Lawyers and management consultants serving as independent directors on the boards of India Inc could face tighter eligibility rules if the government lowers the limit on transactions between their professional firms and the companies where they serve as directors.
As per a new provision under the Corporate Laws (Amendment) Bill 2026, the existing fixed 10% threshold would be replaced with “10% or such lower per cent”. This change will allow the government to set a lower limit through rules.
A lower threshold would mean that more transactions between professional firms and companies could affect the eligibility of their partners to serve as independent directors. For instance, if the threshold is reduced from 10% to 5%, a firm’s transactions with the company at 6% of the firm’s gross turnover could affect the eligibility of its partner serving as an independent director.
It’s expected that the proposed change will reduce the pool of professionals eligible to serve as independent directors. Industry estimates suggest that lawyers and management consultants account for about 15-20% of independent director seats in top-tier listed companies within the Nifty 500.
Experts believe that the provision is aimed at reducing potential conflicts where an independent director’s professional firm has a financial relationship with the company. An independent director is expected to take decisions in the interest of the company, while the professional firm might have an interest in retaining business from the same company or its group.
“The change gives the government flexibility to respond to evolving market practices and regulatory expectations. It could bring higher scrutiny to commercial relationships between professional firms and companies where their partners serve as independent directors,” said Subodh Dandawate, associate director (regulatory advisory) at Nexdigm.
Currently, as per Section 149 of Companies Act, 2013, an individual associated as an employee, proprietor or partner with a legal or consulting firm can face disqualification as an independent director if transactions between the firm and the company (or its holding, subsidiary or associate company) amount to 10% or more of the firm’s gross turnover.
Further, the draft Bill allows an independent director to continue with the legal or consulting firm as long as transactions with the company remain below the prescribed limit. It also states that “every independent director shall ensure that he continues to fulfil the requirements specified under sub-section (6) during the term of his appointment.”
A 31-member joint parliamentary committee (JPC) has recently recommended changes to the draft Bill, including clarifications on the independence requirements that directors must continue to meet during their tenure and the application of the cooling-off provisions to group companies.
“The impact of this provision will depend on the threshold ultimately prescribed and the accompanying rules on measurement, disclosure and ongoing compliance.
Companies and professional firms will need robust, group-wide systems to monitor relevant engagements while ensuring that the implementation framework does not create unnecessary duplication in certification requirements – an issue recognised by the JPC, which also noted that the proposed amendments seek to strengthen the continuing independence of independent directors,” said Manendra Singh, partner at Economic Laws Practice.