ESG oversight through the Business Responsibility and Sustainability Reporting framework (“BRSR”). BRSR is SEBI’s standardized reporting format for environmental, social and governance disclosures by major listed entities. It is no longer a peripheral document. Rather, it now sits alongside financial reporting as part of what the board is expected to understand and approve.
The move into value-chain disclosures makes this even more serious. By its circular dated 28 March 2025, SEBI updated the BRSR framework to integrate value-chain disclosures, green credit information, and revised assurance or assessment requirements for BRSR Core. For value-chain reporting, the circular focuses on upstream and downstream partners meeting defined contribution thresholds, and applies on a phased basis with a separate glide path for assessment or assurance. That means board oversight can no longer stop at the company gate but, it has to extend, at least in part, to the behavior and data of external counterparties.
This creates a very practical challenge for independent directors. The reliability of ESG disclosures depends upon the robustness of the systems through which the underlying data is generated, verified and reported. If supplier data is weak, if emissions or labour information is not verified, or if a company is relying on over-polished sustainability presentations, the board may be approving numbers that are not fully reliable. That creates regulatory, reputational, and sometimes legal risk.
For example, a company that projected strong ESG credentials while facing serious financial or governance allegations has shown how easily the sustainability narrative can diverge from actual conduct. Independent directors cannot treat ESG as branding. They have to treat it as a governance and risk issue.
One of the most important things to understand about ESG misstatements is that they rarely remain confined to one legal regime. If a company gives misleading ESG disclosures, the consequences may flow through securities law, company law, and even environmental or labour law depending on the nature of the falsehood.
For example, a misleading BRSR disclosure may amount to a misleading securities disclosure under SEBI’s framework, including under the LODR Regulations and, in appropriate cases, the SEBI Act and the PFUTP Regulations. If the same disclosure is incorporated into the board’s report or other statutory filings, it may also raise issues under the Companies Act, including false statements or omissions of material facts, and the general duties of directors under Section 166. In serious cases, if the company is concealing actual operational violations, the problem may reach environmental, safety, or labour compliance regimes as well.
That is why independent directors need to think beyond form. They should ask whether the ESG data is verified, whether the third-party assurance process is credible, whether management has adequate internal controls, and whether the sustainability story matches the company’s actual operations. A director who signs off on a glossy ESG report without asking those questions may later find that the issue is not just poor disclosure, but legal exposure across multiple statutes.
The emerging model for independent directors is easier to describe than to perform. It requires a shift from procedural ease to substantive engagement. In practical terms, independent directors now need to understand the difference between a filing lapse and a governance failure. They need to know when decriminalization offers relief and when it does not. They also need enough fluency in ESG, risk, and data governance to challenge management meaningfully.
That does not mean every director needs to become a technical specialist in every area. However, it does mean they must be more than ceremonial figures. They need to read board papers carefully, question assumptions, understand how data is collected, and insist on explanations when something feels too neat to be true. In the modern boardroom, silence is not neutrality. It can look like approval.
SEBI’s growing emphasis on capacity building reflects this reality. Training for independent directors is likely to become more important, not less. The role is moving toward professionalization, and boards are increasingly likely to value directors who bring visible expertise in risk, ESG, strategy, technology, or regulation.
The legal framework governing independent directors in India – comprising Sections 149, 150 and 166 of the Companies Act, 2013 read with Regulation 16 of the LODR Regulations and SEBI’s evolving BRSR framework – is increasingly oriented towards substantive accountability rather than formal compliance. While the Corporate Laws (Amendment) Bill, 2026 proposes to decriminalize several procedural and technical defaults, it does not dilute the responsibility of independent directors to exercise meaningful oversight. Instead, the expansion of ESG reporting obligations and SEBI’s evolving interpretation of independence raise the standard of boardroom diligence and accountability.
For independent directors, the central question is no longer “Am I technically independent?” Rather, it is “Am I acting independently when it matters?” In the contemporary corporate governance landscape, independence is not merely a statutory qualification attached to a director’s designation; it is demonstrated through the willingness and ability to ask difficult questions, critically evaluate management decisions, look beyond polished disclosures, and discharge governance responsibilities with objectivity, diligence, and integrity.