Independent Directors - Financial reporting and diligence is integral to your role. SEBI intervention

I have been a regular speaker in the Institute of Directors (IOD India) forum for more than a decade now. I share my experiences with Board members (present and prospective) on Financial Governance and Reporting. My opening remarks generally was to the effect that Financial Governance cannot be based on Regulatory prescriptions. Director should be thinking beyond regulations and focus on effectiveness. While this paradigm is still highly relevant, a fresh spate of actions from Indian security regulator - Securities and Exchange Board of India (SEBI) - has brought additional responsibilities of Independent directors to fore.

Over the last two years (from October 2023 to October 2025), SEBI has adjudicated several cases involving independent directors, with a strong focus on financial oversight, governance lapses, and insider trading. Independent Directors have been imposed with stiff penalties for these lapses / oversight. A few of these cases are listed at the end of this blog for readers quick reference and reflection.

Additionally in February 2024, SEBI issued a directive requiring independent directors who resign citing "personal reasons" to provide detailed explanations for their departure, particularly if they continue to serve on the boards of other companies. This measure aims to prevent independent directors from resigning to avoid regulatory consequences, thereby encouraging greater transparency and accountability in their roles. Thus if a director becomes aware of any matter impacting the business / company materially, the avenues to shirk reporting the same for any personal or professional reasons is extremely limited.

Broader context from these cases

These concluded cases illustrate SEBI's escalating focus on holding independent directors accountable for financial oversight and reporting. The regulator expects directors to:

• Apply a diligent and independent mindset, rather than passively accepting management's explanations.

• Use their expertise, especially those on the audit committee, to effectively monitor financial reporting.

• Challenge management on issues like aggressive accounting practices, misclassification of expenses, and non-disclosure of critical information.

• Be vigilant in identifying and questioning red flags, such as unusual revenue patterns or inconsistencies in financial statements

Some known adjudicated cases (October 2023–October 2025) (from public sources listed in reverse chronology)

• Brightcom Group Ltd (October 2025):

  • SEBI's Finding: An investigation revealed that the company had engaged in significant accounting irregularities and fraud for multiple years. Specifically, Brightcom:

    • Failed to recognize substantial impairment losses of over ₹1,280 crore across the 2018–19 and 2019–20 financial years.

    • Misclassified losses and improperly capitalized research and development expenses, artificially inflating profits.

  • Independent Directors Penalized: Allam Raghunath and Subrato Saha.

  • Action Against Directors: SEBI imposed penalties of ₹30 lakh on Raghunath and ₹5 lakh on Saha. Raghunath was also found to have falsely declared his independence, as his daughter was employed by a subsidiary.

  • Key takeaway: SEBI held the independent directors liable for negligence in financial oversight, contributing to the dissemination of misstated financial statements.

• Scient Capital (October 2025):

  • Adjudication: In October 2025, SEBI fined Scient Capital for various regulatory lapses, including a net worth shortfall and violations related to a portfolio manager certification.

  • Offence: While not directed at independent directors specifically, the case underscored the broader regulatory scrutiny over financial companies and their leadership, highlighting a climate of increased accountability for all key personnel. 

• SecureKloud Technologies Ltd (February 2025): The Securities Appellate Tribunal (SAT) reduced the penalty imposed by SEBI on two independent directors for less serious violations of Listing Obligations and Disclosure Requirements (LODR), showing that each case is adjudicated on its specific circumstances. 

• Manpasand Beverages Ltd (April 2024): 

  • SEBI's Finding: SEBI found that the independent directors on the audit committee failed to act diligently. Instead of independently scrutinizing the company's financial statements, they relied on explanations provided by the managing director.

  • Action Against Directors: SEBI held the independent directors liable for their failure to effectively discharge their duties and act independently of management.

  • Key takeaway: The case reinforced that independent directors cannot simply act as "rubber stamps" for management. Those on the audit committee are expected to possess the necessary financial acumen and perform their oversight duties proactively. 

• Rupa & Company Ltd (February 2024): 

  • Adjudication: In a case finalized by February 2024, SEBI penalized an independent director for violating insider trading norms.

  • Offence: The director was found to have traded in the company's shares while in possession of unpublished price-sensitive information.

  • Penalty: A penalty was imposed under Section 15G of the SEBI Act, highlighting the personal liability of independent directors for insider trading violations. 

Zenith Infotech (2013)

• SEBI's Finding: The investigation uncovered a diversion of funds from the company.

• Action Against Directors: SEBI directed the entire board, including the independent directors, to provide a personal bank guarantee of $33.93 million to cover losses suffered by the company.

• Key takeaway: This was a notable case where SEBI used its general powers to take severe action against independent directors, holding them responsible for financial misconduct they were meant to prevent. 

Pyramid Saimara Theatre Limited (2011)

• SEBI's Finding: The company was found to have made false and misleading financial disclosures, with revenues and profits being inflated through fictitious entries.

• Independent Directors Penalized: K.S. Kasiraman, K. Natarahjan, and G. Ramakrishnan.

• Action Against Directors: The independent directors were barred from serving as independent directors or audit committee members in any listed company for two years.

• Key takeaway: This case demonstrated that claiming a lack of involvement in day-to-day operations is not a valid defense. Independent directors are expected to actively prevent and detect misrepresentations.