Board-Level Governance Lapses in India: Independent Directors and the Due Diligence Imperative

Kumar Sujeet Singh Kanhaiya

doi:10.20944/preprints202607.0026.v1

Submitted:

30 June 2026

Posted:

01 July 2026

You are already at the latest version

Abstract

This perspective article argues that a critical weakness in contemporary Indian corporate governance lies in the inadequacy of the due diligence processes through which independent directors are appointed. Drawing on agency theory, resource dependency theory and the busyness hypothesis, it examines some major governance failures between 2022 and 2025. While these organizations differed in ownership structures, regulatory environments and business models, they exhibited recurring governance patterns despite the formal presence of independent directors. The article contends that prevailing governance reforms have focused primarily on structural compliance while paying insufficient attention to the substantive qualities that determine effectiveness. Synthesizing theoretical insights and contemporary governance evidence, it proposes that effective independent directors are distinguished by four interrelated attributes: domain expertise, time commitment, independence and a willingness to challenge management where appropriate. The article further argues that nomination and remuneration committees should function as rigorous due diligence institutions rather than procedural gatekeepers. By shifting attention from formal independence to functional effectiveness, the article contributes to ongoing debates on board governance, director accountability and corporate oversight in emerging markets. It offers a practical framework for strengthening independent director appointments and improving board effectiveness in promoter-dominated corporate environments.

Keywords:

agency theory

;

board oversight

;

corporate governance

;

due diligence

;

India

;

independent directors

;

nomination and remuneration committee

;

overboarding

;

SEBI

Subject:

Business, Economics and Management - Human Resources and Organizations

Introduction

A remark widely attributed to Warren Buffett – that many CEOs prefer “cocker spaniels” rather than “pit bulls” as directors – captures an enduring governance paradox that India's corporate history has repeatedly demonstrated. The Companies Act, 2013 and the Securities and Exchange Board of India (SEBI) Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015, together mandate that at least one-third of the board of every listed public company be composed of independent directors. The statutory intent is unambiguous: such directors are expected to provide objective oversight, protect minority shareholders and serve as the institutional counterweight to promoter concentration. What the regulatory text does not specify – and what the record of recent governance collapses makes urgently visible – is how independence should be assessed prior to appointment and whether appointees possess the time, expertise and disposition to exercise it in practice.

The modern conception of board independence owes much to the Cadbury Report, which emphasized the importance of independent non-executive directors, effective audit committees and the separation of oversight from executive management (Committee on the Financial Aspects of Corporate Governance, 1992). The three years between 2022 and 2025 produced a sequence of governance failures striking enough in scale and variety to merit systematic analysis. Gensol Engineering Limited's promoters allegedly treated a publicly listed entity as a personal treasury while certified independent directors sat on its audit committee. IndusInd Bank disclosed accounting discrepancies in its derivatives portfolio that, according to subsequent investigation, had persisted for close to a decade before public disclosure.

Byju's, India's most celebrated edtech startup, lost its auditor, watched investor-nominated board members resign in protest and descended into insolvency while governance lapses were documented by the Ministry of Corporate Affairs. Paytm Payments Bank accumulated years of regulatory censure from the Reserve Bank of India before its license was eventually cancelled on April 24, 2026.

Each case is factually distinct. Together, however, they point toward a common structural failure: independent directors who were present in number but absent in substance. This article examines why that pattern recurs, what the theoretical and regulatory literature says about its causes and what meaningful reform the director appointment process would require. The central argument is that the problem is not too few independent directors – India mandates a floor that most developed markets would recognize – but rather the wrong independent directors, appointed through processes that prioritize reputational signals over functional capacity.

Perspective and Contribution

This article is positioned as a perspective paper rather than an empirical research study. Its purpose is not to establish causal relationships through statistical analysis, nor to provide a systematic review of the corporate governance literature. Instead, it develops an interpretive and practice-oriented perspective on a recurring governance problem that has become visible in contemporary India: the gap between the formal presence of independent directors and their actual effectiveness as board-level monitors.

Recent governance failures across listed companies, financial institutions and high-growth enterprises have generated extensive discussion regarding board accountability, promoter influence, risk governance and regulatory oversight.

Much of this discussion has focused on strengthening compliance requirements, enhancing disclosure obligations and increasing regulatory scrutiny. Comparatively less attention has been devoted to due diligence in appointing independent directors and to the substantive characteristics that enable directors to perform their oversight role effectively once appointed.

The central argument advanced in this article is that governance effectiveness depends not merely on the existence of independent directors but on the selection of directors who possess the expertise, capacity and independence necessary to exercise independent judgment. Drawing upon agency theory, resource dependency theory and the busyness hypothesis, the article proposes that four attributes are particularly important in determining independent director effectiveness: domain expertise, sufficient time availability, intellectual independence and willingness to challenge management where required. These attributes provide the analytical lens through which the subsequent case analyses are interpreted.

The article contributes to the governance literature in three ways. First, it shifts attention from formal definitions of independence towards the practical conditions that enable independent directors to function effectively. Second, it integrates contemporary Indian governance cases with established governance theory to identify recurring structural weaknesses in board oversight. Third, it advances a normative framework for strengthening independent director appointments by reconceptualizing nomination and remuneration committees as substantive due diligence institutions rather than procedural compliance mechanisms.

By bringing together theory, regulatory developments and contemporary governance failures, the article extends the ongoing debates concerning board effectiveness and corporate accountability in emerging market contexts. The broader implication is that sustainable improvements in corporate governance are unlikely to arise solely from additional regulation; they also require greater attention to the processes through which boards identify, evaluate and appoint those individuals entrusted with independent oversight.

Theoretical Foundations and Analytical Framework

Agency Theory and the Monitoring Function

The principal theoretical justification for board independence derives from agency theory of Jensen & Meckling (1976), which frames the relationship between shareholders and managers as one of delegated authority characterized by information asymmetry and divergent incentives. A board composed, in part, of directors with no personal stake in the firm's management is theoretically capable of monitoring management conduct in ways that executive directors whose incentives differ from shareholders cannot. The logic is intuitive. Its operational reliability depends, however, on two conditions that are frequently left unexamined in the Indian context: first, independent directors actually possess the information necessary to exercise monitoring judgment; and second, that they possess the time and institutional courage to act on what they learn.

Subsequent extensions of agency theory have been less sanguine about the independence of nominally independent directors in promoter-dominated ownership structures. Where a founding family or promoter group controls the operating entity and also the nomination process, the director is positioned to satisfy the monitoring expectations of the appointing shareholders rather than those of the minority investors the institution was designed to protect (Chakrabarti et al., 2008). In the Indian context, where promoter concentration remains high and cross-holdings between group entities complicate the definition of material relationships, this structural tension is acute.

Resource Dependency Theory

Resource dependency theory (Pfeffer & Salancik, 1978) offers a complementary but more optimistic, account of board composition. Where agency theory emphasizes monitoring, resource dependency emphasizes access: a well-constituted board brings expertise, networks and reputational capital that the firm could not otherwise command. The implication for director selection is that the most valuable independent director is not simply someone with no conflicts but someone with something to contribute: domain knowledge, functional expertise, regulatory familiarity, or access to capital and markets that strengthens the firm's competitive position.

These rationales are partially in tension. The best monitor may not be the most valuable resource contributor; the most prominently networked director may be the most conflicted. Indian board composition has historically resolved this tension in favor of the reputational legitimacy – preferring former bureaucrats, retired senior bankers, ex-regulators and prominent academics whose names confer legitimacy without imposing challenge. The cases examined in this article suggest that this resolution has been consistently unsatisfactory from a governance standpoint.

The Busyness Hypothesis

A third strand of theory, directly relevant to the question of director selection, is the busyness hypothesis, which holds that directors serving simultaneously on multiple boards are impaired in their monitoring capacity (Fich & Shivdasani, 2006). The empirical record on overboarding is contested: some studies find a negative relationship between multiple board memberships and governance outcomes; others argue that the effect is smaller than critics suppose, particularly where the director in question brings unique expertise (Field et al., 2013). What is not contested is the underlying logic – that board oversight requires preparation, presence and continuity of attention, all of which are finite resources.

The busyness hypothesis is particularly salient in India. While the SEBI LODR Regulations cap independent directorship at seven listed entities, this formal limit leaves room for a level of commitment that would challenge the most disciplined professional. An independent director chairing audit committees at five entities across different sectors is, mathematically, substantially less well-positioned to detect treasury irregularities in a bank's derivatives portfolio than a director whose board engagement is concentrated and whose preparation time is not rationed across competing obligations. The distinction between holding a position and fulfilling it is the core governance problem that appointment processes have thus far failed to address.

Taken together, agency theory, resource dependency theory and the busyness hypothesis suggest that effective independent directors are distinguished not merely by formal independence but by four interrelated attributes: domain expertise, adequate time commitment, intellectual independence and the willingness to challenge management where necessary. These four attributes provide the analytical framework through which the subsequent case analyses are interpreted.

The Regulatory Framework and Its Gaps

The Indian regulatory architecture governing independent directors has been progressively strengthened since the Satyam accounting scandal of 2009 exposed the inadequacy of passive board presence.

Section 149(6) of the Companies Act, 2013, establishes eligibility criteria defining independence through a negative list of disqualifying relationships – with promoters, with the company's auditors, through material pecuniary relationships and through family connections.

Schedule IV of the same statute sets out a code of conduct specifying professional obligations. Section 178 mandates the constitution of a Nomination and Remuneration Committee (NRC), charged with formulating criteria for director qualifications and recommending appointments to the board (Companies Act, 2013).

The Kotak Committee shifted the emphasis of Indian corporate governance reforms from formal compliance towards board effectiveness, enhanced disclosures and improved board independence (SEBI, 2017). SEBI's amendments to the LODR Regulations, most significantly those of 2021 and 2023, further strengthened disclosure requirements, enhanced the NRC's role and introduced skills-matrix disclosures designed to move board appointments toward evidence-based governance needs. The 2021 amendments required companies to disclose not only who was selected but, for listed entities, the rationale for selection in terms of demonstrated skill match. This represented a meaningful step toward substantive rather than formal assessment.

The G20/OECD Principles emphasize that effective corporate governance depends not merely on formal board composition but also on the competence, integrity and effectiveness of board oversight (Organization for Economic Co-operation and Development [OECD], 2023). This is the touchstone.

The harder question is not whether the regulatory framework is adequate in its stated objectives – it is substantially more robust than equivalent frameworks in many emerging markets – but whether it has changed the actual conduct of board appointments. The evidence from the cases discussed below suggests that it has not, at least not consistently. SEBI described the company as exhibiting a breakdown of internal controls and corporate governance (SEBI, 2025a) at a company whose audit committee consisted, formally, of independent directors (Saraf Partners, 2025). Independent directors present, governance absent. The same pattern characterized each of the cases examined here.

The gap between regulatory architecture and governance reality has been acknowledged at the highest regulatory levels. SEBI Chairman, speaking at the CII Corporate Governance Summit in April 2026, observed that boards are well constituted, but not always equally effective (SEBI, 2026); and called explicitly for a shift from who sits on the board to how effectively they are able to contribute once they are there. This framing is significant. It acknowledges, from within the regulatory establishment, that structural compliance has not produced functional governance – and that the next phase of reform must address the quality of engagement rather than the quantity of persons.

Case Analyses: Board Failures in Contemporary India

Gensol Engineering Limited: The Audit Committee as Bystander

Gensol Engineering Limited presents the clearest recent instance of governance failure attributable in part, to the passivity of independent directors in the face of promoter misconduct. SEBI's issued interim order of April 15, 2025 barring founders from the securities market. It documented a systematic diversion of funds borrowed from public institutions – specifically, the Indian Renewable Energy Development Agency (IREDA) and Power Finance Corporation (PFC) – for purposes entirely unrelated to the stated objective of procuring electric vehicles for the company's mobility subsidiary, BluSmart (SEBI, 2025a; Saraf Partners, 2025).

The scale and nature of the alleged misconduct is significant for governance analysis. SEBI found that of approximately ₹978 crore borrowed between FY 2021–22 and FY 2023–24, funds were routed through a dealer, Go-Auto Private Ltd and then channeled to promoter-linked entities including Capbridge Ventures LLP, where they were deployed to purchase a luxury apartment in DLF's The Camellias, Gurgaon: initially booked in the promoters' mother's name. Only 4,704 of the 6,400 electric vehicles supposedly procured were ever delivered (Gaba, 2025). The company's share price, which peaked at approximately ₹1,126, had fallen to roughly ₹133 by April 2025 – a destruction of roughly ₹3,800 crore in shareholder value (Gaba, 2025).

What did Gensol's independent directors know and when? The resignation letters of departing independent directors, filed with the exchanges in April 2025, are instructive. Independent Director Arun Menon stated that he had attempted to contact the promoter in July and August 2024 to seek clarity on the company's debt position and had received no meaningful response. Former audit committee chair Rajesh Jain had resigned in March 2025, noting that the company needed necessary guidance in such fast growth environment. These accounts reveal not deliberate complicity but rather the structural limitations of directors who lacked both the authority to compel disclosure and apparently the tools to obtain it independently. SEBI's order specifically noted that the alleged actions – or inactions – of connected stakeholders including the independent directors, audit committee members, chief executive officer, chief financial officer, compliance officer and statutory auditors would be focal points for the forensic audit commissioned in the case (Saraf Partners, 2025).

The Gensol case illustrates the tension between the formal requirements of board independence and its functional prerequisites. The independent directors were nominally in place; the audit committee nominally constituted. What was absent was the information access, the investigative diligence and perhaps the institutional courage necessary to probe a promoter who had structured the company's financial flows to evade precisely the oversight those directors were mandated to exercise.

IndusInd Bank: A Decade of Unreported Risk

IndusInd Bank's disclosure, in March 2025, of material accounting discrepancies in its derivatives portfolio opened a governance investigation of longer duration and greater systemic significance.

Subsequent investigations and whistleblower allegations suggested that accounting irregularities may have originated several years earlier, raising questions about the effectiveness of board-level oversight and audit committee scrutiny. The financial impact was substantial: the bank reported a net loss of ₹2,329 crore in the January-March 2025 quarter, driven by provisions and income reversals, with the combined effect on the profit and loss account reaching approximately ₹1,969 crore as of March 31, 2025 (IndusInd Bank, 2025).

SEBI's subsequent interim order of May 27, 2025, found that the bank's management had knowledge of the accounting discrepancies some fifteen months before public disclosure and prohibited several executives, including the former Managing Director and Deputy CEO, from trading on allegations of insider trading. The Serious Fraud Investigation Office (SFIO) simultaneously initiated scrutiny of potential violations of accounting norms and corporate law. Media reported about a former CFO having alleged in a letter to the Prime Minister's Office that the statutory and forensic audit reports had been allegedly influenced by the board in return for large fees. However, the bank's board categorically denied while asserting that it had acted diligently and transparently.

For governance analysis, the IndusInd case raises the more fundamental question. This was not a company in an early growth stage with thin professional management. It was India's fifth-largest private sector bank, with a board that included experienced banking professionals and met all regulatory composition requirements. If a derivatives portfolio could be misstated for ten years without being surfaced through board-level oversight, the question is not whether independent directors were formally present – they were – but whether the board's audit and risk functions possessed the technical capability, the independence from management and the investigative orientation to detect what internal and external auditors had apparently missed or not pursued.

The case also raises the question of information architecture. The busyness hypothesis suggests that directors managing multiple board obligations may default to trusting management representations rather than independently probing complex financial instruments. A director who sits on the audit committees of several financial entities and lacks deep treasury expertise is, structurally, dependent on the information management chooses to provide. In an institution where management had apparent awareness of a problem and chose non-disclosure, this dependence becomes a governance vacuum.

Byju's: Governance Collapse in the Absence of Independent Oversight

Byju's governance failure is distinguished from the corporate examples above by the fact that it occurred in a private company not subject to the listed-company requirements of the Companies Act. That distinction is itself analytically significant: where institutional investor discipline, proxy advisory scrutiny and SEBI enforcement were absent, governance deteriorated far more rapidly than in comparable regulated entities. At its peak valuation of $22 billion in 2022, Byju's had achieved the kind of market position that attracts prominent board members – but investor-nominated directors, including representatives of Prosus, Peak XV Partners (formerly Sequoia Capital India) and the Chan Zuckerberg Initiative, resigned from the board in June 2023, citing persistent disregard for governance advice and a management culture that treated board oversight as an obstacle rather than a mechanism of accountability (Raizada & Sinha, 2025).

The Ministry of Corporate Affairs' investigation, concluded in 2024, found lapses in corporate governance, including failure to disclose acquisition details to all directors, approval of deals on short notice and a failure to hire professionals for finance and compliance functions. Deloitte, Byju's auditor, had resigned in 2023, citing an inability to obtain adequate financial information – a step that carries particular weight given auditors' professional obligations to persist in their inquiries. The edtech firm's valuation collapsed from $22 billion to effectively zero, representing one of the largest erosions of investor value in Indian startup history.

What makes Byju's instructive for the independent director question is the behavior of the investor-nominated directors. When those directors were present, they raised concerns, documented disagreement and eventually resigned when engagement proved futile – a pattern that demonstrates both the value of directors who take their oversight role seriously and the structural limitations of such directors when the promoter retains unchecked control. The absence of independent directors with genuine authority, combined with a promoter unwilling to accept challenge, is a governance structure that contains the seeds of its own failure.

Paytm Payments Bank: Cosmetic Independence under Regulatory Pressure

Paytm Payments Bank's governance trajectory offers a different analytical dimension: the appointment of independent directors as a regulatory response to compliance failure, rather than as a genuine governance reform. When the Reserve Bank of India barred the bank from onboarding new customers in March 2022 – citing Know Your Customer (KYC) violations that amounted, in the RBI's assessment, to fundamental failures of customer identification discipline – the bank's board included experienced banking professionals, including a former RBI official who had served as the bank's own CEO.

The RBI articulated the regulatory position stating that the supervisory action is for persistent non-compliance. Such actions are invariably preceded by months and at times, years of bilateral engagement where RBI not only point out deficiencies but provide adequate time to take corrective action. Following the January 2024 escalation – which imposed restrictions on deposits, wallet top-ups and FASTags – Vijay Shekhar Sharma resigned as part-time chairman and the board was reconstituted with a former Central Bank of India chairman, retired IAS officers and former senior banking executives as independent directors. Following prolonged supervisory action and repeated regulatory restrictions, Paytm Payments Bank ceased banking operations after the Reserve Bank of India concluded that persistent governance and compliance deficiencies had not been satisfactorily addressed.

The Paytm Payments Bank case is significant for two reasons. First, it demonstrates that having experienced financiers on a board does not automatically translate into governance effectiveness when the dominant shareholder's interests run counter to regulatory compliance. Second, the board reconstruction of early 2024 – replacing existing directors with more prominent names in a crisis response – illustrates the persistent tendency to treat independent director appointments as reputational management rather than substantive governance. The post-reconstruction board, whatever its individual members' credentials, did not ultimately satisfy the regulator's concerns and the bank's license was cancelled two years later despite the overhaul. Structural changes alone could not address the systemic issues flagged during audits.

The Anatomy of Board Failure: Recurring Structural Patterns

Across these four cases, several structural patterns recur with sufficient regularity to warrant systematic analysis rather than case-by-case explanation.

Promoter capture of the nomination process is the most consistent. In each instance, the appointment of independent directors occurred within a context where the promoter or dominant shareholder retained de facto control over the selection, regardless of the formal requirements that NRC involvement imposes. This is not merely an observation about individual dishonesty; it reflects a structural reality acknowledged by the former SEBI Chairman, who admitted that SEBI was yet to get ideal solutions for ensuring the independence of independent directors (Arora, 2024). Where the person appointing the director controls the entity the director is meant to monitor, the independence that statute prescribes and the independence that governance requires are conceptually distinct.

Information asymmetry is the second recurring pattern. Independent directors in each case were dependent on management for the information necessary to fulfill their oversight obligations. The Gensol directors received no meaningful response when they sought clarity on debt structure. The IndusInd board was, according to at least one account, operating without full knowledge of what management knew about the derivatives portfolio. Byju's board members found that acquisition decisions were brought for approval on short notice, without the preparation time necessary for genuine evaluation. The SEBI LODR Regulations and the Companies Act's Schedule IV impose obligations on independent directors to seek information actively – but the information architecture of Indian boardrooms, particularly in promoter-dominated firms, does not always make that seeking practically feasible.

Audit committee passivity is the third pattern. The audit committee is the institutional locus of financial oversight within the board structure; SEBI's post-2021 amendments reinforced its importance by requiring all related-party transactions to be approved only by independent directors on the audit committee. In Gensol, the audit committee did not identify material diversions of ring-fenced loan funds. In IndusInd, the audit committee did not surface a derivative accounting problem that internal audit records subsequently suggested had been known to some level of management for years. SEBI's enforcement action in Brightcom Group Ltd (SEBI, 2025b) sent a clear message – penalizing independent directors who had not raised evident inconsistencies in accounts despite being members of audit committees – but the lesson appears not to have been uniformly absorbed.

The fourth pattern is a structural conflation of reputational prestige with governance capacity. India's governance literature has noted and the cases analyzed here confirm, a marked preference for appointing independent directors whose names carry external validation – retired judges, former regulators, senior bankers and distinguished academics – without systematic enquiry into whether those individuals possess sector-specific knowledge of the businesses they are overseeing, sufficient time to engage seriously with complex financial disclosures, or the temperament to challenge promoters when their judgment differs from management. The cocker spaniel metaphor, cited at the outset, describes precisely this tendency: the director selected is agreeable rather than challenging.

The Case for Depth over Breadth: Focused Directors and Governance Premium

The argument for independent directors who sit on fewer boards, possess domain expertise, and have sufficient time to engage meaningfully, are generally better positioned to fulfill the monitoring function expected under contemporary governance frameworks – rests on both theoretical and empirical grounds. Theoretically, the busyness hypothesis predicts that monitoring effectiveness is inversely related to the number of simultaneous commitments a director maintains (Fich & Shivdasani, 2006). A director whose attention is distributed across multiple boards – each with its own audit cycle, committee obligations, strategic deliberations and financial disclosures – is more likely to rely more heavily on management-provided summaries and less on independent investigation.

Research examining director overboarding in emerging markets has found that directors serving on three or more boards show measurably lower meeting attendance and reduced quality of engagement (Mans-Kemp et al., 2018).

Empirically, proxy advisory firms globally have tightened their standards in response to this evidence. Glass Lewis (2026) guidelines express the view that an overcommitted director can pose a material risk to a company's shareholders, particularly during periods of crisis (Harvard Law School Forum on Corporate Governance, 2019). The period definition captures precisely the circumstances in which Gensol, IndusInd and Byju's required competent board oversight. Institutional Shareholder Services (ISS) (2025) similarly flags concerns when directors hold more than five board seats. These are market-led corrections of a governance failure that formal regulation has addressed only partially.

The harder question – and one where the evidence remains mixed – is whether less-prominent directors with fewer other commitments can contribute as much strategic value as well-connected senior professionals. Field et al. (2013) found that directors with multiple board seats often bring more relevant experience; the Conference Board's analysis of MSCI ACWI data found no correlation between overboarding and long-term company performance at a global level (FCLTGlobal, 2019). These findings counsel against a simplistic equation of "fewer boards" with "better governance."

The more nuanced argument, and the one this article advances, is that the right independent director is not necessarily the most famous available name, but the person who combines genuine expertise in the company's primary risk areas with a board commitment that allows for serious engagement.

An early-career governance professional with deep domain expertise who sits on two bank boards is likely to contribute more meaningful oversight to IndusInd's treasury function than a retired bureaucrat who sits on seven boards and brings broad administrative experience but limited financial instrument knowledge. Practicing governance professional who has dealt with related-party transaction disputes in the renewable energy sector is more likely to detect the Gensol pattern than a celebrated industrialist, however distinguished, whose engagement is spread across multiple unrelated sectors.

This is not an argument against experience. It is an argument about what kind of experience, in what concentration of attention and tested against what governance challenge. The Independent Directors Databank maintained by IICA under Section 150 of the Companies Act, 2013, was designed to broaden the pool of candidates beyond the self-replicating networks through which prominent names have historically been recycled across India's major corporate boards. The databank has expanded the supply of available candidates; what it has not yet done is change the demand-side behavior of nominating committees sufficiently to alter appointment patterns on the ground.

Towards Substantive Due Diligence: Reforming Appointment Processes

The regulatory response to each of the cases examined here has, predictably, included calls for stronger enforcement, greater director liability and enhanced disclosure. These interventions are not without merit, but they address symptoms rather than causes. The root problem is the appointment process itself – specifically, the gap between the formal criteria that the Companies Act and LODR Regulations impose and the substantive assessment of engagement capacity, domain relevance and independent judgment that effective governance actually requires.

The Nomination and Remuneration Committee must be reconceived as a substantive due diligence institution. The SEBI's 2021 amendments requiring skills-matrix assessments and disclosure of selection rationale were a meaningful step in this direction, but their implementation has too often remained a compliance exercise – a formal documentation of why the selected candidate matches a predetermined skills description, rather than a genuine competitive assessment of who among a broader candidate pool would most strengthen the board's oversight capacity in its areas of greatest risk.

Substantive due diligence for independent director appointments would, at a minimum, require several changes to current practice. The NRC should assess not only whether a candidate satisfies the negative criteria for independence but whether the candidate brings specific expertise in the company's primary operating risks – whether that is derivatives risk management for a bank, related-party transaction discipline for a group company, or regulatory compliance in a fintech context. This is the distinction between formal independence and substantive independence that SEBI's commentators have articulated as independence in form but not in function (Arora, 2024).

Candidate due diligence should include a realistic assessment of time availability. A director who currently chairs audit committees at four other entities may satisfy regulatory limits while being structurally incapable of the preparation and presence that audit committee chairmanship at a fifth entity requires. The IICA-maintained Independent Directors Databank's disclaimer – that "a company must carry out its own due diligence before appointment of any person as an independent director" – places this obligation explicitly on the appointing company (Companies Act, 2013, Section 150(3)). The question is whether NRCs have genuinely discharged it.

The Independent Directors Databank itself represents an underutilized opportunity. The pool of registered, proficiency-tested candidates includes many professionals whose domain expertise and governance commitment qualify them for meaningful independent director service even if they lack the prominent public profile that traditional appointment processes have favored. An NRC that genuinely seeks the best available candidate for a specific governance gap – rather than the most comfortable addition to an existing board dynamic – will frequently find that candidate in the middle of the databank's list rather than at the top of its social network.

The call for a joint initiative for capacity building of independent directors at scale is relevant but requires qualification. Training existing independent directors in new competencies is valuable; it is not a substitute for appointing directors who already possess the competencies the board needs. The distinction matters because the governance failures examined here were not primarily failures of directors who lacked training in risk management – they were failures of boards structured, appointed and operated in ways that made effective oversight structurally improbable regardless of the training any individual director had received.

Discussion and Implications

The cases examined here collectively suggest that India's governance framework has achieved formal compliance at the expense of functional oversight. This is not a uniquely Indian failure: governance scholarship globally has documented the gap between board composition and board effectiveness and the tendency of institutional investors to rely on structural proxies – independence ratios, committee composition, director tenure – rather than outcome-based assessments of governance quality (Jensen & Meckling, 1976; Fich & Shivdasani, 2006). What is distinctive about the Indian context is the persistence of this gap despite a regulatory architecture that is substantially more demanding than the regimes under which many comparable economies operate.

Three implications follow from this analysis.

The first concerns the nature of regulatory intervention. The progressive strengthening of formal requirements – from Clause 49 of the Listing Agreement, through the Companies Act, 2013, through the Kotak Committee amendments of 2019, to the LODR amendments of 2021 – has clearly improved average governance standards in Indian corporate life.

But each of the cases examined here occurred within the framework that post-reform regulation had produced. The implication is not that regulation has failed but that regulation can only mandate structure; it cannot mandate judgment. The final gap between a well-structured board and an effective one is filled – or not – by the quality of the individuals appointed and the seriousness with which the appointment process is conducted.

The second implication concerns accountability. India's governance scholarship and regulatory practice have debated at length the appropriate liability framework for independent directors – a debate intensified by the chilling effect that SEBI enforcement actions have had on the willingness of qualified professionals to accept independent director roles. The current liability framework is, as one legal commentary has observed, a "classic case of onerous responsibility without corresponding authority." The cases examined here suggest a more differentiated view: the problem is not that independent directors face too much liability in the abstract, but that liability has been imposed in the absence of the information access and institutional authority that would make meaningful oversight possible. Reforming liability in isolation, without reforming information architecture and appointment quality, is unlikely to produce governance improvement.

The third implication is the most practical. The most actionable reform available to any company – without legislative change, without regulatory intervention and without complex institutional restructuring – is the decision of how to constitute its Nomination and Remuneration Committee and what that committee regards as its purpose. An NRC that takes seriously the distinction between a director whose name decorates a board and a director who strengthens it will produce a different appointment pattern than an NRC whose primary concern is satisfying regulatory requirements at minimum organizational cost. That choice is made every time a board seeks to fill an independent director vacancy and recent Indian governance history suggests that the wrong choice has been made with regularity.

Conclusion

Independent directors are India's principal institutional defense against the governance risks that concentrated ownership, information asymmetry and promoter dominance create in listed entities. The legal architecture of that defense is substantially developed. Its operational effectiveness has been repeatedly found wanting – not because the architecture is wrong in its essential design, but because the appointment process that populates it has prioritized the reputational signal over the governance substance.

The governance failures examined in this article are individually distinctive in their mechanics, their industries and their regulatory trajectories. Their common thread is a board that was constituted to satisfy external expectations while permitting internal arrangements that defeated the purpose of those expectations. Gensol's audit committee did not stop a diversion of ring-fenced loan funds. IndusInd's board did not surface a decade of derivative misstatement. Byju's investor-nominated directors raised concerns, were disregarded and eventually withdrew. Paytm Payments Bank's independent directors, however credentialed, could not resolve the fundamental governance dysfunction that the RBI ultimately concluded could not be corrected within a regulated banking entity.

The argument of this article is that the shift from credential-counting to engagement-testing – from asking "who is this person" to asking "what will this person do, with what knowledge, with how much time and with what structural access to information" – is the most consequential governance reform that current Indian practice has yet to achieve. That shift does not require new legislation. It requires NRCs to take seriously the obligation that Section 150(3) of the Companies Act places explicitly on them: to conduct their own due diligence before appointment. It requires boards to prefer a less prominent director who brings specific domain expertise and focused board commitment over a celebrated name who brings prestige but not presence.

The harder question, which this article leaves as a direction for future research, is how regulatory design might create incentives for NRCs to make that shift systematically rather than by exception. One possibility is mandatory disclosure of the number of board positions held by each independent director at the time of appointment, not merely at the time of compliance declaration. Another is regulatory guidance that explicitly cautions nominating committees against patterns of appointment that aggregate prestige without concentrating governance capacity. A third, more ambitious, direction is the development of post-appointment evaluation frameworks – already discussed in the SEBI LODR context – that assess board effectiveness against measurable oversight outcomes rather than structural compliance metrics alone.

India's corporate governance frameworks have, over the past three decades, achieved a great deal. The remaining distance between formal adequacy and substantive effectiveness is shorter than it was in 2009, or in 2019. But the cases of 2022–2025 remind us that the remaining distance is still real – and that the lives, savings and employment of the millions of Indians who participate in equity markets as retail investors depend on it being closed.

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