Should Offshore Funds Appoint Directors?

A deep dive into evolving director obligations, duties and liabilities

The issue of director duties and attendant liabilities has been a subject of immense debate as the role of directors evolves in the Indian context. India is perhaps a decade behind the west in this evolution process, though rapidly catching up driven by increasingly proactive proxy advisory firms and institutional capital taking significant positions in Indian companies, though activist funds are still a rarity. Transcendence from ‘complying with their obligations’ to ‘performing their duties’ has probably been most transformational and manifested only in the past couple of years.

The question now therefore is not that of mere compliance, but governance; not that of obligations, but duties. The bright-line tests are blurring, and directors’ conduct is increasingly being scrutinized basis standards seen in the west. Indian law has made things far more complex though. A director is not just required to work in the interests of the shareholders, but stakeholders, which include shareholders, employees, community, and environment.

The question which then brooks careful thought and inquiry is why one should become a director in the first place. There is a natural keenness in financial sponsors to stay away from board positions and take observer positions coupled with an array of contractual protections as an alternative to directorship. The question is – is that enough? (see Section 4)? And if not, what is at risk?

We discuss the duties, benefits, risks and liabilities of directorships, but more importantly careful checks and balances to mitigate the risks that board positions may entail from a legal, regulatory, reputational and strategic perspective.

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