Newsletter Category: 2026

Leadership manifests itself in different ways, and assumes different forms. This is particularly true when one looks at the leadership of corporate Boards.

At the outset, it must be readily conceded that a one-size fits all approach will not work when it comes to dealing with, or leading, Boards that are varied in terms of composition, experience, situational context etc., to name only a few. It follows that whoever is identified as the leader of the Board, must measure up to the specific requirements of the Board.

At one end of the spectrum are Chairpersons who treat the rest of the Board as persons merely making up the numbers mandated by statute. Long years of having been with the same company, and having operated successfully at different levels, often gives rise to the feeling that there is absolutely no need to leverage the knowledge or the strengths of other Board members. The “my way or the highway” approach does tend to significantly impact on boardroom conversations. Directors on such Boards are often heard saying that their inability to contribute transforms over time into unwillingness, and resultantly, they become occupiers of the ringside seats, while the game goes on. Clearly, this is not an acceptable proposition. Chairpersons who do not recognise that they have pushed themselves into this corner, need to wake up and smell the coffee. Unhappiness in the boardroom can often lead to negative conversations outside the boardroom, which needless to state, will impact on the reputation, as also the performance of the company.

Another variation on this theme is the Chairperson who has a handful of acolytes who agree with him/her before a sentence has been completed. This echo chamber, for it is nothing else, ensures that the Chairperson does not get to know what he/she needs to know to provide effective leadership. Information, it is admitted, is the lifeblood of Boards and companies. If the flow of information to the Chairperson is impeded by the walls of the echo chamber, decision-making will necessarily be suboptimal. This is not an Indian phenomenon. The major collapses in 2008 in the US, had, as a leading contributory factor, the near perfection with which the top leadership shut out information, especially negative information, flowing to them.

A major correction is in order as far as such Chairpersons are concerned. To begin with, they need to be told that the Chairperson is primus inter pares, and not a superior creature in the boardroom, with the other members of the Board as passive subordinates. One way of addressing this is to ensure that the Chairperson is not the beneficiary of excessive centralisation, by making him/her the Executive Chair, the Managing Director, and on occasion, even the CEO, all rolled into one. There are examples of companies, especially in the public sector, where the statute mandates that there shall be an Executive Chairperson, and a handful of Executive Directors. This should however not be seen as the preserve of the public sector. One celebrated private sector company had, at a point of time, an Executive Chairperson and an Executive Vice Chairperson, leaving one to wonder whether the CEO had any executive responsibilities.

At the other end of the spectrum is the almost reluctant Chairperson, who tries very hard not to be involved in the decision-making process. The moment the Board proceedings commence, he/she invites the Company Secretary to take the Board through the agenda, and while the Company Secretary goes about doing what he/she has been told to do, the Chairperson maintains a benign presence, and rarely offers a view. Such an atmosphere is also counterproductive since the Chair is expected to provide leadership, and to ensure harmonious construction of opposite views, when agreement among Board members seems a remote possibility. These are de jure Chairs, who try hard not to be de facto Chairs. Such a situation often emboldens the Managing Director or other Directors to strike out on their own, thus, imperilling the company’s best interests. Senior management personnel also recognise this as an opportunity to carve out their own territories, even within the boardroom.

There is the third category which, in some sense, approximates the golden mean of Board leadership. Such Chairpersons recognise that other Directors are in the boardroom for a reason, and that value should be extracted from their presence, and from their contributions. Those Directors who remain the strong silent types should be persuaded to share their wisdom, and those who tend to hijack the proceedings should be brought back to discussing the subject or the proposition before the Board, and to leave enough time for others to do so. Indian Boards have two types of Directors, namely, those who have something to say, and those who have to say something. It is for an enlightened Chairperson to ensure that the latter category does not monopolise airtime, leaving former category as a bemused spectator. If a Board is rightly composed, taking into account the company’s requirements and the varied expertise that has been brought on the Board, it should not be neutralised by indifferent Board leadership. Suffice it to say that in some ways, the function of Board leadership approximates to conducting an orchestra, where everyone knows his/her part, and the Board does not witness discordant notes. Leadership in the boardroom is not the preserve of only the Chairperson. There are enough examples of strong Managing Directors or CEOs, taking advantage of ineffective Chairpersons, and running the Boards and the companies as their personal fiefdoms. The fact that a Chairperson is a non-executive, should not in any manner diminish his/her role or importance in the boardroom, and consequently, in the matter of providing effective leadership, even without having executive responsibilities. This recognition exists in many Boards, but recognition often takes a while to translate to reality.

One of the major responsibilities of Chairpersons is to ensure that Board members have sufficient role clarity, and do not intrude into the operational areas of management. This is best done by setting a personal example, with the Chair recognising that he/she is the Chair of the Board, and not of the company. Second-guessing management, on a continuous basis, is without argument, the best way of reducing managerial effectiveness, and impacting adversely on the performance of the company. This does not however preclude the duty cast on the Board to provide superintendence, direction and control.

There is an unstated belief that when a person is appointed as the Chair of the Board, he/she hits the ground running. Nothing could be further from the truth. Leading a bunch of experienced persons, with diverse expertise, and extracting value from them, is not the easiest of tasks. Therefore, before assuming the Chairpersonship of the Board, it is incumbent on the individual concerned to give considerable thought to how he/she will discharge the multifarious responsibilities that the position of the Chair entails. There is no requirement of a formal training course, since training courses normally focus on the provisions of the statute, and statutes as well as regulations address issues such as tenure, age and the like, without touching majorly on the role and responsibilities that go with the position of the Chair. Attributes, more than formal training, are important. A Chairperson, needless to state, should be an individual with considerable maturity, and the ability to take on board different aspects and approaches to an issue, before facilitating the collective decision of the Board. Weaving the various views expressed into a common thread, and seeking to reflect the agreed consensus of the Board is a necessary skillset. One of the underemphasised aspects of Board leadership is the ability to manage time in a manner that helps the Board to address all matters before it, and yet, conclude the meeting within the stipulated period.

One of the unstated responsibilities of the Chairperson is providing leadership in managing the reputation of the company. In challenging situations, he/she becomes the face of the company, and has to credibly communicate with stakeholders on the exact position that the company finds itself in with regard to complex issues. Some Chairpersons are known to shy away from this responsibility, and to have the management front the conversation. Handholding, without becoming a crutch, is an art that Chairpersons must practice on a continuing basis.

If the Board is expected to be fair and objective in its decision-making process, it stands to reason that the Chairperson should set the tone, and reflect the balanced approach that will enable Boards to act fairly and equitably.

The question often arises whether the role of the Chairperson is impacted significantly if he/she is a promoter or belongs to the promoter group. It should be clearly understood that within the boardroom, the Chairperson acts as a Director, who is the first among equals, and it is not appropriate for him/her to manifest attributes of ownership or majority control. The view that the promoter has skin in the game, and should therefore be able to unduly influence the thought processes of others in the boardroom, has no validity whatsoever.

The Chairperson is also, in a manner of speaking, the elder statesman in the boardroom. It is for him/her to ensure that the mentoring responsibility of the Board, which is an important requirement not provided by statute, is discharged effectively, so that senior management personnel are made ready for holding positions of higher responsibility within the company.

One inconvenient question must be addressed far more seriously than is being done at the present juncture. The process of Board evaluation should involve a rigorous assessment of the manner in which the Board has been led during the preceding year, and the earlier years. Continuing with a Chairperson whose performance is suboptimal, is a luxury that Boards can do without. As for Chairpersons themselves, when the realisation arises that they are not doing enough, or are not enjoying their role, it is time to say thank you and good bye.  And while parting, care should be taken not to adversely impact the interests of stakeholders.

To read our report titled “Leading the Board – Rethinking the Role of the Chairperson”, please click here

What is independence? This is a question that surfaces in different forms, within and outside of boardrooms. History informs us that political independence is an event which liberates countries from a dominion status, from the stranglehold of other countries, and enables them to be the masters of their own destinies. In conversations in the corporate environment, independence assumes a different dimension. It is not about carving out one’s own territory or flying a flag or working towards a concept of nationhood, with its own laws and rules. Independence in boardrooms is about each Director applying his/her mind to the facts in issue, and the information available, and contributing objectively to the process of decision-making. It is interesting to note that google defines independence as – “Independence is the state or quality of being free from the control, influence or support of others. It refers to the ability to make your own decisions, govern yourself and act without relying on external assistance.”

Clearly this definition cannot, in its entirety, apply to independence in the boardroom. While one is expected to be free from the control and influence of others, the support of others is a necessary condition for participating in the deliberations, and the decision-making process, since it is premised on information that is provided by others within the organisation. Further, this definition does not address the possibility that one could be independent even as a member of a team working in pursuit of a common objective.

One of the questions which arise when independence is discussed is “independent of whom?”. Is it independence from the promoter group or from any other significant group of stakeholders which influences the direction taken by the company? In the context of Independent Directors (IDs), there are those that believe that when the promoter group, or any other significant group in control, is associated with the appointment process, there cannot be any genuine independence. This leads to the somewhat facile conclusion that no one in a corporate environment can be independent of the controlling group. Yet the expectation is that those belonging to the category of ID act objectively and dispassionately, and in the process, ignore the interests of the controlling stakeholder or stakeholder group. Carried to the extreme, this independence would manifest itself as opposition to every proposal that management brings up for consideration, presuming that any such proposal will benefit the promoter directly or indirectly, and should necessarily be opposed. The unexpressed view is that IDs constitute the opposition party in the boardroom, and cannot, or should not, align with any decision that emanates from a management proposal. There are those that subscribe to the view that the promoter, having invested his/her resources, time, energy and reputation in setting up a company, will not act against its interests, and therefore, it would be fair to presume that by aligning with the promoter, the ID is acting in the interest of the company. It reminds one of the old saying “I take all the major decisions in my house, and my spouse determines what is major.”

Independence is not an attribute expected only of Directors. The auditing profession is expected to understand and interpret all relevant information relating to the functioning of the company, so that a balanced, fair and correct view can be presented to the stakeholders. With that expectation, there have been questions raised on the independence of auditors, with even a regulatory body, such as National Financial Reporting Authority (NFRA), pointing out instances of the absence of independence in the conduct of some large audit firms. This gives rise to a related question. Auditors, as a part of their report, clearly state that they have relied on information provided by the management. There is no other source from which they can receive all the information that they would need. Will this, in some manner, impact on the independence of the auditor, considering that the information provided may fall short of what is necessary for a complete diagnostic study of the operations of the company? There are also aspects of the audit process in which auditors are expected to address the correctness of the judgement of management, and opine whether they are comfortable with those judgement calls. Does such agreement translate to a negative impact on the independence of the auditors?

There has been, for many years, the larger question, the elephant in the room, of income from non-audit services impacting on the rigour of the auditing process. A rough and ready test is to determine whether the non-audit income is significant in relation to the audit income. Pending a blanket ban on non-audit services being provided by auditors, it is for the Board to satisfy itself that the provision of any such service does not adversely impact on the independence of the audit process. In the present context, this is a very tall ask from Boards which are struggling to face the reality that they are the persons primarily tasked to ensure corporate governance.

Internal Audit (IA) constitutes the best instrument for undertaking a diagnostic study of the functioning of any organisation. It helps to identify substantive and procedural shortcomings which could lead to major setbacks. It is universally accepted as arguably the best instrument of risk management. It stands to reason that anything that adversely impacts on the independence of the IA function should be identified, and taken out of the system. One major problem noticed in many entities is that the IA function reports to a member of the senior management, namely the CEO or the CFO, and this prejudicially affects the ability of the Internal Auditor to comment freely on what is observed. The IA function, while relying on management for logistic support, should functionally report to the Audit Committee (AC), and to no one else. A similar requirement exists in regard to the Compliance function, which should not be weighed down by the administrative control exercised by senior management functionaries, on account of considerations of rank.

The working of the committees of the Board also required to be taken note of. On some occasions, statements have been made to the effect that the AC of the Board should be independent of the Board. This has met with opposition from persons who believe that being a committee of the Board, the AC, as also other committees, should be subordinate, if not subservient. The expectation from the AC is that the correctness of decisions being taken by management will be examined, and where necessary, commented on. This aspect of functioning of AC should not be adversely impacted by non-AC members at the Board level influencing the decision-making of the AC. Similar is the situation with regard to the Nomination and Remuneration Committee (NRC). In rightly constituting the Board, and compensating Directors as well as Key Managerial Personnel (KMPs), and other senior personnel, as well as in ensuring the identification of successors for Board members and senior management persons, the NRC has to function objectively, without fear or favour. It follows that the independence of the NRC should be respected and ensured.

Independence is also a term that is bandied about when discussing regulatory organisations. Some context is necessarily in order. Regulatory organisations have been set up to provide a level playing field to all participants in the regulated universe, whether publicly owned or privately owned. The fact that public sector enterprises, either wholly or majority owned by the Government, compete in the same space as privately owned entities, made it necessary for regulation to be taken out from the Government, and entrusted to a body constituted for this purpose. The question arises therefore whether regulatory organisations act independently to further public interest. Looking at the area of Securities Market Regulation, it is fair to say that on some occasions, public sector enterprises have got away with transgressions that private sector entities have been punished for. There is also the question of special dispensations being given to public sector enterprises in matters such as Minimum Public Shareholding, proper constitution of Boards, and the like. Differential treatment by a Regulator is not evidence of independent conduct. It might well be argued that Regulators operate as a part of the larger ecosystem, and therefore, what they need is functional autonomy, as distinct from independence, properly so-called. Be that as it may, the question remains whether regulatory conduct is always objective, impartial and even-handed.

The overriding question is in whose interest should the corporate ecosystem work? When it comes to Directors, the Companies Act, 2013 (the Act) is very clear. Section 166(2) of the Act clearly states that all Directors are to act in the interest of the company, as well as of the other stakeholders that constitute the company. If for arguments sake, the interests of the company are not identical with those of the country, should Directors look only at the company’s interest, or see themselves as part of the larger entity? If there is clarity in regard to this seeming contradiction, there would be less instances of companies being ranged against the Government for judicial determination of seemingly contentious issues.

This brings us to a somewhat slippery surface, namely the independence of the Judiciary. The Constitution clearly provides that the Judiciary is one of the 3 organs of the Government. It is expected to act independent of the executive wing of the Government, and to determine the correctness, or otherwise, of legislative or executive action. Is the Judiciary structurally enabled to meet this expectation? This is no reflection on the functioning of the Judiciary, which is the last resort of hapless individuals seeking justice, when ranged against large institutions, or even the Government. The question is whether the procedure for appointing Judges, in any manner, gives rise to the possibility that independent judgement might be adversely impacted. Members of the higher Judiciary are selected by a collegium comprising Judges, with the process ending with the Government approval. The National Judicial Accountability Bill has not survived judicial scrutiny, and therefore questions continue to be raised on whether, given the selection process, Judges can be expected to be fair and impartial at all times. It is to the credit of the Judiciary that there is significant evidence of impartiality and objectivity in the judgements delivered, but the discomfort arising from the selection process refuses to go away.

The media is an important element in any civilized society. It follows that a free media should ensure balanced reporting, leading to its readers and viewers being fed complete and correct information, to enable them to exercise their judgement in an informed manner. Even senior personages and influential voices from within the media have been heard to state that the performance of the media, by and large, has fallen significantly short of expectations. Persons whose rights and reputations have been adversely impacted as a result of irresponsible reporting, do not have a forum that they can easily access in search of justice. The Press Council, which meets infrequently, does no more than administer a slap on the wrist, even in the cases of serious misreporting. The Broadcasting Council, which is a later phenomenon, has also not demonstrated any significant clout. Self-regulation, which media houses talked about at a point of time, seems to have fallen by the wayside. The ownership pattern of media houses also does not generate confidence that free and frank reporting will be the rule, rather than the exception. Some of them have experimented with creating an office of Ombudsperson, but the impact, if any, has been minimal, and the post hoc corrections have not added up to much. The question to be asked is whether the media is the fourth estate or the fifth wheel in the coach.

Conventional media has been seriously challenged by the emergence of what passes for social media. This is the platform that a large number of persons, both young and old, use to transmit information, share opinions, and sit in judgement, with no care in the world. Freedom of speech seems to have become a license, in the absence of regulation, to take potshots at any person or institution, knowing that no harm will be done to the originators of such thoughtless endeavours. Social media has also gained a legitimacy of its own, with even Governments and organisations communicating to their stakeholders through social media, rather than through the old conventional instruments of communication. A consequential danger is that a seriously threatened conventional media is also seen to be resorting to shortcuts, and expediency, and to put out stories that are neither verified, nor have any basis. The social media is truly independent, but that independence does not seem to partake of the rudimentary requirements of ensuring correctness, fairness and objectivity.

Technology and transparency should lead to trust. However, in a world that worships speed, and gives short shrift to accuracy, is independence too much to ask?

Independence is premised on the absence of conflict of interest, the latter being a red rag to an honest decision-making process that serves the interests of all stakeholders. However, while conflict of interest can be addressed through law and regulation, the efforts to deal with independence similarly have fallen flat, with all attempted definitions throwing up loopholes, rather than providing comprehensive solutions. Alan Greenspan, who reached the ripe old age of 100, before calling it a day a couple of weeks ago, famously said “you cannot legislate for honesty”. Much the same can be said of independence.

Every instance of corporate misdemeanour not only takes up several column centimetres of space in the print media, but also has breathless broadcasters, not merely speculating, but pronouncing judgement on what went wrong, and how it could have been avoided. Some questions, which cause serious observers to ponder, sometimes remain unarticulated. The more common among them are – What was the Board doing? Was the Board collusive or complacent? Did the various Board committees turn a blind eye, or were they blindsided by the lack of information from management? And then, the most uncomfortable of all questions. Do companies need Boards if this is the level of governance and supervision?

Students of corporate governance understand that the role of the Board is to provide supervision, as well as exercise control, besides setting a direction for the management. Whether even these roles, if performed well, can rule out transgressions and frauds, merits serious thinking. Is it time then to think of reinventing the Board, especially with an eye to the future?

Every Board has a Chairperson, executive or non-executive. It is generally believed that the Chairperson is primus inter pares in the Board, and is not a superior human being that influences the conduct and thought processes of others in the boardroom beyond a reasonable measure. When looking at Boards of the future, the position of Chairperson would be a good starting point. Many promoters of companies chair the Boards, as if it is their birthright. No one denies the fact that these, or their forebears, are persons with a dream in their eyes, and fire in their bellies, willing to commit time, energy and finances, while braving the risk of failure. Does that however render them the best persons to lead Boards? Or should Boards, and especially the promoters of companies, look for Chairpersons who can provide enlightened and objective leadership by harmonising different viewpoints, and extracting value from others in the boardrooms?

Compare this to the position of a Hindu Undivided Family. The Karta does not head the family because of his being brighter than the others, or more qualified to address the complex challenges of keeping a family together. Even claims that he/she has invested considerable wealth to address the family’s requirements often fall flat, especially when it is seen that much of the wealth, that he/she is presently responsible for, is inherited and not self-made. The younger members of the family, who often have a better idea of ground realities, and the way that the world is changing, are either unable, or unwilling, to express their views, because the hierarchy of family relationships might get in the way. There are several lessons to be taken from this when one looks at the functioning of corporate Boards.

It is not unusual to hear some Directors say that they had a different point of view, which they did not articulate for fear of rocking the boat. It is the accumulation of such unexpressed views that ultimately rocks the corporate boat. Is culture a major obstacle in the free expression of ideas in the boardroom?  Has respect translated itself to reverence?

For many years it used to be believed that promoter-led companies alone are victims of excessive centralisation of the decision-making process, denying the company the opportunity of benefitting from the expression of diverse views. This myth has now been exploded. On the one hand, there are promoters who see wisdom in allowing a free and frank exchange of views in order to benefit the company. At the other end of the spectrum, there are “professional Chairpersons” who treat the company, and consequently the Board, as their personal fiefdoms, leading to the unhappy conclusion that a “professional led” company is not necessarily a professionally led company.

The question therefore for the Board of the future is whether it should have a designated Chairperson. Or is the alternative of collective leadership with different persons by turns leading discussions at different meetings a better option? Will that encourage other members of the Board to see themselves as part of an enlightened leadership structure, rather than making up the numbers that the law and regulations prescribe? There is evidence to show that an executive Chairperson casts a cloud on the Board-management differentiation of roles and responsibilities. If he/she has a cozy working relationship with the senior management, the other Directors will end up being occupants of ringside seats in the boardroom, rather than participants in the process of governance. Should, therefore, the position of the Chairperson be thought through in some detail?

Next comes the question of the Independent Directors (IDs). Starved off information, and lacking in role clarity, IDs often wonder, mercifully in the quietude of their minds, what brings them to boardrooms, and whether they should continue to stay. Their absence of domain expertise makes them suspect in the eyes of management. Asymmetry of information vis-à-vis the wholetime management ensures that conversations between these two elements in the corporate entity are not necessarily well informed. The inability or unwillingness to commit quality time to the affairs of the company often makes the IDs suboptimal participants in the governance process. Managements, not necessarily uncharitably, sometimes think of the Board as a mandated, unavoidable nuisance. Self-preservation by IDs often leads to sequential querying of proposals, which the management sees no problem with, and sometimes obstruction, in order to perversely show an application of mind, leading to delayed decision-making. Some commentators believe that without skin in the game, this category of Directors does not do justice to understanding and deciding on issues that the company has to address. The perception that liabilities of Directors have increased manifold, also either leads to exits or to dissenting on most proposals, without going through the process of deliberation, discussion and debate. Some regulatory communications also seem to nudge Directors in the direction of rushing to dissent. What must be understood is that a cohesive Board is not necessarily a collusive Board. Is teamwork, then, an essential attribute of Boards of the future?

The next major issue that corporates face, and Boards encourage, is the structural straitjacket in which the workforce is placed. Too many layers in the decision-making process, premised on the belief that there is wisdom in hierarchy, can derail urgent and important decisions. Is there a case for empowering persons at different levels, and going through a massive exercise of delayering, so that decisions are better, faster, and demonstrate a higher sense of ownership?

Should Boards of the future be subject to the extraordinary statutory workloads that they presently have, diverting attention from serious discussions on strategy? While there have been some improvements, a lot more needs to be done. RBI is now moving in the direction of finally making Boards feel that they are at the apex of the decision-making process, and not passive respondents to regulatory prescriptions. Will Boards rise to the challenge of determining their own destiny by carving out a legitimate remit, and leaving the rest to levels below the Board, or will Boards and Directors, like pavlovian dogs, look in the direction of the Regulator, to be told what to do, and to act reflexively following such directions?

In all of this, will accountability move centre stage? Interminable delay in the decision-making process, not only in boardrooms, but also in regulatory organisations, is not contributing to the ease of doing business. Can there be timelines, which are nearly inflexible, to goad persons to take decisions within a reasonable timeframe? Or will we continue to live with the facile explanation that the matter is receiving attention.

Allow me to narrate a personal tale. My father had a small procedural matter pending with the pensions office. It did not move for several months. On one occasion, he telephoned someone in the pension office, to be told that the “concerned person” was on leave. My father’s response was simply this “Forget my pension. I am delighted to know that someone is concerned.” Should this be the experience of persons or corporates whose matters are needlessly held up either for approvals or for sanctions?

These days nearly everyone can be heard saying that she/he is committed to enhancing the ease of doing business. Yet, many are prisoners of procedures or seekers of precedent. Decision-making seems to be an interminable process, leading to paralysis in organisations. Can a forward-looking nation, in a rapidly changing world, live with such hurdles and obstacles? Should the reinvented Boards of the future lead the effort of creating an environment in which speed and objectivity do not remain concepts that feature only in conversations.

What is required is the equivalent of zero-based budgeting. A sufficiently strong committee should look at the entirety of policies and processes that inhibit progress. Tinkering or refinements will no longer be adequate. The context is interesting. There are already apprehensions that robots will replace human beings, partly, if not wholly, not only on the shopfloor, but also in boardrooms. This, if nothing else, should be the trigger for corporate chieftains to reimagine boardrooms and other structural features that exist today, and to look at all that presently exists through the lens of what the future needs.

The alternative is to continue as if change and improvement are not relevant. In the name of checks and balances, there can be multiple layers that inhibit prompt decision-making, and function with self-preservation as their intent.

Looking at different aspects or features of corporate governance will no longer past muster. More regulations may get written, and more disclosures mandated, without any significant value-addition. Can thought leaders in the corporate environment step up, and show the way, or will tomorrow be yet another day?

Postscript
“Que sera sera, whatever will be, will be
The future’s not ours to see…”
A great song, but a perfect recipe for disaster.

“The ultimate responsibility for the bank’s performance, conduct and control rests with the Board”, says the Reserve Bank of India (RBI). What is new one might ask.

The draft of RBI’s Amendment Directions 2026, relating to commercial banks (somewhat oddly titled the draft RBI Amendment Directions, 2026) was issued on April 8, 2026, for public consultations. The sentence in the preceding paragraph is the first of the 5 key principles for determining the matters to be placed before the Board, in addition to the matters specified in Appendix 1 and Appendix 2 of the draft. The first principle, focusing on the ultimate responsibility resting with the Board, goes on to state that some matters may be delegated to the Board committees/ sub-committees/ senior management, along with reporting requirements, as may be necessary. Delegation of the powers and functions of the Board to a Board committee is understandable, and is par for the course. However, delegating the functions/ responsibilities of the Board to a sub-committee or to senior management seems inappropriate. Only Board committees should ordinarily be the delegatees of the Board. As for sub-committees, it is not understood to which entities the reference is because committees of the Board are Board committees, and not sub-committees, as often erroneously mentioned by senior bank functionaries.

The second principle states that the matters reserved for the Board’s approval or to be brought to its notice for information or reporting should be clearly articulated. It goes on to state that the role and responsibilities of the Board under various statutes or regulations, may also be taken into account in determining such matters. If there are responsibilities arising out of statutes or regulations, it is a non-negotiable requirement that the Board deals with such matters. The words “may also be taken into account” gives the impression that even in regard to statutory or regulatory prescriptions, the Board has a choice.

The third principle states that the Chairperson of the Board shall have the primary responsibility for setting the agenda of the meeting. The Chair of the Board is primus inter pares, and is not a superior authority, placed hierarchically above the rest of the Board members. Further, considering that the Board as a collective entity is at the apex of decision-making, the agenda for Board meetings should be owned by the Board. It is necessary for managements to understand that setting an agenda for the Board amounts to taking the Board for granted. The agenda should be set with the Board.

The fourth principle states that the Board shall ensure that it receives sufficient information from the management to discharge its role effectively. It goes on to state that the Board shall clearly define the nature, level of detail and frequency of information required from the management. Given the number and variety of agenda items, some of which could not have been anticipated, it is inconceivable how a Board can, in advance, clearly define the nature, level of detail and frequency of information. What is important is that the Board ensures that the information received is adequate and timely, to facilitate decision-making.

The fifth principle states that the Board shall periodically review the matters to be placed before it, as well as the matters delegated to the Board committees/ sub-committees/ senior management. The review shall also include the timelines for circulation of agenda items, adequacy of information captured in the agenda, and the time allotted for important matters. The timelines for circulation of agenda items have been laid down in the Secretarial Standards, which forms a part of the Companies Act, 2013. There is no scope for ambiguity with regard to timelines.

At this stage, it is useful to look at the reasons that are stated to have prompted the draft amendment directions. Paragraph 1 of the draft dated April 8, 2026 says that this is a result of a comprehensive review and rationalisation of instructions issued by RBI from time to time, and is “an endeavour to enable Boards to utilise their time effectively, and to facilitate a more focused and qualitative engagement on strategy and risk governance”. Is there an admission residing in this statement that an overly prescriptive regime, leading to a plethora of instructions, has, in the past, deflected bank Boards from spending adequate time on strategy and risk management?

The statement on developmental and regulatory policies includes inter alia review of matters placed before the Boards of the bank and consolidation of supervisory instructions. As far as regulatory matters are concerned, RBI had, in a major departure from an earlier stipulation, prescribed 7 broad themes to merit the attention of bank Boards. Separately, and in addition thereto, RBI has also mandated certain policies and matters to be placed before the Board for approval, review or information. The 7 broad themes have had no impact on the reduction of agenda items, since bank managements, and also Boards, have slotted all the agenda items under these different themes. These themes are the equivalent of umbrellas under which several agenda items can take shelter, thus, having no impact on the reduction of agenda items coming up before the Board. The present endeavour to enable Boards to utilise their time effectively, and to facilitate a more focussed and qualitative engagement on strategy and risk governance, is a very welcome and timely move. The comprehensive review and rationalisation of such instructions should result in a significant reduction in the number of items to be considered by the Board. Failing this, it would be yet another exercise that does not yield the desired outcome.

The consolidation of supervisory instructions gives a clear indication of the load that Boards are having to contend with. In 2025, the RBI undertook a comprehensive consolidation exercise, and reduced the existing regulatory circulars / guidelines from more than 9,000 to 238 function-wise master directions. RBI had, several years ago, constituted a Regulations Review Authority (RRA), and its second edition has been in existence for some time. The fact that so many directions have survived the scrutiny of the RRA is a matter of concern.

Appendix 1 deals with the policy matters prescribed by RBI for approval of the Board, and contains an analysis indicating which of them can be delegated. What the exercise reveals is that a large number of them have been considered not appropriate for delegation, meaning that the Board will continue to grapple with these issues. It is understood that policy documents are important enough to merit the attention of the Board, and should not, in any event, be finalised without the Board approval. There are quite a few items which are recommended for being taken out of the Board’s direct purview. Interestingly, what is stated is that these can be left to committees to which powers have been delegated by the Board. Clearly, the power to delegate some of these items existed earlier, and therefore, to say that these items should be left to those committees is not saying anything new.

One item which merits specific comment is the policy on compensation of Directors/ Chief Executive Officers/ Material Risk Takers. This matter is not considered appropriate to be taken away from the Board. The question that the banking Regulator needs to ask is whether compensation in individual cases should be determined by the Central Bank, as has been done for many years, impacting the ability of the Board to assert its position vis-à-vis the senior officers of the bank. The criteria for granting fixed remuneration to the Non-Executive Directors of the bank is also a matter that has been reserved for the Board.

The approval items contained in Appendix 2 include a wide range of subjects, some of which clearly should not take up the time of the Board, if the stated intent of this exercise is to make adequate time available to the Board for focusing on strategy and risk management. There are 11 approval items which have been included in the list for delegation at the discretion of the Board. Some of them merit comment. The appointment of the Chief Risk Officer (CRO) is proposed to be left to the Risk Management Committee of the Board. Some time ago, in a paper on the need to strengthen risk management, it was stipulated that the risk management function should be sufficiently strengthened and safeguarded. The present thinking seems to be that the Board needs to have no visibility on the appointment of the CRO. Similarly, in the case of the Chief Compliance Officer (CCO), it has been left to the discretion of the Board to delegate this to the Audit Committee (AC) of the Board. Considering that the CCO is expected to ensure compliance, not only relating to accounting and financial matters, the appointment of a person to this post should be with the approval of the Board, and not of the AC. Further, the existing paragraph, which mandates the Board to review the status of action taken on points arising from the earlier meetings till action is completed to the satisfaction of the Board, is proposed to be deleted. The action taken report is the only control document available to the Board to determine whether its decisions have been acted on. To discontinue this, would be to blindside the Board on a very essential aspect on the Board’s functioning. It is also proposed to delete the existing provision that a public sector bank shall place before its Board, copies of all directives/ circulars and other important communications from RBI and the Government. This deletion would lead to the Board’s remaining unaware of directives and communications from RBI and the Government, and would be a grievous omission. Such items, as are important for the functioning of the Board, should not be deleted in the guise of leaving the Board with more time to focus on strategy and risk management.

There are 6 items which come under the heading “maybe discontinued at the discretion of the Board”. Of them, 1 is an approval matter, 4 are review items and 1 is a reporting item. The small number of items identified for possible discontinuation gives rise to the question whether this exercise will actually release time for the bank Boards to attend to matters that Boards alone have to address. There is perhaps a good case for RBI itself to reexamine the matter, and to prune the lists, where considered appropriate. Would it be uncharitable to ask whether a mountain went into labour, and gave birth to a mouse?

The present draft is the result of a comprehensive review and rationalisation of instructions issued by RBI from time to time. This is apparently an internal exercise. Considering that the revised prescriptive arrangement would significantly impact the manner in which Boards function, it might be worthwhile, even at this stage, to constitute a committee comprising a few Chairpersons, a few Managing Directors and a few Independent Directors to collectively reflect on the present workload of the Board, and to come up with experience-based suggestions that can make a meaningful difference.

While RBI has undertaken this mammoth exercise, SEBI has not lagged behind. Its continuing concern with the performance of Directors in the boardroom, and consequently, with the performance of Boards, has thrown up, not for the first time, the need to provide training for Directors. This proceeds on the assumption that most Directors are non-performing or under-performing, and require to be suitably enabled and encouraged to perform their duties better. The fact that this concern has been articulated shortly after the high-profile exit of the Chairperson of a bank Board, is not to be ignored. Some might say that the focus on training of Directors has come very soon after the high-profile resignation, leading to the possible conclusion that there is a causal relationship. Whether the present move is consequent, or merely subsequent, is not a matter that should detain us. It is more important to focus on what is sought to be achieved. If newspaper reports are to be given credence, it would seem that the latest initiative is to work with industry bodies, corporates and academic institutes to shore up the quality of Directors. These training programmes, as in the past, could focus on the letter of law and regulations, and get into minor details such as the forms to be filled, without touching on Board dynamics and behavioural attributes, which are critical to understand in the context of Boards. The central issue is whether the Boards are correctly constituted, or whether in spite of provisions in law and regulations, they remain a collection of individuals among whom the comfort level is high, leading to the absence of a constructive challenge being mounted to management. As in the case of medical treatment, it is necessary to go in for diagnosis before attempting prescription and treatment. The underperformance of Boards merits very careful diagnosis. It does not lend itself to a single solution across the wide variety of Boards. It is only a robust and meaningful Board evaluation exercise which will identify the areas for improvement, including, but not limited to, the replacement of under-performers, and bringing on Board those that have the commitment and competence to guide the company. This is a matter that cannot be mandated by the Regulator. It is for each Board to see the value of Board evaluation, and to put in place a proper Board evaluation process.

It is useful in this context to look at developments in one of India’s large private sector banks. The non-executive Chairperson of the Board, an Independent Director, resigned from the Board stating that what was happening in the bank was not consistent with his value systems. His resignation letter did not contain the specifics that triggered the resignation. Further, subsequent statements made by him led to the papering over the seriousness that his resignation should have attracted. RBI accorded approval, the same day, to the appointment of an interim Chairperson, and also made a statement to the effect that there was nothing wrong in the operations of the bank. Whether such a statement should have been made post haste is a matter deserving attention.

Interestingly, SEBI reportedly articulated serious concerns regarding the fall in the share price of the bank, and the resultant loss that it had caused to investors. SEBI’s view was that no Director or Chairperson should act in a manner by which the interests of the shareholders would be adversely impacted. It was clearly a response to the statement made by the outgoing Chairperson, and a suggestion that departing Directors should calibrate their statements appropriately. SEBI’s directions on resignations by Directors clearly state that the reason for resignation should be indicated, and there should be an assertion that there is no other reason leading to the resignation. In that view of the matter, it would seem unfair to find fault with a departing Chairperson, whose stated reason for resignation was that the developments in the bank were not in congruence with his value system and beliefs.

It is time for Regulators across domains to take a deep breath and not rush to conclusions, or give contradictory signals. It is useful to recall that when there were allegations against the CEO of another large private sector bank a few years ago, the then Non-Executive Chairperson rushed to assure stakeholders that all was well, before the cookie crumbled.

Focused Boards. Engaged Directors. The ingredients are in place. How will the recipe turn out? The proof of the pudding is in the eating.

With a major corporate governance related development in one of India’s largest private sector banks, it would normally have been appropriate for this newsletter, being a commentary on governance, to address issues arising from that development. However, with the plethora of pundits having pronounced judgement in the absence of evidence, we consciously decided to reserve our comments and our observations until such time as more information was available in the public domain. We therefore turned to another matter which has been occupying mindspace in several boardrooms over the last few months.

On January 7, 2026, National Financial Reporting Authority (NFRA) put out a circular (hereinafter called the Circular) requiring Boards, Audit Committees (ACs), Auditors and Those Charged With Governance (TCWG) to address aspects of the audit process in order to minimise any slip ups that might have taken place as a result of lack of clarity of roles and responsibilities. The subject of the Circular is “Effective Communication Between Statutory Auditors and Those Charged with Governance, Including Audit Committees”. It will be seen therefrom that the primary concern of NFRA is on the adequacy and effectiveness of communication between Auditors and TCWG, in other words, the Auditees.

The Circular refers to provisions of the Companies Act, 2013 and sets out the responsibilities of the Board of Directors, the Independent Directors (IDs), the AC and the Auditors. It does not increase the regulatory load, but emphasises that there are responsibilities, which, presumably in NFRA’s opinion, require reiteration and reinforcement. The Chairman, NFRA has, in a public statement, mentioned that ACs are not doing all of what is expected of them, and it is perhaps this concern that has led to this comprehensive Circular.

Central to the Circular is the group referred to as TCWG. This term had been safely tucked away in the Auditing Standards, but has suddenly become centrestage in conversations on audit quality and Auditing Standards.

What is the TCWG, and who determines its composition? In paragraph 3.1 of the Circular, NFRA refers to paragraph 10(a) of SA 260 (revised), and defines TCWG as those with responsibility for overseeing the strategic direction of the company, and obligations relating to the accountability of the company. Paragraph 11 of SA 260 lays down that it shall be mandatory for the Auditor to determine appropriate persons as TCWG within the governance structure. It acknowledges, seemingly grudgingly, that as per the Companies Act, 2013, the Board of Directors has overall responsibilities for the governance of the company, and it will qualify for being considered as TCWG. Given the primacy of the Board, as derived from statute, in matters relating to governance, it seems somewhat condescending to state that it qualifies for being considered as TCWG. In the same breath, the Circular states that the TCWG could also be a sub-group of the Board, which could be the AC plus some of the Board members. Having made these seeming concessions, the Circular states that “in any case, it is necessary for the Auditor to determine TCWG at the start of the audit”.

Section 134 of the Companies Act, 2013 and the related Rules thereunder require that the financial statements, including the consolidated financial statements, if any, shall be approved by the Board of Directors. Section 134(5) of the Companies Act, 2013 provides that the Directors Responsibility Statement referred to earlier in the Section should disclose the Board’s assertions on some critical aspects such as adherence to applicable Accounting Standards, selection and application of accounting policies, and making of judgements/ estimates on reasonable and prudent basis. The implementation of adequate Internal Financial Controls (IFC), and ensuring their operating effectiveness is a responsibility of the Board, as mandated by the statute. Therefore, the constitution of the TCWG cannot detract from the statutory responsibility of the Board.

Some comment is necessary on why NFRA was set up. Section 132 of the Companies Act, 2013 tasks NFRA with improving the overall auditing structure. Its broad functions include protecting the interests of investors, setting Auditing and Accounting Standards, conducting quality review of Auditors and audit firms, investigation, inspections and monitoring compliance. It will be noticed that the thrust of Section 132 is on ensuring improvement of auditing quality. Prior to the coming into being of NFRA, only the Institute of Chartered Accountants of India (ICAI) had the responsibility of regulating audit professionals, setting Accounting Standards, and ensuring strong audit quality. ICAI being a membership body, which also had a regulatory component, it was felt that the regulatory function was, in some sense, being circumscribed by the membership function. This inherent weakness of self-regulatory organisations (SROs) manifested in creating the feeling that even when transgressions were noticed, disciplinary proceedings were tardy and ineffective. Following a dispute between ICAI and NFRA, which had to be judicially determined, NFRA emerged with the powers and the responsibility to lay down Accounting Standards. In the course of its inspections of major audit firms, it found significant deficiencies, including, but not limited to, independence and professionalism. In NFRA’s view, it seemed inadequate to deal with Auditors alone, and therefore NFRA started communicating with ACs, both directly and through the Auditors. In a series of papers, referred to as “NFRA Auditor-Audit Committee Interaction Series”, NFRA advised the ACs, through the Auditors, on the questions the committee members ought to raise in regard to the auditing process and the findings of audit. The Circular travels a little further, and specifically refers to the responsibilities of IDs under Schedule IV of the Companies Act, 2013. Whether this is an overreach, or a legitimate implied extension of its remit, is a matter that needs to be separately addressed.

As earlier stated, the focus of the Circular is on effective communication. NFRA seems to have arrived at the conclusion that the communication between Auditors and AC (TCWG) was a one-way communication, in which the Auditors made presentations, at quarterly intervals, detailing their observations and the procedural and substantive deficiencies noticed. It was felt that the AC (TCWG) to whom the presentations were made did not, because of time pressure or otherwise, put the appropriate questions to the Auditors, and challenge, or seek clarity on, their findings. Stated differently, it would seem that the AC has been perceived as passive recipients of information put out by the Auditors.

What is presently contemplated by the Circular is effective two-way communication. The Auditors are expected to communicate to the TCWG all that is relevant to facilitate a clear understanding by the TCWG. The latter is expected to put its questions in writing to the Auditors, or supplement oral questions by subsequent written communications. It need hardly be stated that besides questioning the trust on which oral communication is based, this would place an extraordinary burden on the TCWG to raise all relevant matters in writing. Is this yet another case of over-prescriptive regulation turning out to be counterproductive, with TCWG going through the motions of asking a few questions in writing?

Earlier in this newsletter, the question was raised as to who decides the composition of the TCWG. The Auditors responsibility, derived from the Accounting Standards, cannot override the statutory responsibility given to the Board of Directors. It therefore stands to reason that the TCWG should be constituted by the Board of Directors, through an appropriate resolution of the Board.

The next question which arises is the membership of the TCWG. Clearly, all AC members should be members of the TWCG. In addition, there could be members of the Board, such as members of the Risk Management Committee, whose presence in the TCWG would add value to the deliberations. Should TCWG then be a body larger than the AC, but smaller than the Board? It is readily conceded that the entire Board might not have the time to interact at least twice a year with the Auditors.

The Circular also contemplates the existence of a Nodal Officer to communicate with the Auditors. Some Boards seem to have decided that the CFO would be best placed to be the Nodal Officer, having regard to his/her functions, and the continuing interactions with the AC. This raises a fundamental question. Managements, even at present, interact with the Auditors. Should TCWG’s interaction not bring a Board perspective, as distinct from a management’s perspective, into the conversation and the communication with the Auditors? If superintendence of the management’s functioning is a responsibility of the Board, it follows that the TCWG’s communication with Auditors cannot be left to a management functionary, such as the CFO. There is a supporting role that the CFO can perform in making information available, and clarifying the management’s perspective. These however have to be inputs made available to the TCWG to enable a constructive conversation with the Auditors. Boards should keep this aspect in mind, while deciding both the composition of the TCWG and identification of the Nodal Officer.

It is also interesting to note that the communication with Statutory Auditors would involve aspects of strategic direction. Strategy is a matter that is finalised by the Board, with the assistance of management, and clearly at the time of finalising the strategy, including the determination of strategic direction, there cannot be a major role for Auditors. UPSI (unpublished price sensitive information) concerns cannot be brushed aside. Second guessing of strategic decisions by an entity that is not tasked with the determination of strategy is an unwise step.

It is no one’s case that the quality of audit should not be significantly improved. However, the better approach will be to identify the existing shortcomings in the audit process, as already done by NFRA in a number of cases, and strengthening processes based on those observations and conclusions. Spreading the net wide, and looking at how ACs perform, and whether IDs are measuring up, could be seen as getting into the domain of SEBI. It is interesting to note that the Public Company Accounting Oversight Board (PCAOB) in the USA, set up under the Sarbanes-Oxley Act, 2002, is under the aegis of the Securities and Exchange Commission (SEC), whereas NFRA is a creature of statute. It is easy to contemplate the possibility that turf battles lie ahead of us as different Regulators, with the right intentions, exercise the authority vested in them by statute.

Putting in place a pragmatic regulatory regime should necessarily be preceded by meaningful consultations with the relevant stakeholder community. Absent this, we could end up prescribing in haste, and amending at leisure.

Corporate governance conversations have, in recent months, centred around Audit Committees (ACs), Auditors, Independent Directors (IDs) and, more recently, Those Charged With Governance (TCWG), the last being a relatively recent addition to the active vocabulary of corporate governance. Common among all of these is the institution of IDs. While it existed in other jurisdictions, the institution of IDs was formally given birth to in Clause 49 of the Listing Agreement, after which it assumed a statutory basis through The Companies Act, 2013 (The Act).

Corporate governance failures have often resulted in fingers being pointed at IDs. The most common question asked is whether they were sleeping on the job. Even less charitable is the explanation that having been appointed by the promoters, they consciously chose to look the other way when governance shenanigans were playing out for all to see. These episodes have also given rise to the questions – “Who needs IDs?”, “What purpose do they serve?”, and “Whose interests are they safeguarding in boardroom discussions?”.

The foregoing are clearly extreme positions to take. At the other end of the spectrum there is an increasing number of promoters and controlling stakeholders who have seen, and are continuing to see, value in having IDs. As one promoter stated unambiguously – “I recognise that the ID is on the company’s Board to protect me from myself. Any excesses that I resort to consciously or unconsciously might not survive the scrutiny of diligent IDs.” If the institution of IDs is to continue to exist, and to play a significant role, it is necessary to ask ourselves – why persons with no stake in the fortunes of the company should agree to come on the Board, and expose themselves to the liabilities and risks that necessarily go with Board positions. As in every contractual relationship, there ought to be consideration as one of the elements of the contract. It is in that context that an attempt is being made in subsequent paragraphs to examine how, to what extent, and in what manner, Directors, especially IDs, should be compensated.

There is no need to lead evidence to support the proposition that if the compensation is inadequate, the wrong persons, including those with ulterior motives, might get onto Boards. At the same time, it can be contended, with reasonable certainty, that excessive compensation will negatively impact the independence that is expected in the process of decision-making. Clearly therefore, a balance ought to be struck between what is too little and what is too much. There is a section of observers, fortunately not too many, who believe that being on a Board is tantamount to public service, and should not be in the expectation of receiving any compensation. The expectation that pro bono service will be provided by Directors does not sit well with the challenges of being a part of the Board. Why should any sensible person agree to serve on a Board, without being compensated, when legal and regulatory liabilities keep increasing by the day?

How then are Directors to be compensated? The first element that is normally spoken about is the sitting fees paid to Directors for attending meetings of the Board and the committees. Presently, there is a statutory cap of Rs 1 lakh per meeting that is payable to members of Boards or committees. Many companies pay lesser amounts, with perhaps the unstated explanation that meetings in any event are formalities, where not much business gets discussed, and not many decisions get taken, leaving it to the management to chart, with minimal Board intervention, the course that companies ought to take. There is also the specious argument that payment of sitting fees is avoidable expenditure, and therefore the number of meetings have to be bare minimum.

Conversations with Board and committee members, and a study of the minutes of meetings, as also the agenda, will establish that much of the heavy lifting is being done by the Board committees, especially the AC. Therefore, treating committee meetings as mere calendar items should not pass muster in well intentioned companies. It is important to note that sitting fees is paid for attending meetings. It is paid at a uniform rate to all members, and does not differentiate between those that contributed significantly to discussions and decision-making, and those that remained steadfastly silent. Clearly sitting fees is not intended to be an instrument of compensation that recognises and rewards performance.

The only other manner of compensation that Indian law recognises for IDs is the payment of commission based on the profits of the company. Here again, there is a statutory cap imposed by the Act, which stipulates that the total commission payable to all Non-Executive Directors (NEDs), independent or non-independent, taken together should not exceed 1% of the profits of the company. Surveys undertaken by Excellence Enablers in the last few years have revealed that the total commission paid to the Directors of companies does not come anywhere near the statutory limit of 1%. The question therefore arises whether the gap between the statutory limit, and the amount of commission paid, should be reduced, if not totally eliminated. Earlier no commission could be paid to IDs on Boards of loss-making companies. This was a counterproductive stipulation since it was the loss-making companies that needed to have good Directors on the Boards, to help them turnaround. Mercifully, this has been partially addressed by permitting a modest commission in such cases.

One fundamental issue that needs to be addressed is whether all Directors on the Board ought to get equal compensation. Unlike in the case of sitting fees, there is clearly an opportunity available to differentiate between performing Directors and non-performing Directors, and to compensate each of them based on their contribution. In some companies, the unfortunate practice of deriving contribution from the number of meetings attended still persists. Some others use a base number and provide for additional compensation for holders of positions such as the Chair of the AC or the Chair of some other important committee. This too does not travel far enough because compensation thus calculated is derived from the positions held, example AC Chairpersonship, and not from contribution.

What then is the best method to assess contribution? Schedule IV of the Act stipulates that there shall be an annual evaluation or review of the performance of Directors. If the process of evaluation is undertaken honestly, and is a robust and no holds barred exercise, it will be possible to identify those that contribute, and those that merely make up the numbers in the boardroom. The box-ticking approach to evaluation undertaken by a large number of companies does not serve any useful purpose. To address this, it is necessary for the Securities Markets Regulator to mandate that once in 2-3 years, the process of Board evaluation should be undertaken by outside experts, and should not be the kind of peer evaluation that rates every Director as God’s gift to humankind.

Basis a robust and honest Board evaluation process, the commission to be paid to Directors should be determined. There is no other satisfactory method to incentivise and reward performance in boardrooms.

A third element of compensation, which existed before the Act dealt it a death blow was the grant of stock options to IDs. Buying into the argument that the grant of stock options would promote short termism, the lawmakers abandoned it without considering remedies. The problem, largely imaginary, of short termism could have been addressed by getting the shares received by IDs locked-in, so that during their term of office as ID, they would be prevented from dealing in those shares. In fact, going further, it could have been prescribed that such shares, as the Directors have on the basis of stock options, should be locked-in for a period of at least 2 years after they have demitted office. In some cases, shareholders attending Annual General Meetings have perused the shareholding pattern, as reflected in the annual reports, and asked Directors why they were not holding company shares, and how they could be trusted with identifying themselves with the company where they did not own shares. It is reasonable to believe that persons who have shares in companies will act in the interest of the companies in order to bolster the company’s financial position, and to ensure better returns to all stakeholders. The present position of denial of stock options to IDs is a travesty of justice.

When it comes to Executive Directors (EDs) on the Board, with executive responsibilities, performance is expected to be measured in terms of KRAs, with a sizeable component of the compensation being variable pay. It has been noticed that sometimes there is a disconnect between the KRAs and the compensation paid to EDs. Absent this correlation, there is no incentive for EDs to perform to the best of their ability. Nomination and Remuneration Committees seem to be turning a blind eye to this aspect of their remit. One other matter that tends to get ignored is the phenomenon of clawback. It stands to reason that an ED, who is compensated excessively in relation to his or her performance should be subjected to clawback, so that unjust gains do not accrue, at the expense of the other stakeholders. In some jurisdictions, especially following the global financial crisis, executive compensation has been an object of scrutiny. In India, only in a couple of cases has clawback been attempted. Shareholders have also expressed their unhappiness at excessive compensation being paid to EDs, when the company’s performance has moved southwards. It is time that the subject of compensation for both NEDs and EDs is thoroughly debated, so that a commonsensical solution can emerge, leading to adequate compensation for performing Directors. This one measure will contribute to more productive boardroom conversations, translating to the better interest of all stakeholders, and a brighter future for the company.

Disclosure in regard to compensation are sometimes unclear, and leaves the reader of reports less informed. In a somewhat negative development, the US Regulator has indicated an intention to move in the direction of lesser disclosures on compensation in regard to some categories of highly paid employees.

It is not that there have been no conversations on this subject. They have regrettably not led to worthwhile decisions. It is yet another instance of the truism that “when all is said and done, more will be said than done”.

On December 5, 2025, the Securities Appellate Tribunal (SAT or the Tribunal) passed detailed orders in the context of an appeal filed by Dr Pawan Singh, the Managing Director (MD) and CEO of PTC India Financial Services Limited (PFS), challenging an order passed by Whole Time Member (WTM), SEBI on June 12, 2024. The impugned order by WTM, SEBI was against Dr Pawan Singh, the Appellant before SAT and Mr Rajib Kumar Mishra who was the Non-Executive Chairman of PFS.

On January 19, 2022, 3 Independent Directors (IDs) of PFS resigned from the Board, and sent copies of their resignation letters to SEBI, alleging violation of corporate governance norms. SEBI’s impugned order indicates that there were 6 specific allegations made in the resignation letters of the IDs.

It is not the purpose of this newsletter to examine, in detail, each of those alleged violations, and to comment on the correctness, or otherwise, of SAT’s orders in relation thereto. The present exercise is an attempt to look at the issues through the lens of corporate governance, taking into account the structural and consequential aspects of how companies are governed, and ought to be governed.

The first of the issues throws considerable light on the state of affairs that existed in PFS. One Mr Ratnesh, had been identified as a suitable candidate to join PFS as Whole Time Director (WTD) and Director (Finance). There were discussions relating to whether he should be appointed on absorption basis or on deputation basis. The HR department of PTC India (PFS is a material subsidiary of PTC India) was the entity that “predominantly handled the selection, the appointment and the joining process of Mr Ratnesh”. Cutting to the chase, it is noticed that on October 29, 2021, Mr Ratnesh submitted his joining report to the then-Chairman of PFS, Mr Deepak Amitabh, who forwarded the papers to the Appellant, directing him to “accept the joining in terms of decision of PFS Board in 138th and 139th meeting”. Subsequent thereto, the Appellant did not accept the joining report, and facilitate the joining of Mr Ratnesh as WTD and Director (Finance). After considering all the facts placed before it, SAT decided that “in these circumstances, specially when the release letter of NTPC states that it is a provisional release, the responsibility to not allow Mr Ratnesh to join as Director (Finance) cannot be SQUARELY (emphasis supplied) put on the Appellant”. Based on this finding, SAT concluded that the findings related to these issues “are not CONCLUSIVELY (emphasis supplied) proved”. There is a fundamental issue which needs to be grappled with. When there is a Board decision to allow an individual to join as Director (Finance), and when the Chairman directs the MD to give effect to that decision, is it open to the MD to not act on those directions? It is unquestionable that in the structure that obtains in a corporate entity, the Board of Directors is an authority superior to the MD and CEO or any other member of the management. Resultantly, the directions of the Board have to be implemented by the management. In the context of SAT’s observations that the responsibility to not allow the joining cannot be squarely put on the Appellant, one wonders on whom the responsibility can be put. Even if for argument’s sake, the use of the word “squarely” is intended to convey that it is not the exclusive responsibility of the Appellant to give effect to the orders of the Board, is there an element of partial or shared responsibility? Or can the recipient of the directions of the Board, communicated through the Chairman, get away scot-free, with non-implementation of the directions?

In an issue regarding alleged delayed reporting, SAT came to the conclusion that “Thus, it is clear that though there was delay, it was not deliberate, nonetheless there was dereliction without any malafide intention”. This finding gives rise to a few questions. If, admittedly, there was delay in reporting, someone must have been responsible for such delay. The Committee of IDs, which examined this matter, concluded that “there was a dereliction of duty in non-disclosure of FAR 2018”. One of the meanings of the word dereliction is “the shameful failure to fulfil one’s obligations”. It is not clear how a conclusion was reached that there was no malafide intention. SAT also noted that “this whole issue is to be viewed in the context that it was an isolated case out of 100s of loan cases dealt by PFS and NBFC”. How was the conclusion reached that this was an isolated case?

The former Chairman, in a letter to the Board, on August 5, 2021, highlighted 7 points, which in his view, impacted adversely on corporate governance in the company. While dealing with this matter, the Appellate Tribunal stated that two of the issues had been discussed earlier in its order, and three issues were not pursued. Also, no finding has been given in the impugned order on one of the 7 issues. Accordingly, the Tribunal arrived at the conclusion that only on one point, namely, that the Appellant was responsible to ensure that correspondence addressed to the Chairman reached his office, was there a need for determination. In deciding this issue, the Tribunal observed that “MD and CEO is not expected to ensure that correspondence reaches the right person. In any case, the Chairman was an Ex-Officio Non-Executive Chairman and did not have a regular office”. Even if the ex-officio Non-Executive Chairman did not have a regular office, he surely would have had an address at which he could have been reached. In disposing off this matter, the Tribunal observed “in our view, the issue is trivial and does not behove the Regulator to take up such matters seriously”. The finding of the Tribunal that the issue is trivial, and that it does not behove the Regulator to take up such matter seriously, is an aspect on which no comment is offered.

Yet another issue considered by the Tribunal was the amendment in the terms of sanction without the approval of the Board. In regard to this matter, the Board on September 29, 2021 observed that “if the Board directives were not followed in the instant case, then responsibility for the same be fixed, and necessary action should be taken by MD and CEO”. The Tribunal interpreted this direction of the Board to mean that since the Appellant was directed to fix responsibility, it was implied that the Board believed that the Appellant was not responsible for the amendment. The question arises as to whom else the Board could have given such a direction since there was no other Executive Director in the company at that time.

In their letters of resignation, the IDs had alleged that their communications had been ignored and limited/ incomplete information was being provided to them. It appears from the appellate order that the IDs sought the appointment of a legal counsel, and since no legal counsel was immediately appointed, they proceeded to appoint a legal counsel after a few days of making the request. The Tribunal noted that there was no undue delay on the part of the management in responding to the request of the IDs. However, the observation of the management that a separate legal consultation was “premature”, appears to have been glossed over. It is relevant to ask whether in such a matter, as appointment of legal counsel, the management should second-guess the IDs, and observe that such an appointment was “premature”.

In the matter of reconstitution of the Audit Committee, and not changing the structure and composition of the Board, the Appellant contended that SEBI’s mail to PFS was in the nature of an advisory, and was not in the nature of an order issued by SEBI. It is passing strange that in regard to a matter as serious as the structure and composition of the Board, a communication from SEBI should be treated as an advisory, and not as an order to be complied with.

What is most unfortunate is the finding of the Tribunal that “the entire issue was at the most a corporate battle in which such an interference by the Regulator was not called for”. One wonders whether the Regulator should have looked the other way when 3 IDs had resigned, and in communications to SEBI alleged that there were serious corporate governance issues. Also, when only one corporate was involved, it is difficult to understand how the goings on were described as a corporate battle.

As stated earlier in this newsletter, our focus has been on corporate governance issues, as they played out in PFS. Given the developments in this matter, and the fact that most of the findings of SEBI have been set aside by the Appellate Authority, it is perhaps time for SEBI, and also the Ministry of Corporate Affairs (MCA) to clearly lay down, in a no holds barred document, that the management will not have the freedom to question and defy the directions of the Board, and to not comply with those directions. The sanctity of the corporate structure must be preserved if corporate governance is to be ensured.

2026 is here. We wish our readers a very Happy New Year.

 Nearly 5 years ago, while introducing the budget, the Finance Minister indicated the Government’s intention to consolidate and amend the laws relating to the securities markets. With a few years having elapsed, and with no major public consultation exercise, there was reason, at least for the skeptics, to believe that this was yet another budget announcement which would not be translated into action. The wait is over. We now have a Securities Markets Code of 2025 (SMC or Code), which has been referred to the Select Committee of Parliament for consideration. With a number of commentators having expressed diverse views and apprehensions, it is possible that the Standing Committee’s recommendations will emerge after a few months. Thereafter, there would be a process of getting the revised Bill incorporating the recommendations, which have been accepted, of the Standing Committee, and getting the approval of both Houses of Parliament, before the President assents to the Bill. In a year of legislative hyperactivity, this is the last Bill to emerge.

While all this might take time, there is no reason not to give credit where it is due. 3 enactments, one of 1956 vintage, one of 1992 vintage, and one of 1993 vintage are sought to be combined into a single Code, eliminating conceptual confusion and the overlaps that exist in the 3 enactments. The Finance Minister needs to be complimented on giving effect to a budget announcement involving considerable complexity in execution, even if the draft Bill has taken a few years to surface. Even a prima facie reading of the Bill gives a clear indication that there is no major disconnect between what was sought to be achieved, and the Bill in its present form. It focusses deservedly on simplification of procedures, which will enable the honest conduct of business, and remove procedural and substantive cobwebs. That stated, it is useful to look at some of the specific aspects of the Bill. Limitations of space stand in the way of commenting on all provisions.

The preamble to the SMC states that it is a Bill to consolidate and amend the laws relating to the securities market. The preamble of the SEBI Act, 1992 was more focused, in that it specifically referred to the protection of the interest of investors, the regulation of the market, and the development of the market. This seems to have been shifted to Clause 11(1) which states that “Subject to the provisions of the Code, the Board shall protect the interest of investors in securities and promote the development of, and regulate the securities markets, by such measures as it may deem fit.” Moving this principal objective from the Preamble to a mere Clause seems to be inappropriate.

Clause 2(k) defines the word “depository”. It might have been preferable to define “depository participant” in the said manner.

There are a number of provisions requiring details to be set out as “prescribed”. Care should be taken while framing the Rules to ensure that substantive powers which ought to be in the Act, do not find their way into the Rules. Excessive delegation has been the bane of quite a few enactments in recent times. Delegated legislation is not an instrument to fill gaps in legislation.

Clause 4(1) provides for the composition of the Board. The size is proposed to be increased to 15 members, including 6 members who are independent of SEBI. The question to ask is whether a 15 member Board is unwieldy, having regard to the responsibilities and activities contemplated by the Code. The proviso to Clause 11(4) states that the Central Government shall endeavour to appoint at least 3 persons with expertise in the securities market. Assuming that conflict of interest, as contemplated by the Code, is to be safeguarded against, it would be interesting to see from where at least 3 persons with expertise in the securities market, but no present involvement, would be sourced. In addition to the Chairperson, there will be at least 5 Whole Time Members (WTMs). Given the present size of SEBI, the possibility exists that this would be a top-heavy organisation, with resultant complexities in reporting structures.

Clause 5 provides that Chairperson and every WTM of the Board shall hold office for a term not exceeding 5 years. It would have been useful to clearly state that no extension or reappointment of the Chairperson or any WTM is contemplated.

The proviso to Clause 8(1) states that the Members of the Board may, by circulation, take decisions in such manner as may be specified by regulations. It is for the Board, and not for the Members of the Board, to take decisions in regard to the exercise of the powers vested by the Code.

Clause 9(1) provides for the appointment of such other officers or employees, as the Board considers necessary, for the efficient discharge of its functions under the Code. With markets having grown, and the complexity of instruments and the number of market participants having increased, one major problem has been the bandwidth available to SEBI for timely discharge of its duties. Whether the authority vested by Clause 9(1) will quickly translate to creating an organisation of the right size, and expertise, needs to be addressed without loss of time.

Clause 11(2)(q) vests in the Board the powers to lay down principles for the implementation of the Code. Considering that we have transited, or are transiting, to a principles-based regime, it might have been worthwhile to state the principles in a separate chapter, as a part of the Code, as has been done in the SEBI LODR Regulations, 2015.

One interesting provision which features in Clause 11(3) states that the Board shall review its performance and functioning, including the proportionality and effectiveness of the regulations made in this behalf. It would seem that the review of the performance of the organisation, and the regulatory impact assessment of regulations, have been telescoped into the same provision. While performance review on an annual basis, is a welcome development, it would have been useful to set out in the Code the manner in which the performance review will take place, rather than leave it to the Rules or regulations to be made later. A leaf could be taken out of the provisions of Schedule IV of the Companies Act, 2013.

Clause 13(2) states that the investigation undertaken by the Investigating Officer should be completed within a period of 180 days. The proviso thereto states that where the investigation report is not submitted within the said period, the Investigating Officer shall provide the status of the investigation to the Board, and record the reasons for the delay, and request the WTM concerned for extension of time. It seems odd that the status report would be presented to the Board, and the WTM concerned would be the authority to grant extension of time. Surely, this entire matter of ascertaining the status, and granting extension, where necessary, could have been left to the WTM concerned. With the legal expertise that is available to entities that are the subject matter of investigation, it is a moot question as to how many investigations would be completed within the period of 180 days, though the intent in proposing a time limit is honourable.

The proviso to Clause 14(6) states that where the Investigating Officer is satisfied that the issuance of notice will cause undue delay in investigation, or there is an apprehension that records, books etc may be destroyed, mutilated, concealed etc, he may, for reasons to be recorded in writing, dispense with the issue of notice. While urgency in specific cases can be appreciated, it would have been useful to provide for a post-hoc notice, rather than dispense with the issuance of notice.

The element of proportionality has been introduced in Clause 19. This is a very welcome step.

In a departure from the budget statement, the Government Securities Act, 2006 has not been incorporated in the SMC. This non-inclusion is a welcome move since the said Act is not of a piece with the 3 enactments that are being consolidated.

Clause 73 provides that the Board may designate one or more of its officers as Ombudsperson to receive and redress grievances of investors. This seems to be a needless provision considering that SEBI already has a fairly elaborate mechanism to deal with grievances of investors. If it is believed that the mechanism is not measuring up, the logical step would have been to tweak or refine what exists, without creating a new institution in the form of Ombudspersons. Further, conceptually an Ombudsperson should not be on the rolls of an organisation, grievances relating to which are expected to be gone into. The expectation of neutrality and impartiality in the functioning of the Ombudsperson could itself give rise to challenges if they are insiders.

Clause 85(h) provides that any person aggrieved by an order passed by the Insurance Regulatory and Development Authority of India (IRDAI), the Pension Fund Regulatory and Development Authority (PFRDA) or the International Financial Services Centres Authority (IFSCA) may prefer an appeal to the Tribunal having jurisdiction in the matter. Considering the expanded jurisdiction of the Tribunal, it might have been worthwhile to rename it as a Financial Services Appellate Tribunal, rather than to retain the original name of the Securities Appellate Tribunal (SAT).

Clause 127(1) provides that the Board shall, after the end of each FY, within a period of 90 days, submit to the Central Government, a report giving a true and full account of its activities, policies and programmes during the previous FY. An annual report is necessarily a postmortem exercise. To ensure accountability to the legislature, it might have been useful to prescribe that the Chairperson and the WTMs shall appear before the Standing Committee once in 6 months, to brief the Committee on what transpired in the previous 6 months, and what is planned by way of policy measures for the next 6 months. This direct reporting, with a prescribed periodicity, will ensure that the functional autonomy of the organisation vis-à-vis the administrative ministry is ensured.

Clause 129(1) states that the National Institute of Securities Market (NISM), a public Trust, established by the Board, shall be deemed to have been established under this Code. Resultantly, NISM also has a place in the statute. Clause 129(2) states that the Board shall regulate the NISM for capacity building of intermediaries. The NISM was set up with 6 separate schools to address different requirements in the securities market ecosystem. It should not be converted to a training school for intermediaries, since it would then take its eyes of the ball of investor education, which is the most critical requirement in India’s securities market. In the same breath, it might be worthwhile considering whether the transfer of funds from the General Fund to the Consolidated Fund of India should be preceded by setting apart a significant amount for meaningful investor education throughout the country, and for promoting a class of qualified investment advisors.

Clause 131(1) provides that “Without prejudice to the foregoing provisions of this Code, the Board shall, in exercise of its powers or the performance of its duties under this Code, be bound by such directions on questions of policy as the Central Government may give in writing to it, from time to time” Though this power, which exists under the present Act, has not been exercised, it is a sword hanging over the head of the regulatory organisation, and at least, in theory, impacting on its functional autonomy. Admittedly, the power of the Central Government to give directions is confined to questions of policy. What constitutes a question of policy could itself be a matter of doubt, and the provision in Clause 131(2) stating that the decision of the Central Government, whether a question is one of policy or not shall be final, gives extraordinary powers, which mercifully have not been exercised till now. Observers of the financial scene might recall that some years ago, there was a distinct possibility of the issue of directions, under a similar provision, to the RBI.

Clause 146(2) provides for the matters in relation to which the Board may make regulations. It might be useful to examine whether the tendency to make substantive provisions is safeguarded against.

Clause 147 provides that the Board shall, while making regulations, publish the draft regulations, in order to invite public comments. It is worth considering whether the details of the proposal, and the reasons for making these regulations, are put out in the public domain so that the consultation exercise starts before the draft regulations have been given shape to.

Clause 2(zo) defines “subsidiary instructions” as instructions made under Clause 149, and includes any circular, master circular, guideline and such other instrument. Clause 148 provides that every Rule, regulation and bye-law made, and subsidiary instructions issued, under the Code shall be laid before each House of Parliament. This is clearly excessive. It would have been sufficient to provide that only Rules and regulations are laid before both Houses of Parliament.

Clause 150 provides for the constitution of one or more Advisory Committees to advise on matters relating to the making of subsidiary instructions, and any other issue relating to the administration of the Code. It is not necessary to provide for Advisory Committees in a statute. Setting up of Advisory Committees is, and should be, an inherent power vested in the organisation.

Market Infrastructure Intermediaries (MIIs) have been given significant powers in the Code. They are subject to regulation by SEBI. One of the welcome moves in the Code is that it has subsumed the Depositories Act of 1993. There was no reason to have a separate Act for Depositories, and the problems that arose by giving a separate legislative standing to Depositories, as distinct from other MIIs, have surfaced on quite a few occasions in the past.

There is no certainty on the manner in which the Code will emerge finally through the Select Committee and the two Houses of Parliament. A skeptic might well say “mischief thou art afoot. Take what course thou wilt”.

The Code is clearly intended to ensure that it is a means to the end of enabling the honest and speedy conduct of business. Time will tell whether this intention translates to reality.