Independent Directors: 3 essential practices to safeguard against regulatory liability

In recent years, enforcement orders by the MCA and SEBI have increasingly examined the role and conduct of Independent Directors when listed or large unlisted entities face governance crises.

Section 149(12) of the Companies Act, 2013 affords protection only if the act or omission occurred without the director’s knowledge, deliberate consent, or connivance, and where the director acted diligently.

But how is "due diligence" demonstrated before a court, tribunal, or regulator?

Over 28 years of advising boards and sitting in boardrooms, here are 3 practices every Independent Director should insist upon:

🔹The 7-Day Agenda Rule: Insist on receiving comprehensive board packs at least 7 days prior to meetings (per Secretarial Standard-1), especially for items involving related party contracts, capital expenditure approvals, or borrowings.

🔹Active Questioning in the Record: If an item appears ambiguous or lacks independent valuation/arm’s length justification, record specific questions. More importantly, ensure the minutes accurately reflect the inquiry and management’s reply.

🔹Seek Independent Professional Advice: Exercise your statutory entitlement under Schedule IV (Code for Independent Directors) to seek independent legal, financial, or secretarial counsel at the company’s expense when evaluating critical or contentious transactions.

Passive assent in the boardroom is no longer a viable defence. Contemporaneous documentation is your only true shield.

What steps does your board take to ensure Independent directors have access to unhindered documentation before making high-stakes decisions?