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Can Indian Company Law Recognise AI as a Director? SEBI and Liability Examined
Artificial intelligence has quietly entered Indian boardrooms, reshaping everything from ESG analysis and risk mitigation to compliance monitoring. Yet the law remains anchored in a human-centric framework. The recently doubled down on this human accountability by issuing , which holds regulated entities “” for the output of any AI or machine learning tool they deploy—whether built in-house or sourced from a third party. This development sharpens a fundamental legal question: can the ever recognise an AI system as a director?
The issue is not whether AI will influence corporate governance; it already does. The narrower, more profound inquiry is whether an AI system can be appointed to a board, owe , and be held civilly or criminally liable for breaching them. For legal professionals, this is not an abstract hypothetical—it is a looming intersection of company law, technology regulation, and corporate liability.
The Current Contours of Boardroom AI
AI’s role in Indian boardrooms has expanded beyond back-office automation. Boards now rely on AI-driven platforms for environmental, social, and governance (ESG) scoring, risk assessment, and compliance tracking. Algorithms flag anomalies in financial reporting, predict regulatory breaches, and even recommend strategic pivots. The technology is not merely advisory; in many cases, it directly shapes board decisions.
Despite this growing influence, the legal architecture treats AI as a tool—not a participant. The defines a director under Section 2(34) as a person appointed to the board of a company. The term “person” is further defined under the to include any association or body of persons, but not an artificial intelligence. The Act imposes duties under Section 166 that require directors to act in , with , and in the best interests of the company—standards that presuppose human judgment and moral agency.
SEBI : A Regulatory Shift
SEBI’s new , introduced under the , marks a significant regulatory hardening. It places the entire burden of AI/ML tool outputs on the regulated entity, regardless of whether the tool is proprietary or outsourced. The language is unambiguous: the entity is “.”
This means that if an AI-driven ESG scoring system misclassifies a company’s environmental risk, or a compliance algorithm fails to detect a related-party transaction, the board—and ultimately its human directors—cannot offload liability to the technology provider or the algorithm itself. For legal practitioners, this regulation creates a paradox: the law demands human accountability precisely at the moment when decision-making is being delegated to machines.
The Legal Hurdle to AI Directorship
The core obstacle is . Indian company law currently cannot accommodate a non-human director because the definition of “person” does not extend to AI. The requires directors to be natural persons or corporate entities (like nominee directors representing an organisation). Even a corporate director must be a natural person nominated by a body corporate. An AI system has no legal personality, no capacity to contract, and no ability to be sued or to hold property.
Moreover, under Section 166—such as the duty to act in , avoid conflicts of interest, and exercise —are inherently human. A machine cannot possess or exercise judgment in any morally meaningful sense. Criminal liability under company law, including penalties for fraud or wrongful trading, requires or at least negligence. AI systems lack consciousness and cannot form intent.
Some commentators suggest that an AI could be appointed as an “observer” or “adviser” to the board, but that would not confer director status. The statutory framework for directors’ responsibilities remains firmly anchored in human agency.
Could the Law Evolve?
Jurisdictions like the United Kingdom and the are debating “electronic personhood” for advanced AI, but no major economy has yet recognised an AI system as a director. In India, any change would require amending the to redefine “person” and create a new category of “artificial director” with tailored duties and liabilities. Such a reform would need to address:
- Appointment and Removal: How would an AI be appointed? Who would oversee its performance?
- : How would the be calibrated for a machine?
- Liability: Would the AI itself be liable, or would liability fall on its developers, operators, or the appointing company?
- Insurance and : Could an AI be insured? Who would pay premiums?
These are not merely technical questions; they strike at the heart of corporate governance philosophy. A board is not just a decision-making body; it is a collection of individuals accountable to shareholders, employees, and society. Diluting that accountability risks undermining trust.
Practical Implications for Legal Professionals
Until the law changes, lawyers advising corporate boards must navigate the current regime carefully. SEBI makes it clear that AI deployment does not shift liability. Boards must:
- Conduct on AI tools to understand their limitations and biases.
- Document and retain the ability to override algorithmic outputs.
- Review board governance policies to ensure that AI is used as a supportive tool, not a substitute for human decision-making.
- Consider clauses in contracts with AI vendors, though SEBI’s “” language may limit their effectiveness.
For in-house counsel, the rise of AI also raises questions about board composition. Should companies appoint a “technology director” with expertise in AI? Should board committees include independent experts to audit AI systems? These are practical steps that can address regulatory concerns without requiring legislative change.
Conclusion
The question of whether Indian company law can accommodate AI directors is currently answered with a firm “no.” The is built on a foundation of human accountability, and SEBI’s reinforces that principle. Yet the rapid integration of AI into boardroom functions means the legal system will eventually have to grapple with more fundamental questions about personhood, liability, and governance. For now, the responsibility—and the liability—remains squarely on human shoulders.
