Corporate governance failures in India rarely begin with a dramatic collapse. They start quietly, in board rooms where the right questions are not asked, in committee meetings where risks are noted but not acted upon, and in transaction approvals where independence is assumed rather than verified.
By the time regulators intervene, the damage is already visible. The SEBI enforcement actions against Brightcom Group, the governance controversy at Zee Entertainment Enterprises, and the long-running scrutiny of Byju’s financial disclosures, these cases do not represent isolated incidents. They represent a pattern.
In each of these situations, boards had access to information. What was missing was the willingness to act on it in time.
Drawing on recent regulatory actions, National Company Law Tribunal (“NCLT”) proceedings, and SEBI orders, here are five legal lessons that every board in India needs to understand and operationalize in 2026.
Lesson 1: Board Presence Is Not the Same as Board Oversight
One of the most persistent misconceptions in Indian boardrooms is that attendance equals oversight. Boards meet. Minutes are recorded. Resolutions are passed. On paper, governance appears to be functioning.
But presence is not the same as oversight.
The Companies Act, 2013, under Section 166, sets out the duties of directors explicitly. Directors are required to act with reasonable care, skill, and diligence, not merely attend meetings. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”) similarly require that independent directors meaningfully engage with financial statements, audit findings, and risk disclosures.
The Brightcom Group case is instructive here. SEBI’s investigation revealed that the company had inflated its revenues substantially over multiple years. The board’s independent directors, whose primary role is to function as an oversight mechanism, failed to raise concerns that a reasonably diligent review of the financials would have surfaced.
The legal takeaway: Board oversight is a substantive duty, not a procedural one. Independent directors in Indian companies who sign off on financials without adequate scrutiny can be held personally liable. Section 149(12) of the Companies Act, 2013 provides a due diligence defence, but it requires demonstrable evidence of active engagement — not passive presence.
What Boards Should Do
- Ensure independent directors receive financial statements with sufficient lead time before meetings.
- Create a documented record of questions raised and management responses received.
- Audit committee members must engage with internal auditors separately, outside management’s presence.
Lesson 2: Related Party Transactions Are Never Routine — And the Law Reflects That
Related party transactions (“RPTs”) account for a disproportionate share of governance failures in India. The reason is structural: when transactions occur between a company and its promoters, group entities, or key managerial personnel, the potential for conflict of interest is inherent.
Section 188 of the Companies Act, 2013 and Regulation 23 of LODR Regulations impose specific approval requirements for RPTs. For listed companies, material RPTs require approval by a majority of minority shareholders, a safeguard specifically designed to prevent promoter self-dealing.
The Zee Entertainment case illustrates what happens when these safeguards erode. Significant funds were alleged to have been channeled to promoter-related entities through complex transaction structures. Independent directors, some of whom eventually resigned, flagged concerns. But by then, the transactions had already occurred, and shareholder value had already been affected.
What typically happens in practice is that RPTs are framed as operational necessities. They are presented to boards as standard business arrangements. The scrutiny they receive rarely matches the scrutiny applied to third-party transactions of equivalent size.
The legal takeaway: SEBI amended its RPT framework in 2022, significantly expanding the scope of transactions that require prior approval and independent shareholder ratification. Boards that treat RPTs as procedural matters, rather than as heightened-scrutiny transactions are creating regulatory and legal exposure for themselves.
What Boards Should Do
- Establish a dedicated RPT policy reviewed annually by the audit committee.
- Require an independent fairness opinion for all material RPTs, regardless of whether it is technically mandated.
- Document the basis on which the transaction is considered to be in the company’s interest, not just the promoter’s interest.
Lesson 3: Compliance Satisfies the Regulator. Governance Protects the Company.
There is a critical distinction that many boards in India still fail to internalise: compliance is the floor, not the ceiling.
A company can file all required disclosures, maintain the mandated board composition, conduct the requisite number of committee meetings, and still have fundamentally weak governance. Compliance is a structured requirement. Governance is a judgment function.
This distinction becomes most apparent when regulators examine substance over form. SEBI’s enhanced scrutiny of companies under its SCORES platform, NCLT proceedings in IBC matters, and MCA inspections under the Companies Act frequently reveal situations where technical compliance existed but genuine oversight did not.
The Go Life Pharma financial fraud case, where promoters were alleged to have made fraudulent fund transfers while board-level compliance requirements were largely met on paper, is a recent example of this gap. Compliance did not prevent the fraud. Governance, had it functioned properly, might have.
The legal takeaway: Courts and regulators are increasingly looking at the quality of governance, not just the fact of compliance. The National Company Law Appellate Tribunal (“NCLAT”) and Securities Appellate Tribunal (“SAT”) have, in multiple decisions, examined whether boards exercised independent judgment, not just whether they completed the required procedural steps.
What Boards Should Do
- Conduct periodic governance reviews that go beyond compliance checklists, examining whether oversight is genuinely functioning.
- Engage external governance advisors or legal counsel periodically to assess the quality of board processes.
- Treat SEBI show-cause notices and audit qualifications as governance signals, not just regulatory nuisances.
Lesson 4: Identified Risks That Are Not Acted Upon Become Legal Liabilities
Most boards in India do not lack access to risk information. Risk management committees exist. Internal audit reports are presented. Red flags are noted in board minutes.
What boards often lack is the organizational will to act on that information in time, which is why they require a law firm near them.
Governance risk management in India, as required under Section 134(3)(n) of the Companies Act, 2013 and LODR Regulations, is not a disclosure exercise. It is a decision-making framework. The legal standard is not whether the board knew about a risk, it is whether the board took adequate steps in response to that knowledge.
In Byju’s situation, which has involved NCLT proceedings, investor disputes, and regulatory scrutiny across multiple jurisdictions, one of the core issues is the gap between what was disclosed to investors and what was actually occurring in the business. Boards that receive risk information and fail to escalate, investigate, or intervene are not insulated by the fact that the information was technically discussed.
The legal takeaway: Under IBC proceedings and in SEBI enforcement actions, regulators have examined board minutes to determine whether identified risks triggered any meaningful response. Minutes that show risk discussion followed by no documented action create significant exposure for individual directors.
What Boards Should Do
- Every risk identified in board or committee meetings should be assigned an owner and a review timeline, documented in the minutes.
- Risk registers should be live documents, reviewed quarterly, with status updates on remediation steps.
- Where management has been unable to address a risk within a reasonable period, the board should document its own position and, where necessary, escalate.
Lesson 5: Documentation Is the Only Governance Record That Survives Legal Scrutiny
When governance failures are examined, whether by SEBI, the NCLT, or in civil litigation, what matters is what was documented, not what was intended.
Board minutes in India are frequently inadequate. They record decisions, but not reasoning. They note that an item was discussed, but not what concerns were raised, what management explained, or why the board reached its conclusion.
This creates a fundamental problem when governance is challenged. Without documentation, there is no record of the independent judgment that the law requires. And without that record, the protection available under Section 149(12) of Companies Act, 2013, which shields independent directors from liability for acts or omissions of the company becomes difficult to invoke.
SEBI’s investigation process routinely examines board minutes, audit committee records, and internal communications. What these documents contain or do not contain shapes the regulatory outcome.
The legal takeaway: Minutes are a legal document. They are the board’s primary evidentiary record. Boards that allow minutes to be drafted as summaries of decisions, rather than as records of deliberation are systematically weakening their own governance defence.
What Boards Should Do
- Minutes should capture not just resolutions but the key questions raised, management responses received, and the basis on which the board was satisfied.
- Where an independent director dissents or abstains, this must be recorded with the reasons.
- Audit committee minutes, in particular, should reflect the nature of the examination conducted, not merely that the examination occurred.
The Pattern Underlying Recent Failures
Across the governance cases that have drawn regulatory and legal scrutiny in India over the past few years, a consistent pattern is visible:
- Oversight mechanisms existed but were not exercised with genuine independence.
- Transactions were approved without the level of scrutiny that their nature warranted.
- Risks were identified but not acted upon within a timeframe that could have prevented escalation.
- Documentation did not capture the reasoning behind board decisions, leaving individual directors exposed.
No single element in this list is catastrophic on its own. But together, they create the conditions for governance to fail and for boards to find themselves facing regulatory action, investor litigation, or personal liability.
Frequently Asked Questions
1. What are the main legal duties of a board of directors in India?
As per Section 166 of the Companies Act, 2013, directors are required to act in good faith, exercise independent judgment, avoid conflicts of interest, and act with reasonable care and diligence. These duties apply to executive, non-executive, nominee, and independent directors alike.
2. What SEBI regulations govern corporate governance for listed companies in India?
The primary framework is LODR Regulations, which govern board composition, related party transactions, audit committee functions, and continuous disclosures. SEBI periodically issues amendments, most recently strengthening RPT requirements in 2022.
3. Can independent directors be held personally liable for governance failures?
Yes. Section 149(12) of the Companies Act, 2013 provides limited protection for independent directors, but only where they can demonstrate that they acted on due diligence and were not aware of or complicit in the relevant act or omission. This protection requires active, documented engagement, not passive presence.
4.What constitutes a related party transaction under Indian law?
Section 2(76) of the Companies Act, 2013 and Regulation 2(zc) of SEBI’s LODR Regulations define related parties to include promoters, directors, key managerial personnel, and entities in which they have significant interest. Material RPTs require prior shareholder approval from a majority of non-related shareholders.
Is Your Board’s Governance Framework Legally Sound?
At Nyaayam Associates LLP, our corporate law practice advises boards, independent directors, and management teams on governance structuring, SEBI compliance, related party transaction frameworks, and board-level legal risk. We work with listed and unlisted companies across India to build governance that withstands regulatory scrutiny, not just compliance review.
If your board is navigating a governance challenge or looking to strengthen its oversight framework, contact us at nyaayam.com/contact or reach out to our corporate law team directly.
