Independent Director Liability in India: What You’re Personally On the Hook For

1. The short answer

Yes, you are personally liable. Under Section 149(12) of the Companies Act, 2013, an independent director in India is liable for acts that occurred with her knowledge through board processes, with her consent or connivance — or where she has not acted diligently. D&O insurance is mandatory only for independent directors of the top 1,000 listed companies, under SEBI LODR Regulation 25(10). If you are joining an unlisted company, private company, startup or nonprofit board, there is no mandated cover at all. Claims routinely surface years after you resign, which is why run-off cover matters. And you can buy liability cover in your own name — very few directors know that product exists.

The call usually comes as a compliment. A company you respect wants you on its board as an independent director. It reads as recognition, and it is.

What the conversation almost never covers is the other half of the offer: what you are personally taking on, in your own name, with your own assets behind it — and for how long after you leave.

This is not an argument against saying yes. Independent directorships are among the most valuable seats a senior woman can hold in India. It is an argument for saying yes with three things settled in writing first.

2. Why more women are being offered independent directorships

There is a reason more women are receiving these calls.

SEBI's Listing Obligations and Disclosure Requirements regulations require listed boards to include a woman director, and specifically a woman independent director for the largest listed entities — the top 500 by 1 April 2019, extended to the top 1,000 by 1 April 2020. Regulation created the demand.

What regulation did not do is prepare the people filling those seats for what the role carries. And the mandate applies to large listed companies, while a great many first-time women independent directors are joining unlisted companies, private companies, startups and nonprofits — where none of the listed-company protections apply at all.

3. Are independent directors personally liable in India?

An independent director is not an advisor. It is a statutory office with statutory duties.

Section 166 of the Companies Act, 2013 codifies your fiduciary duties — to act in good faith, with due and reasonable care, skill and diligence, in the interests of the company and its stakeholders.

Section 149(12) is the one that matters most for your personal exposure. An independent director is liable only for acts of omission or commission by the company that occurred with her knowledge, attributable through board processes, and with her consent or connivance — or where she has not acted diligently.

Read that last clause again. Or where she has not acted diligently. You do not need to have known about a wrongdoing to be exposed. Not having done the work of knowing is itself the exposure.

In practice this means the board papers you didn't read, the meeting you skipped, the question you decided not to ask because it felt awkward — those are the facts that get examined later. The Satyam, IL&FS and ICICI Bank matters reshaped what Indian regulators and courts consider adequate diligence at board level, and the standard has not moved back.

There is also a compliance obligation most first-time directors discover late. Under Section 150(1) read with Rule 6 of the Companies (Appointment and Qualification of Directors) Rules, 2014, every individual appointed or proposed to be appointed as an independent director must enrol in the Independent Directors Databank maintained by the Indian Institute of Corporate Affairs. Under Rule 6(4), you must then pass an online proficiency self-assessment test within two years of inclusion, or your name is removed from the databank. The test is 50 multiple-choice questions over 75 minutes with a 50 percent pass mark and unlimited attempts. Exemptions exist for candidates with sufficient senior experience, but the thresholds have been amended more than once — confirm the current position with the databank or your company secretary rather than assuming. Enrolment remains compulsory even where the test is not. Changes to your particulars must be updated within 30 days.

4. Is the company's D&O policy enough? Five things nobody tells you

Most women are told, reassuringly, that "the company has D&O cover." That sentence hides five separate problems.

1. The mandate stops at the top 1,000 listed companies. SEBI LODR Regulation 25(10), effective 1 January 2022, requires D&O cover for independent directors of the top 1,000 listed entities. Below that line — every unlisted company, private company, startup and nonprofit — there is no legal requirement at all. Many buy it anyway, particularly once institutional investors are on the cap table. Many don't. If you are joining an unlisted board, assume nothing.

2. It is the company's policy, not yours. You are a beneficiary of a contract you did not negotiate, cannot see by default, and do not control. The company chooses the limit, the wording, the exclusions and the insurer. The company can also let it lapse, reduce the limit at renewal, or exhaust it defending someone else's claim before yours is filed. Under Section 197(13), a company may pay the premium for directors' liability cover — but if the person is proved guilty, the premium is treated as part of their remuneration.

3. Claims arrive years after you resign. This is the single most misunderstood point. Resigning does not close your exposure. Regulatory investigations and shareholder claims routinely surface long after a director has left the board, and relate to decisions taken while she was there. Cover responds to when the claim is made, not when the act occurred — so a policy that ends when you leave protects you against nothing. What protects you is run-off cover, also called an extended reporting period, and six to seven years is now standard practice. Almost no first-time director knows to ask for it.

4. Side A is the part that matters when things are worst. D&O policies are built in parts. Side B reimburses the company when it indemnifies you. Side C covers the company itself. Side A covers you directly when the company cannot or will not indemnify you — which is precisely the insolvency scenario where your personal exposure is highest and the company's willingness to protect you is lowest. If a policy is thin on Side A, it is thin exactly where you need it.

5. Fraud is excluded — but the line sits further out than people assume. No policy covers proven fraud, criminal acts or illegal personal gain. What a well-worded policy does cover is defence costs, until guilt is established. That distinction is the whole value. Defence costs in a regulatory investigation can run to crores before anyone determines whether you did anything wrong at all, and most independent directors who face claims are never found to have done anything wrong.

If you are a founder rather than a board member, the same policy shows up from the other side of the table — as a closing condition in a funding round, often days before the wire is due. That is a different conversation, covered in D&O insurance: the funding-round requirement nobody warns women founders about.

5. Can you buy your own director's liability insurance in India?

Everything above assumes you are relying on someone else's policy. You don't have to.

Most independent directors have never been told that individual cover exists, because nobody is selling it to them — brokers sell D&O to companies, which is where the premium is. But the product exists in India. IFFCO Tokio markets an Individual Director and Key Personnel policy, describing it as the first in India to let directors and key managerial personnel secure their personal assets individually, with multiple directorships covered under a single policy.

Internationally the same product is called Independent Director Liability, or IDL — a Side A policy that responds only to claims against independent directors. Three features make it different from being a name on the company's schedule:

• The limit is yours alone. It isn't shared with officers, the company, or your fellow directors, so it cannot be eroded by someone else's claim before yours is filed.
• It travels with you. One policy can carry every board you sit on, and it doesn't end when a particular appointment does.
• You control it. You choose the limit, you see the wording, you decide on renewal. Nobody can let it lapse without telling you.

There is a reason to be even-handed here. Individual cover is a niche product, it is not aggressively marketed, and pricing typically shows little discount against a standalone Side A policy — so it is not automatically the right answer for every director. For most people the sensible sequence is a ladder:

1. Fix the company policy first. Get the wording, the limit, run-off and a deed of indemnity. This costs nothing and solves most of the exposure.
2. Ask whether the company will buy Side A DIC cover — broader individual protection sitting above the main policy, still paid for by the company.
3. Consider personal cover where the company's position is weak, where you sit on several boards, or where you are joining an unlisted or early-stage board with no mandate behind it.

The reason this needs a conversation rather than a comparison page: none of these are products you can meaningfully compare online, the wording differences are where the entire value sits, and the right answer genuinely depends on how many boards you sit on and what kind of companies they are.

It is also worth knowing why defence costs matter so much in the Indian context specifically. Independent directors are routinely named in Negotiable Instruments Act complaints over cheque dishonour — matters that can run a year or more of hearings and counsel fees even when the eventual outcome is a quashing and the director had no operational role whatsoever. That is the exposure most people never see coming, and it is exactly what a policy that pays defence costs from inception is for.

6. What to ask for before you say yes

Three things, in writing, before you accept the appointment. None of them is an unusual request, and a well-governed board will not blink at any of them.

1. A copy of the D&O policy wording — not a broker summary, not confirmation that cover "is in place." The actual wording, plus the current sum insured, plus proof the premium has been paid. Check specifically: are independent directors named or defined as insured persons, and what is the Side A position?
2. A written commitment on run-off cover — a minimum six-year extended reporting period covering your tenure, continuing after you leave, and not cancellable by the company alone.
3. A deed of indemnity from the company, separate from the insurance, together with confirmation that the articles of association permit indemnification. Insurance and indemnity are two different protections; you want both, because each fails in situations the other survives.

Two more worth doing quietly for yourself: read the last three years of board minutes and audit committee papers before accepting, and confirm what the annual limit is shared across — a single policy limit split among a dozen directors in one large claim is a very different number from the one on the cover page.

8. Frequently asked questions