The Inconsistent Adjudication of Independent Directors’ Liability and its Impact on their Role and Responsibilities

The Inconsistent Adjudication of Independent Directors’ Liability and its Impact on their Role and Responsibilities

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Volume 17 Issue 1 ()

This paper aims to make a novel contribution to the literature on the roles and responsibilities of independent directors by examining the interpretive position adopted in case law dealing with the same. The paper discusses the Securities and Exchange Board of India (SEBI) and Securities Appellate Tribunal (SAT) decisions concerning the liability of independent directors as per §149(12) of the Companies Act, 2013, wherein their roles and responsibilities were discussed. Two trends in decision making regarding the scope of an independent director’s duties have emerged. First, as exemplified in SEBI’s decision in MPS Infotechnics v. SEBI and the SAT decision in Svam Software v. SEBI, the ‘day-to-day functioning’ test is used to hold that since the independent directors did not perform day-to-day functioning, they could not be held liable. Second, as illustrated by the reasoning of SEBI’s decisions in Dish TV and Bombay Dyeing, the diligence standard of §149(12) is used to hold the independent director liable based on whether they independently reviewed the Board and the company’s activities. The piece infers that in the first trend, the independent director’s role is considered analogous to, and even the same as, that of other directors. Simultaneously, as per the 2013 Act and the second trend, daily participation in the company’s affairs, being non-executive directors in the 2013 Act, lies outside the independent director’s ambit. This divergent SEBI and SAT jurisprudence concerning §149(12) further muddles the unclear landscape of the roles and responsibilities of independent directors vis-à-vis other directors.

Cite as: Divya Sethuraman & Priyanshi Kothari, The Inconsistent Adjudication of Independent Directors’ Liability and its Impact on their Role and Responsibilities, 17 NUJS L. Rev. 1 (2024)