Shockwaves have been felt in India, following the Tata-Cyrus Mistry fallout, which could result in potentially significant exposures for Indian Insurers and global Reinsurers.


On 24 October 2016, in an unexpected turn of events, Cyrus Mistry, the Chairman of Tata Sons since October 2012 was removed as the Group Chairman after a brief stint of four years.

After Mistry's dismissal, there were calls for him to be ousted from the boards of other Tata connected companies.

In November, Mistry was dismissed as Chairman of Tata Consulting Services and then dismissed as Chairman of Tata Steel.

In December, Mistry resigned from the boards of several Tata companies before scheduled EGMs occurred, at which resolutions to dismiss him were expected.

In a private letter disclosed to the media, Mistry alleged that the Tata companies were mis-managed, that there was a lack of corporate governance and a breach by other directors of their fiduciary duties, as well as ethical concerns.

Mistry then filed a petition before the National Companies Law Tribunal (NCLT) against Ratan Tata, Tata Sons and some of its directors for oppression and mismanagement. This petition was recently dismissed although there is an appeal process that could be followed to the National Company Law Appellate Tribunal (NCLAT) and thereafter to the Hon'ble Supreme Court of India.

The Tata-Mistry battle has caused a shockwave in India, where the Tata companies have been widely regarded over the years to be amongst the best-run Indian companies and have served as a benchmark in corporate governance and ethics for all Indian companies.

The fallout and consequent litigation is expected to be a test case of the provisions in the 2013 Indian Companies Act, which came into force in 2014 and constituted an overhaul of the previous 1956 Companies Act.

The Landscape in India Relating to Corporate Governance and Directors' Duties

Over the years, there have been several high profile scandals in India, including the 2G scam, which related to bribery and corruption issues in the awarding of telecom licences amounting to an alleged loss of USD 4.6 billion and the 2009 Satyam accounting scandal alleged to be worth around USD 1.1 billion.

The 2013 Companies Act was a much-needed overhaul of company legislation and designed to enhance corporate governance standards. The changes were partly responsive to the increasingly global nature of Indian businesses, which are seeing a significant influx of international investment, including private equity investment and as Indian businesses are now significant global corporates, often with US and European exposures.

Some of the key provisions of the 2013 Companies Act include Section 166, which now expressly sets out the duties of a director, including the duty to exercise due and reasonable care and independent judgment.

Under Section 166 (2) there is now a new provision where directors have a duty to act in the best interest of a company, including for the protection of the environment.

The 2013 Companies Act now defines " fraud" and imposes imprisonment for up to 10 years, regardless of whether there is wrongful gain or loss. Further, Section 447 which defines " fraud" also provides for fines which may extend to three times the amount involved in the fraud.

The role of non-executive directors has been clarified by Section 150 (12); they can be held liable for the acts or omissions of a company, if those occurred with the directors' knowledge (attributable through the board process) and where the director consented/ connived or failed to act diligently.

A further key change in the 2013 companies' law is Section 245 which allows class action suits to be filed under company law for mismanagement/ prejudicial conduct of the company's affairs.

Suits filed before the NCLT allow claimants to seek restraining orders, as well as orders for compensation.

Partly to give confidence to investors and to enhance domestic standards, several other measures have been implemented in the last few years.

These include the setting up of a standalone Ministry of Corporate Governance and a significant increase in regulatory investigations, for example by the Serious Fraud Investigation Office.

Also, in 2016, a new Act came into force which provided for the setting up of commercial courts, designed to speed up the resolution of commercial cases (the definition of which includes insurance disputes) and which provides for active case management. This move was aimed at tackling the notorious delays in the Indian judicial system and to encourage confidence in the legal system.

D&O Insurance in India

Due to the increasingly global nature of Indian businesses, especially in the technology and business servicing/ outsourcing industries and manufacturing industries, D&O insurance has, in the last ten years become a vital purchase for Indian companies on behalf of their directors and officers.

There are often significant levels of cover purchased, especially where the company has a US exposure or attracts the remit of listing authorities/ regulators.

High profile cases such as the Satyam scandal and now the Tata case are likely to reinforce the need for directors to have adequate cover in place.

Whilst policy pricing has historically been a key determinant for policy purchases, Indian Insureds are increasingly sophisticated international players who are focused on wordings and structures. Brokers are becoming more and more innovative in ensuring that cover for directors and officers is protected, if the policy also provides for entity cover.


The focus by regulators on good corporate governance and transparent and ethical conduct of business is a global trend.

In light of this, we expect that claims and regulatory action against Indian companies and their directors/ officers, both in India and internationally are likely to continue to increase.

Whilst the Indian government is taking welcome steps to tackle the delays and costs associated with Indian domestic litigation, the Tata case will be a test-case for both the interpretation of the 2013 Indian Companies Act, and whether the court reforms recently introduced do constitute an improvement in the court process.

Indian conglomerates and their Re/Insurers will be watching the developments in the Tata case closely, as well as being nervous about the potential exposures that they may face.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.