The concept of an independent director owes its genesis to the 1950s, acquiring official recognition in the US with the introduction of the Sarbanes-Oxley Act 2002 and in the UK when the Cadbury Committee Report brought it to the fore. In India, the Kumar Mangalam Birla Committee Report introduced Clause 49 of the SEBI Listing Agreement 2000, where it was made mandatory for a listed company. In 2003, crucial amendments were introduced by the Naresh Chandra Committee, altering Clause 49. The legislative recognition eventually came in 2013, when the Companies Act 1956 was overhauled to bring in a more modern legislation.
The rudiments: A non-executive member of a company’s board, an independent director has no material financial ties to the company and is appointed to provide an unbiased perspective on strategic decisions, governance and management performance. The key role is to safeguard the interests of all stakeholders and ensure that the company operates ethically and with transparency. They perform the role of ‘checking’ on the management by offering an objective, unbiased guidance, help mitigate conflicts of interest and enhance the board’s effectiveness.
Independent directors are expected to act in a two-fold capacity – as advisors and as watchdogs. Their advisory capacity stems from their specialised skills, whereas their watchdog role requires them to be updated about the company and its operations, be vigilant, provide unbiased oversight, also raise concerns about violations of ethics, policies, regulations and act within their authority to protect the interests of the company and its shareholders. Although the oars might be in the hands of the managing director or key managerial personnel, independent directors are under a duty to keep an eye on them to ensure that they steer a proper course.
The pressing need: The need for independent directors became apparent after major corporate scandals like Enron and Satyam, both of which highlighted the risk of boards lacking independent oversight. Hence, the role of independent directors became crucial in order to mitigate risks associated with potential conflicts of interest, enhancing the board’s effectiveness, as well as accountability, also building trust and reputation among investors, regulators and the public. Both the Companies Act 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 (the ‘LODR Regulations’) stipulate heavy reliance on independent directors in improving corporate governance by ensuring vigilance to avoid frauds, financial misconduct and conflicts of interest.
Inclement weather: The Indian corporate governance landscape has recently witnessed resignations of independent directors. Resignations of three of them at PTC India Financial Services (PFS) in September 2025 have been labelled as quite a ‘fiasco’, wherein the three who resigned called that a ‘vicious’ and deteriorating boardroom environment made it impossible for them to function independently. No specific details were provided by any of them in their letters. PFS expressed surprise at this sudden departure, stating that the directors had never previously raised these issues and that the issues were never discussed with the board or management beforehand. The mass resignation highlights ongoing corporate governance concerns at PFS. Some interpret the event as a staged drama and a calculated move by the directors to pressure the company and its parent, PTC India, into addressing governance problems or to manage their own exit before their terms expired. Insiders from the company whisper that the sudden exit of the trio was less about governance and more about pre-empting an unceremonious end to their tenures. The trio knew that their extensions would not happen; so, they perhaps staged a show to go out with a bang, painting the company as a villain. PFS is a systemically important NBFC that finances India’s power and renewable energy sectors and has long been a governance lightning rod.
Why is it happening?: Resignation of independent directors from company boards has become a trend, and, in most cases, without a clear explanation. In cases where explanation has been provided, the main reasons behind resignations have been in relation to poor corporate governance and lack of transparency in board matters. Ever since SEBI took steps to direct independent directors to make greater disclosures and adhere to corporate governance rules, the independent directors have started to publicly voice their disapproval on company boards on many occasions. SEBI has introduced an amendment to LODR Regulations in October 2023, which states that independent directors should provide a detailed reason for their resignation, and this was done primarily to:
• ensure the protection of minority shareholders’ interests;
•strengthen corporate governance;
• enhance accountability, and
• enable market regulations to track instances of critical issues.
The amendment introduced by SEBI stipulated that an independent director must give a resignation letter that clearly outlines their reasons for leaving. This permeates a culture of empowerment of independent directors, who can feel free to express their viewpoints. India’s start-up ecosystem has been witnessing a growing trend of resignations abruptly from boards, citing personal reasons or pre-occupation. Some have even been called out as being unheard by the management whenever they have raised red flags about corporate governance structures in start-ups. This has led to an erosion of investor confidence and market sentiment at large.
What is a way out?: The wave of resignations of independent directors, in a situation where independence is ensured and liability is limited by law, raises serious doubts about the reliance placed on their presence in listed companies. There are serious questions about the maturity and governance preparedness of start-ups – especially since many look to go public or raise large institutional funds.
It’s time to rethink continuing to have a straitjacket formula of depending upon independent directors for improving corporate governance, when the success rate is repeatedly questioned. Having suitably qualified independent directors on board is good, but the management must also encourage the ‘comfort of conversation’, which can help foresee early warnings and rectify them. Good governance works on clearly laid policies, joint decision-making, clearly defined roles and internal controls that are thoroughly and periodically reviewed. A possible solution could be having a supervisory body composed solely of independent directors, which acts as a watchdog on the entire management.
Conclusion: The role of an independent director in today’s corporate ecosystem is quintessential if we are to be a Viksit Bharat by 2047. It is more than a bookish statutory requirement; it’s a cornerstone of ethical business conduct. Independent directors can play the roles of a friend, philosopher or guide and even a whistleblower! I question myself – could independent directors have any say whatsoever in the Tata Trusts row – perhaps it will take time for me to venture a guess on that one.