The road not taken: manoeuvring through the Indian Companies Act to enable AI directors

ABSTRACT

Under the framework of the Indian Companies Act 2013, we seek to explore the possibilities of AI systems replacing directors in the board-room. We begin by examining the intractable debate in moral philosophy on the legal personhood of AI. Then, we go on to examine the current judicial and statutory understanding of the fiduciary duties of directors in s 166 of the Companies Act. We find that with the introduction of augmented AI into boardrooms, the existing construct of fiduciary duties is relatively sufficient, but needs some adaptation. Thereafter, we seek to build a case for dilution of the ‘natural person’ requirement for company directors in s 149 of the Companies Act and use Professors Bainbridge and Henderson’s concept of Board Service Providers towards this end. Drawing from Indian law provisions, the paper concludes by arguing that the proposed dilution is not as radical as it initially appears.

KEYWORDS:

• Artificial intelligence
• India
• company law
• fiduciary duties

Acknowledgements

The views of both authors are personal and do not necessarily reflect the views of the organisations with which they are associated.

The authors are grateful to Professors Umakanth Varottil, Florian Möslein, Martin Petrin, Akshaya Kamalnath, and Mr Jaideep Reddy for their comments on earlier drafts. Any errors remain the authors’ own.

Notes

1 Tomasz Pietrzykowski, Personhood Beyond Humanism: Animals, Chimeras, Autonomous Agents and the Law (Springer 2018) 27–28.

2 Tomasz Pietrzykowski, ‘The Idea of Non-Personal Subjects of Law’ in Visa A J Kurki and Tomasz Pietrzykowski (eds), Legal Personhood: Animals, Artificial Intelligence and the Unborn (Springer 2017) 49–50.

3 John Finnis, Intention and Identity: Collected Essays Volume II (Oxford University Press 2011) 19.

4 ibid 21.

5 Tomasz Pietrzykowski, ‘Towards Modest Naturalization of Personhood in Law’ (2017) 32 Journal for Constitutional Theory and Philosophy of Law 59, 59–66.

6 Pietrzykowski (n 1) 25–30. Humanism and anthropocentricism go hand in hand—Jozef Bochenski defines anthropocentricism as ‘a superstitious philosophy related to humanism, according to which the human being is the centre and the point of departure for philosophical investigations’: see Pietrzykowski (n 1) 28.

7 ibid.

8 Sam Levin and Julia Carrie Wong, ‘Self-driving Uber kills Arizona Woman in First Fatal Crash Involving Pedestrian’ (The Guardian, 19 March 2018) <www.theguardian.com/technology/2018/mar/19/uber-self-driving-car-kills-woman-arizona-tempe> accessed 9 December 2020.

9 Andrew Griffin, ‘Saudi Arabia grants Citizenship to a Robot for the First Time Ever’ (The Independent, 26 October 2017) <www.independent.co.uk/life-style/gadgets-and-tech/news/saudi-arabia-robot-sophia-citizenship-android-riyadh-citizen-passport-future-a8021601.html> accessed 13 April 2020.

10 Ellie Zolfagharifard, ‘Would you take Orders from a Robot?’ (The Daily Mail, 19 May 2014) <www.dailymail.co.uk/sciencetech/article-2632920/Would-orders-ROBOT-Artificial-intelligence-world-s-company-director-Japan.html> accessed 13 April 2020.

11 Florian Möslein, ‘Robots in the Boardroom: Artificial Intelligence and Corporate Law’ in Woodrow Barfield and Ugo Pagallo (eds), Research Handbook on the Law of Artificial Intelligence (Edward Elgar 2018) 656–657.

12 By quasi-appointment, we mean VITAL’s appointment on the board with observer status and without absolute voting/decision-making powers on all board decisions.

13 Nicky Burridge, ‘Artificial Intelligence gets a Seat in the Boardroom’ (Nikkei Asia, 10 May 2017) <asia.nikkei.com/Business/Artificial-intelligence-gets-a-seat-in-the-boardroom> accessed 6 March 2020.

14 Martin Petrin, ‘Corporate Management in the Age of AI’ [2019] Columbia Business Law Review 965, 1030.

15 Amanda Turnbull, ‘How Coronavirus Set the Stage for a Techno-Future with Robots and AI’ (The Conversation, 6 May 2020) <https://theconversation.com/how-coronavirus-set-thestage-for-a-techno-future-with-robots-and-ai-136475> accessed 17 May 2020.

16 Pooja Pillai, ‘Reopening Restaurants in India’ (The Indian Express, 6 June 2020) <indianexpress.com/article/explained/reopening-restaurants-in-india-world-6444729/> accessed 6 June 2020.

17 Stephen M Bainbridge and M Todd Henderson, ‘Boards-R-Us: Reconceptualizing Corporate Boards’ (2014) 66 Stanford Law Review 1051.

18 European Parliament resolution of 16 February 2017 with recommendations to the Commission on Civil Law Rules on Robotics (2015/2013(INL)) <www.europarl.europa.eu/doceo/document/TA-8-2017-0051_EN.pdf> accessed 3 February 2021.

19 ‘Open Letter to the European Commission Artificial Intelligence and Robotics’ (Robotics) <www.robotics-openletter.eu/> accessed 1 February 2021.

20 Thomas Burri, ‘The EU is Right to Refuse Legal Personality for Artificial Intelligence’ (Euractiv, 31 May 2018) <www.euractiv.com/section/digital/opinion/the-eu-is-right-to-refuse-legal-personality-for-artificial-intelligence/> accessed 6 September 2020.

21 Decision on Petition, In re Application No: 16/524,350 (United States Patent and Trademark Office, April 22, 2020) <www.uspto.gov/sites/default/files/documents/16524350.pdf> accessed 1 February 2021.

22 Benjamin Lai and Alfred A Macchione, ‘To Invent is Human: US Patent and Trademark Office Rejects AI System as an Inventor’ (Lexology, May 2020) <www.lexology.com/library/detail.aspx?g=45c112d0-53f8-44e2-97d7-860cad7dc143> accessed 18 May 2020.

23 Ugo Pagallo, ‘Vital, Sophia, and Co—The Quest for the Legal Personhood of Robots’ (2018) 9 Information 230; Nora Osmani, ‘The Complexity of Criminal Liability of AI Systems’ (2020) 14 Masaryk University Journal of Law and Technology 53, 61.

24 John-Stewart Gordon, ‘Artificial Moral and Legal Personhood’ (AI & Society, 9 September 2020) <doi.org/10.1007/s00146-020-01063-2> accessed 7 February 2021.

25 Peter A French, ‘The Corporation as a Moral Person’ (1979) 16 American Philosophical Quarterly 207, 207–213.

26 Sunil B Naik v Geowave Commander (2018) 5 SCC 505 (Supreme Court of India (SCI)).

27 Pramatha Nath Mullick v Pradyumna Kumar Mullick (1925) 27 Bom LR 1064 (United Kingdom Privy Council).

28 W Robert Thomas, ‘How and Why Corporations become (and remain) Persons under the Criminal Law’ (2018) 45 Florida State University Law Review 479, 495–496.

29 ibid 483.

30 See Elvia Arcelia Quintana Adriano, ‘The Natural Person, Legal Entity or Juridical Person and Juridical Personality’ (2015) 4 Penn State Journal of Law and International Affairs 363.

31 Bryant Smith, ‘Legal Personality’ (1928) 37 Yale Law Journal 283, 283–284.

32 See Susanna Kim Ripken, ‘Corporate First Amendment Rights After Citizens United: An Analysis Of The Popular Movement To End The Constitutional Personhood Of Corporations’ (2011) 14 University of Pennsylvania Journal of Business Law 209.

33 Edgar S Shumway, ‘Freedom and Slavery in Roman Law’ (1901) 49 The American Law Review 636, 639; Sergio Grammito Ricci, ‘The Technology and Archeology of Corporate Law’ (LawArXiv, 16 August 2018) 40 <osf.io/preprints/lawarxiv/zcqn7/> accessed 6 May 2020.

34 This middle ground (dominica potestas) was based on the derivation of legal capacity from the slave-owner.

35 Julia M Puaschunder, ‘On Artificial Intelligence’s Razor Edge: On the Future of Democracy and Society in the Artificial Age’ (Research Association for Interdisciplinary Studies Conference, April 2019) <rais.education/wp-content/uploads/2019/04/5JP.pdf> accessed 7 September 2020.

36 Bert-Jaap Koops, Mireille Hildebrandt and David-Olivier Jaquet-Chiffelle, ‘Bridging the Accountability Gap: Rights for New Entities in the Information Society?’ (2010) 11 Minnesota Journal of Law, Science and Technology 497, 523.

37 F Patrick Hubbard, ‘“Do Androids Dream?”: Personhood and Intelligent Artifacts’ (2011) 83 Temple Law Review 405, 405–450; Harry Haroutioun Haladjian and Carlos Montemayor, ‘Artificial Consciousness and the Consciousness-Attention Dissociation’ (2016) 45 Consciousness and Cognition 210, 211–221.

38 ‘Report of COMEST on robotics ethics’ (UNESCO, 2017) <https://unesdoc.unesco.org/ark:/48223/pf0000253952> accessed 17 February 2021.

39 W Robert Thomas, ‘The Ability and Responsibility of Corporate Law to Improve Criminal Fines’ (2017) 78 Ohio State Law Journal 601, 637.

40 ibid.

41 Lawrence B Solum, ‘Legal Personhood for Artificial Intelligences’ (1992) 70 North Carolina Law Review 1231, 1253–1254.

42 Gary Anderson, ‘When Artificial Intelligence Exceeds Human Capacity’ (The Washington Times, 1 August 2017) <www.washingtontimes.com/news/2017/aug/1/artificial-intelligence-may-exceed-human-capacity/> accessed 21 April 2020.

43 Mindaugas Naučius, ‘Should Fully Autonomous Artificial Intelligence Systems be Granted Legal Capacity?’ (2018) 17 Vytauto Didziojo University Law Review 113, 126–127.

44 Solum (n 41) 1250–1254.

45 Companies Act 2013 (India) (Companies Act 2013), s 68.

46 Companies Act 2013, s 186.

47 Companies Act 2013, s 166(2).

48 Mihir Naniwadekar and Umakanth Varottil, ‘The Stakeholder Approach Towards Directors’ Duties Under Indian Company Law: A Comparative Analysis’ in Mahendra Pal Singh (ed), The Indian Yearbook of Comparative Law 2016 (Oxford University Press 2017) 108; Deva Prasad M, ‘Companies Act, 2013: Incorporating Stakeholder Theory Approach into the Indian Corporate Law’ (2017) 39 Statute Law Review 292.

49 Möslein (n 11) 656–58.

50 Deloitte, ‘Strategy, Risk Oversight are Lead Areas of Boardroom Focus’ (Risk & Compliance Journal, The Wall Street Journal, 13 May 2015) <deloitte.wsj.com/riskandcompliance/2015/05/13/strategy-risk-oversight-are-lead-areas-of-boardroom-focus/> accessed 7 February 2021; Sven Kunisch, Günter Müller-Stewens, and Andrew Campbell, ‘Why Corporate Functions Stumble’ (Harvard Business Review, December 2014) <hbr.org/2014/12/why-corporate-functions-stumble> accessed 7 February 2021.

51 ibid 656–57.

52 Möslein (n 11) 656–58.

53 Companies Act 2013, s 149(1).

54 Stephen M Bainbridge, ‘Corporate Directors in the United Kingdom’ (2017) 59 William & Mary Law Review Online 65, 68.

55 Ji Lian Yap, ‘De Facto Directors and Corporate Directorships’ (2012) 7 Journal of Business Law 579, 581 (noting that private companies, other than those that are members of a corporate group which include a listed company, may have a corporate director).

56 Möslein (n 11) 655–656.

57 Gloria Phillips-Wren and Lakshmi Jain, ‘Artificial Intelligence for Decision Making’ in Bogdan Gabrys, Robert J Howlett and Lakshmi C Jain (eds), Knowledge-Based Intelligent Information and Engineering Systems, part 2 (Springer 2006) 531–536.

58 Burridge (n 13); Kandace Miller, ‘How Artificial Intelligence can be Applied To Executive Talent Acquisition’ (Forbes, 13 November 2018) <www.forbes.com/sites/forbescommunicationscouncil/2018/11/13/how-artificial-intelligence-can-be-applied-to-executive-talent-acquisition/#35e2f5022598> accessed 4 April 2020.

59 Jessica Kim Cohen, ‘Can AI Improve Cancer Care in Remote Areas? 3 Questions with Dr. Andrew Norden of IBM Watson Health’ (Becker’s Health IT, 20 August 2017) <www.beckershospitalreview.com/artificial-intelligence/can-ai-improve-cancer-care-in-remote-areas-3-questions-with-dr-andrew-norden-of-ibm-watson-health.html> accessed 4 April 2020.

60 ‘The Asian Law firms investing in legal technology’ (The Lawyer, 27 February 2018) <www.thelawyer.com/legal-tech-asia/#.WpVvFVXFkLs.twitter> accessed 18 March 2020.

61 Lance Eliot, ‘Watch Out for Those Looming AI Oligopolies, Including for Self-Driving Cars’ (Forbes, 20 May 2020) <www.forbes.com/sites/lanceeliot/2020/05/20/watch-out-for-those-looming-ai-oligopolies-including-for-self-driving-cars/#1c057774cc75> accessed 19 March 2020.

62 ‘Robots took my job: Microsoft Sacks Journalists, Replaces them with AI software’ (Hindustan Times, 30 May 2020) <tech.hindustantimes.com/amp/tech/news/microsoft-sacks-journalists-replaces-them-with-robots-71590845326999.html> accessed 1 June 2020.

63 ‘The Expansion of Robo-Advisory in Wealth Management’ (Deloitte, August 2016 <www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Deloitte-Robo-safe.pdf> accessed 10 March 2020.

64 Sophie Camp, ‘Why Everyone in the Boardroom needs AI’ (Outside Insight) <outsideinsight.com/insights/why-everyone-in-the-boardroom-needs-ai/> accessed 24 April 2020.

65 Agency costs may simply be understood as the outlays/expenses incurred by companies as a consequence of the principal-agent-like relationship between shareholders and managements, respectively. Agency costs come to be involved when there are attempts to ensure that the agents act in the principals’ best interests; See Michael C Jensen and William H Meckling, ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’ (1976) 3 Journal of Financial Economics 305, 309.

66 Akshaya Kamalnath, ‘The Perennial Quest for Board Independence: Artificial Intelligence to the Rescue?’ (2020) 83 Albany Law Review 43, 45.

67 John Armour and Horst Eidenmuller, ‘Self-Driving Corporations’ (2020) 10 Harvard Business Law Review 87, 90.

68 Petrin (n 14) 1030.

69 ibid.

70 Armour and Eidenmuller (n 67) 103.

71 John Armour and others, ‘What is Corporate Law?’ in Reinier Kraakman and others (eds), The Anatomy of Corporate Law: A Comparative and Functional Approach (Oxford University Press 2017) 2.

72 Kamalnath (n 66) 49–52.

73 Irving Janis, Victims of Groupthink: A Psychological Study of Foreign-policy Decisions and Fiascoes (1st edn, Houghton Mifflin 1972) 9.

74 James D Cox and Harry L Munsinger, ‘Bias in the Boardroom: Psychological Foundations and Legal Implications of Corporate Cohesion’ (1985) 48 Law and Contemporary Problems, 106-107; Travis Laster, ‘Cognitive Bias in Director Decision-Making’ (2012) 20 Corporate Governance Advisor 1, 5.

75 Kamalnath (n 66) 51–52.

76 See Umakanth Varottil, ‘Evolution and Effectiveness of Independent Directors in Indian Corporate Governance’ (2010) 6 Hastings Business Law Journal 281.

77 Kamalnath (n 66) 49–52.

78 Varottil, Evolution and Effectiveness of Independent Directors (n 76) 353–360.

79 Umakanth Varottil, ‘Appointment and Removal of Independent Directors: Need for Reform?’ (IndiaCorpLaw, 25 December 2016) <indiacorplaw.in/2016/12/appointment-and-removal-of-independen.html> accessed 4 February 2021.

80 Varottil, Evolution and Effectiveness of Independent Directors (n 76) 315–17.

81 Companies Act 2013, s 163.

82 The MCA administers, inter alia, the Indian Companies Act, 2013, and the attendant Rules and Regulations framed under it, for the regulation of the Indian corporate sector.

83 Umakanth Varottil, ‘The Foibles of a Databank and Proficiency Test for Independent Directors’ (IndiaCorpLaw, 13 November 2019) <indiacorplaw.in/2019/11/foibles-databank-proficiency-test-independent-directors.html> accessed 29 August 2020.

84 ibid.

85 Kamalnath (n 66) 52.

86 Australian Securities and Investments Commission v Healey [2011] FCA 717 (Federal Court of Australia) [229].

87 Kamalnath (n 66) 54.

88 See further section 4.

89 Petrin (n 14) 1005–1006.

90 ibid.

91 Luca Enriques and Dirk A Zetzsche, ‘Corporate Technologies and the Tech Nirvana Fallacy’ (2019) European Corporate Governance Institute (ECGI) Law Working Paper 457/2019, 41 <papers.ssrn.com/sol3/papers.cfm?abstract_id=3392321> accessed 24 March 2020.

92 ibid 26–33.

93 Tom Taulli, ‘How Bias Distorts AI (Artificial Intelligence)’ (Forbes, 4 August 2019) <www.forbes.com/sites/tomtaulli/2019/08/04/bias-the-silent-killer-of-ai-artificial-intelligence/?sh=f45f90a7d87e> accessed 4 February 2021; James Manyika, Jake Silberg, and Brittany Presten, ‘What do We do about the Biases in AI?’ (Harvard Business Review, 25 October 2019) <hbr.org/2019/10/what-do-we-do-about-the-biases-in-ai> accessed 4 February 2021; Craig S. Smith, ‘Dealing with Bias in Artificial Intelligence’ (The New York Times, 19 November 2019) <www.nytimes.com/2019/11/19/technology/artificial-intelligence-bias.html> accessed 4 February 2021.

94 We explore a possible solution to this in sub-section 4.2.

95 Suzanne Sadedin, ‘In What Ways could Artificial Intelligence be Leveraged to Cause Harm?’ (Forbes, 25 October 2018) <www.forbes.com/sites/quora/2018/10/25/in-what-ways-could-artificial-intelligence-be-leveraged-to-cause-harm/#38e5f74640a6> accessed 18 September 2020.

96 ‘The Promise of Artificial Intelligence’ (Accenture, 2016) 3–4, 11–14 <www.accenture.com/_acnmedia/pdf-19/ai_in_management_report.pdf> accessed 9 April 2020.

97 Petrin (n 14) 983.

98 ‘The Promise of Artificial Intelligence’ (n 96) 11.

99 Cohen (n 59).

100 Sujit John and Shilpa Phadnis, ‘How IBM Watson is helping Doctors Diagnose & Treat Cancer in India’ (The Economic Times, 23 August 2016) <tech.economictimes.indiatimes.com/news/technology/how-ibm-watson-is-helping-doctors-diagnose-treat-cancer-in-india/53821515> accessed 29 August 2020.

101 Kamalnath (n 66) 54.

102 For instance, managers juggling shift schedules due to employee illness, or the Associated Press using AI to write quarterly earnings reports; Vegard Kolbjørnsrud, Richard Amico, and Robert J. Thomas, ‘How Artificial Intelligence Will Redefine Management’ (Harvard Business Review, 2 November 2016) <hbr.org/2016/11/how-artificial-intelligence-will-redefine-management> accessed 7 February 2021; Petrin (n 14) 985.

103 Arguably, there may be certain limited aspects of due diligence which require human judgment (such as identifying risks flowing from agreements). However, the vast majority of due diligence tasks are rudimentary and administrative (such as a check for ‘defined terms’, verification of the expiry of licenses and approvals and scouring agreements to locate specific clauses) and are being taken over by AI; Aashish Aryan, ‘Law Firms take Baby Steps in AI to Increase Efficiency and Cut Costs’ (Business Standard, 26 August 2019) <www.business-standard.com/article/technology/law-firms-take-baby-steps-in-ai-to-increase-efficiency-and-cut-costs-119082101540_1.html> accessed 9 March 2020.

104 The Promise of Artificial Intelligence (n 96) 15.

105 Petrin (n 14) 970; Ricci (n 33) 41.

106 Richard Susskind and Daniel Susskind, The Future of the Professions: How Technology Will Transform the Work of Experts (1st edn, Oxford University Press 2015) 279–281.

107 A Rao, ‘AI Everywhere/Nowhere Part 3 – AI is AAAI (Assisted-Augmented-Autonomous Intelligence)’ (PWC, 20 May 2016) <usblogs.pwc.com/emerging-technology/ai-everywhere-nowhere-part-3-ai-is-aaai-assisted-augmented-autonomous-intelligence/> accessed 7 March 2020.

108 Kathleen Walch, ‘Is there a Difference between Assisted Intelligence vs Augmented Intelligence?’ (Forbes, 12 January 2020) <www.forbes.com/sites/cognitiveworld/2020/01/12/is-there-a-difference-between-assisted-intelligence-vs-augmented-intelligence/#39738acd26ab> accessed 7 September 2020.

109 In augmented AI applications, the nature of the tasks is fundamentally different from the tasks performed by assisted AI, in that they are more ‘complex’.

110 Möslein (n 11) 657.

111 Ricci (n 33) 37.

112 Akshaya Kamalnath, ‘Rethinking Liability and Licensing for Doctors in the Era of AI: Insights from Company Law’ (2018) 11 Asia Pacific Journal of Health Law & Ethics 33.

113 Naniwadekar and Varottil (n 48) 108.

114 Sangramsinh P Gaekwad v Shantadevi P Gaekwad (2005) 11 SCC 314 (Supreme Court of India (SCI)); Peskin v Anderson [2000] EWCA Civ 326 (England and Wales Court of Appeal (EWCA)) [31]–[34].

115 Petrin (n 14) 1008.

116 Companies Act 2013, s 166.

117 Companies Act 2013, s 166(3); Narayan v Adjudicating Officer, SEBI AIR 2013 SC 3191 (SCI) [37]; The JJ Irani Expert Committee Report on Company Law had recommended the insertion of the duty of care and diligence as a ‘basic duty’ of directors.

118 Ministry of Law, Justice and Company Affairs of the Government of India, Report of the High-Powered Expert Committee on Companies and MRTP Acts (1978) [5.14].

119 VS Ramaswamy Iyer v Brahmayya & Co, Official Liquidators, Hanuman Bank Ltd (1966) 1 Comp LJ 107 (Mad) (High Court of Madras) [105]–[107]; Official Liquidator, Supreme Bank Ltd v PA Tendolkar (1973) 1 SCC 602 (SCI) [25].

120 Life Insurance Corporation of India v Hari Das Mundhra (1971) 2 Comp LJ 220 (All) (High Court of Allahabad (Allahabad HC)) [109]; Miheer H Mafatlal v Mafatlal Industries Ltd AIR 1997 SC 506 (SCI); Re Brian D Pierson (Contractors) Ltd [1999] BCC 26 (EWHC) 52.

121 Umakanth Varottil, ‘Codification of Directors’ Duties: Is Common Law Excluded?’ (IndiaCorpLaw, 31 May 2014) <indiacorplaw.in/2014/05/codification-of-directors-duties-is.html> accessed 7 February 2021

122 ‘Report of Expert Committee’, (Ministry of Corporate Affairs, Government of India) [2] <www.mca.gov.in/Ministry/reportonexpertcommitte/chapter4.html> accessed 7 February 2021; R Franklin Balotti and Jesse Finkelstein, The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn, Wolters Kluwer 2018) §4.15.

123 Kamalnath (n 66) 48.

124 Petrin (n14) 1010.

125 Kamalnath (n 66) 48, 56.

126 Tea Brokers (P) Ltd v Hemendra Prosad Barooah (1998) 5 Company Law Journal 463; Re Smith & Fawcett [1942] Ch 304 (EWCA) 308.

127 PS Offshore Inter Land Services Pvt Ltd v Bombay Offshore Suppliers and Services Ltd [1992] 75 Comp Cas 583 (Bom) (High Court of Bombay (Bombay HC)); Iakovina M Kindyldi, ‘Smart Companies: Company & Board Members Liability in the Age of AI’ (LLM thesis, Tilburg University 2018) 45.

128 Lori McMillan, ‘The Business Judgment Rule as an Immunity Doctrine’ (2013) 4 William & Mary Business Law Review 521, 527; Stone v Ritter 911 A2d 362 (2006) (Supreme Court of Delaware (Delaware SC)).

129 Möslein (n 11) 660–663.

130 Legal, financial, retail, marketing, and healthcare, to name a few.

131 Re Supreme Bank of India Ltd [1964] 34 Comp Cases 34 (High Court of Karnataka).

132 LVV Iyer, Guide to Company Directors: Powers, Rights, Duties & Liabilities (1st edn, Lexis Nexis 2003) 288–289; A Ifla, ‘India: Codification of Duties of Directors Under The Companies Act 2013’ (Mondaq, 25 April 2018) <www.mondaq.com/india/corporate-governance/695304/codification-of-duties-of-directors-under-the-companies-act-2013> accessed 8 March 2020.

133 Companies Act 2013, s 166(2); Globe Motors Ltd v Mehta Teja Singh and Co [1984] 55 Comp Cases 445 (Del) (High Court of Delhi) [7].

134 Möslein (n 11) 659–60.

135 Kindyldi (n 127) 22.

136 Ajay Agrawal, Joshua Gans, and Avi Goldfarb, ‘How AI Will Change the Way We Make Decisions’ (Harvard Business Review, 26 July 2017) <hbr.org/2017/07/how-ai-will-change-the-way-we-make-decisions> accessed 27 April 2020.

137 Faye Flam, ‘IBM’s Watson Hasn’t Beaten Cancer, But AI Still Has Promise’ (Bloomberg, 24 August 2018) <www.bloomberg.com/opinion/articles/2018-08-24/ibm-s-watson-failed-against-cancer-but-a-i-still-has-promise> accessed 13 March 2020.

138 H James Wilson and Paul R Daugherty, ‘Collaborative Intelligence: Humans and AI Are Joining Forces’ (Harvard Business Review, July–August 2018) <hbr.org/2018/07/collaborative-intelligence-humans-and-ai-are-joining-forces> accessed 29 April 2020.

139 The corporate social responsibility (CSR) provisions in s 135 of the Companies Act 2013 operate on this basis, wherein if a company does not spend the mandated amount towards its CSR obligations, it will be required to tender a sufficient explanation of reasons for such failure in its annual report.

140 Subrata Sarkar, ‘The Comply-or-Explain Approach for Enforcing Governance Norms’ (Indira Gandhi Institute of Development Research, August 2015) <www.igidr.ac.in/newspdf/publication/WP-2015-022.pdf> accessed 4 February 2021; Enriques and Zetzsche (n 91) 47.

141 Petrin (n 14) 1009.

142 These include, inter alia, the powers to make calls on shareholders in respect of money unpaid on their shares, to authorize the buy-back of securities, issue securities and diversify the business of the company.

143 Companies Act 2013, s 179.

144 A Ramaiya, Guide to the Companies Act (18th edn, LexisNexis 2015) 3142.

145 National Automobile and Casualty Insurance Co v Payne 261 Cal App 2d 403 (Cal Ct App 1968) (Court of Appeal of California).

146 Petrin (n 14) 1006–007.

147 ‘The New Age: Artificial Intelligence for Human Resource Opportunities and Functions’ (EY, 2018) <assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/alliances/ey-the-new-age-artificial-intelligence-for-human-resources-010978-18gbl.pdf> accessed 13 December 2020.

148 ‘How to Maintain & Improve your Company Culture with AI’ (StartUs, 24 January 2019) <magazine.startus.cc/how-to-maintain-and-improve-your-company-culture-with-ai/>accessed 11 September 2020.

149 Commissioner of Agricultural Income Tax v Shree Hanuman Sugar Mills Ltd AIR 1965 Pat 58 (High Court of Patna) [18]; Bamford v Bamford [1970] Ch 212 (EWCA) 237–41.

150 Re Barings plc and Ors (No 5) [1999] 1 BCLC 433 (EWHC) 489; Siddharth Raja, ‘India: Duties to be Discharged by Directors’ (Mondaq, 14 December 2011) <www.mondaq.com/india/x/153824/Director.s+Officers+Executives+Shareholders/Duties+to+be+Discharged+by+Directors&gt> accessed 30 March 2020.

151 AIR 1959 Cal 625 (High Court of Calcutta) [34] citing New Fleming Spinning and Weaving Co v Kessowji Naik ILR 9 Bom 373 (Bombay HC).

152 Fisheries Development Corp of SA Ltd v Jorgensen 1980 (4) SA 156 (W) (Witwatersrand Local Division, South Africa) 166.

153 Möslein (n 11) 659–661.

154 ibid 660; Wertpapierhandelsgesetz (Securities Trading Act) 1998, s 33.

155 Bérengère Sim, ‘Shareholders Quiz Google on AI risks’ (Financial News, 18 June 2019) <www.fnlondon.com/articles/shareholders-quiz-google-on-ai-risks-20190618> accessed 2 May 2020.

156 Wilson and Daugherty (n 138).

157 According to the UNCITRAL Model Law on Electronic Commerce, the functional equivalent approach is based on the analysis of the functions and purposes of paper-based requirements, with the intention of determining how the said functions and purposes could be fulfilled through e-commerce.

158 Ministry of Corporate Affairs, Report of the Expert Committee on Company Law (2005) Chapter IV [18.1]–[18.3]; Rahul Sibal, ‘Ascertaining Legal Ramifications of Compensation Agreements—Part II (Statutory Approach)’ (IndiaCorpLaw, 17 April 2017) <https://indiacorplaw.in/2017/04/ascertaining-legal-ramifications-of_17.html> accessed 3 February 2021.

159 Companies Act 2013, s 166(4).

160 Companies Act 2013, s 166(5).

161 Official Liquidator v Ram Swarup and Ors AIR 1997 All 72 (Allahabad HC) [9]; Official Liquidator of John Galt Laboratories Ltd v R B Sangare and Ors [2006] 133 CompCas 258 (Bom) (Bombay HC) [7]; William M Lafferty, Lisa A Schmidt and Donald J Wolfe, Jr, ‘A Brief Introduction to the Fiduciary Duties of Directors Under Delaware Law’ (2012) 116 Penn State Law Review 837, 845; Bernard Black, ‘The Principal Fiduciary Duties of Boards of Directors’ (Third Asian Roundtable on Corporate Governance, Singapore, April 2001).

162 Rajeev Saumitra v Neetu Singh IA No 17545 of 2015 in CS(OS) 2528/2015 (High Court of Delhi).

163 Kamalnath (n 66) 48; Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 (EWCA) [44]; Vaishnav ShorilalPuri and Ors v Kishore Kundanlal Sippy (2005) 1 Comp L J 407 (Bom) (Bombay HC) [53].

164 ibid.

165 Companies Act 2013, s 180. Section 180 of the Companies Act sets out the restrictions on the powers of the Board, permitting the exercise of certain enumerated powers (such as selling the undertaking of the company, borrowing beyond a defined limit) only following authorisation by a special resolution of its shareholders.

166 Wertpapierhandelsgesetz (Securities Trading Act)1998 (WpHG) (Germany), s 80(2).

167 Section 166(2) of the Companies Act 2013 mentions employees, the shareholders, the community, and the environment.

168 Umakanth Varottil, ‘The Stakeholder Approach to Corporate Law: A Historical Perspective from India’ in Harwell Wells (ed), Research Handbook on the History of Corporate and Company Law (Edward Elgar 2018) 397.

169 Armour and Eidenmuller (n 67) 101.

170 Petrin (n 14) 971.

171 Petrin (n 14) 1015–016.

172 Möslein (n 11) 666–667.

173 Michael R Siebecker, ‘Making Corporations More Humane through Artificial Intelligence’ (2019) 45 Journal of Corporation Law 95, 116.

174 Ricci (n 33) 39.

175 Petrin (n 14) 1018. Theories of implied warranty and negligence are incorporated in the Consumer Protection Act 2019, s 85 and the Sale of Goods Act 1930, s 16. Programming malpractices in software can also be brought under the scope of the aforementioned provisions.

176 ibid.

177 Armour and Eidenmuller (n 67) 112.

178 Ryan Abbott and Alex Sarch, ‘Punishing Artificial Intelligence: Legal Fiction or Science Fiction’ (2019) 53 UC Davis Law Review 323, 357.

179 ibid 375.

180 ibid 358.

181 Armour and Eidenmuller (n 67) 112.

182 John Lightbourne, ‘Algorithms & Fiduciaries: Existing and Proposed Regulatory Approaches to Artificially Intelligent Financial Planners’ (2017) 67 Duke Law Journal 651, 677; ‘European Parliament resolution of 16 February 2017 with recommendations to the Commission on Civil Law Rules on Robotics’, (European Parliament, 16 February 2017) <www.europarl.europa.eu/doceo/document/TA-8-2017-0051_EN.html> accessed 28 January 2021.

183 Armour and Eidenmuller (n 67) 112.

184 Naveen Joshi, ‘How Far Are We From Achieving Artificial General Intelligence?’ (Forbes, 10 June 2019) <www.forbes.com/sites/cognitiveworld/2019/06/10/how-far-are-we-from-achieving-artificial-general-intelligence/#23c119bb6dc4> accessed 2 April 2020; ‘995 Experts Opinion: AGI/Singularity by 2060’ (AI Multiple, 2 February 2021) <research.aimultiple.com/artificial-general-intelligence-singularity-timing/> accessed 4 February 2021; Martin Ford, Architects of Intelligence: The Truth about AI from the People Building it (1st edn, Packt Publishing 2018) 528–530; Nick Bostrom, Superintelligence: Paths, Dangers, Strategies (1st edn, Oxford University Press 2014).

185 Stephen M Bainbridge and M Todd Henderson, Outsourcing the Board: How Board Service Providers can Improve Corporate Governance (1st edn, Cambridge University Press 2018).

186 ibid 4.

187 ibid 51.

188 Enriques and Zetzsche (n 91) 54.

189 Other jurisdictions which permit corporate directorships in some circumstances include Luxembourg, Netherlands, Guernsey and the British Virgin Islands. See Bainbridge and Henderson (n 185) 147.

190 Small Business, Enterprise and Employment Act, 2015 (UK), s 87; Bainbridge (n 54) 68.

191 Companies Act 2006 (UK) (Companies Act 2006), s 155(1).

192 The Small Business, Enterprise and Employment Act 2015 (UK), s 87 inserted s 156B into the Companies Act 2006, which has not been notified yet.

193 Companies Ordinance 2014 (HK) ss 456 and 457(2).

194 See sub-section 4.2 (private companies above a defined net worth).

195 Bainbridge (n 54) 68.

196 Kamal Ghosh Ray, ‘The Forgotten Managing Agency System: A Nineteenth Century Model of Indian Corporate Governance’ (2009) 5 Social Responsibility Journal 112, 114.

197 Umakanth Varottil, ‘Corporate Law in Colonial India: Rise and Demise of the Managing Agency System’ (2015) NUS Working Paper 2015/016 <papers.ssrn.com/sol3/papers.cfm?abstract_id=2708963> accessed 11 December 2020.

198 Companies Act 1956, s 2(25).

199 RK Goel, ‘Managing Agents: Their Powers and Functions—A Historical Review’ (1961) 3 Journal of the Indian Law Institute 389, 406–14.

200 Ray (n 196) 114.

201 Subhash Chandra Das, Corporate Governance in India: An Evaluation (3rd edn, PHI Learning 2012) 9–10.

202 Companies Act 1956 (India), s 324A; Varottil (n 197).

203 Ray (n 196) 116, 120–21.

204 ‘Replacing the Board’ (The Economist, 16 August 2014) <www.economist.com/business/2014/08/16/replacing-the-board> accessed 8 March 2020.

205 ‘Satyam scam: All you need to know about India's biggest accounting fraud’ (Hindustan Times, 9 April 2015) <www.hindustantimes.com/business/satyam-scam-all-you-need-to-know-about-india-s-biggest-accounting-fraud/story-YTfHTZy9K6NvsW8PxIEEYL.html> accessed 27 January 2021. The Satyam accounting scandal centred around fraudulent accounting practices, allegedly with the support of auditors and chartered accountants, the generation of fake invoices and wrongful diversion of funds. Revenues, operating profits, interest liability and cash balances were grossly inflated and represented as accurate to the stock exchange, regulators and investors, thereby keeping stock prices high. This brought to light the failure of the gate-keepers in question: statutory auditors and independent directors who did not raise concerns for 7–8 years.

206 Afra Afsharipour, ‘Directors as Trustees of the Nation? India’s Corporate Governance and Corporate Social Responsibility Reform Efforts’ (2011) 34 Seattle University Law Review 995, 1010–024.

207 TNN, ‘Satyam Board of Directors’ Role Comes under Spotlight’ (The Economic Times, 18 December 2008) <economictimes.indiatimes.com/tech/software/satyam-board-of-directors-role-comes-under-spotlight/articleshow/3855141.cms> accessed 24 March 2020; Madan Bhasin, ‘Corporate Accounting Fraud: A Case Study of Satyam Computers Limited’ (2013) 2 Open Journal of Accounting 26, 30.

208 Replacing the Board (n 204).

209 ibid.

210 Ankit Mishra and Nishchal Joshipura, ‘Time to Reconsider Mergers and Acquisitions Pricing Norms?’ (Nishith Desai Associates, 21 July 2016) <www.nishithdesai.com/information/news-storage/news-details/newsid/3440/html/1.html> accessed 11 September 2020; Cede & Co and Cinerama Inc v Technicolor, Inc 634 A2d 345 (1993) (Delaware SC); Aronson v Lewis 473 A2d 805 (1984) (Delaware SC); Smith v Van Gorkom 488 A2d 858 (1985) (Delaware SC).

211 Bainbridge and Henderson (n 17) 1086.

212 ibid 1086–1088.

213 Edward M Iacobucci, ‘Reputational Economies of Scale, with Application to Law Firms’ (2012) 14 American Law and Economics Review 303.

214 Bainbridge and Henderson (n 17) 1090.

215 Petrin (n 14) 1004.

216 Bainbridge and Henderson (n 17) 1068–1069.

217 Companies Act 2013, s 149.

218 Bainbridge and Henderson (n 17) 1101–1104. Professors Bainbridge and Henderson point to analogous situations in American law to highlight that the formal introduction of BSPs into corporate boardrooms is not necessarily a radical proposition.

219 ibid 1102.

220 Limited Liability Partnership Act 2008, s 5.

221 Bainbridge and Henderson (n 17) 1102.

222 Frigidaire Sales Corp v Union Properties, Inc 562 P 2d 244 (1977) (Supreme Court of Washington).

223 Companies Act 2013, s 161(3).

224 Blau v Lehman 368 US 403 (1962) (United States Supreme Court); Bainbridge and Henderson (n 17) 1103; Chabot v Empire Trust Co 301 F 2d 458 (United States Court of Appeal, 2nd Circuit) 460–61; Stephen Griffin, ‘Establishing the Liability of a Director of a Corporate Director: Issues Relevant to Disturbing Corporate Personality’ (2013) 34 Company Lawyer 135, 136.

225 Innoventive Industries Ltd v ICICI Bank and Ors AIR 2017 SC 4084 (SCI) [16].

226 Cyrus Investments (P) Ltd v Tata Sons Ltd, Company Petition No 82 (MB)/2016 National Company Law Tribunal (NCLT); Fidaali Moiz Mithiborwala and Ors. v Aceros Fortunate Industries Pvt Ltd and Ors., CA 144/2016 in CP 64/2015 (NCLT); Companies Act 2013, s 463.

227 K Sashidhar v Indian Overseas Bank and Ors AIR 2019 SC 1329 (SCI) [39]; Amir Ali Bavani, ‘India: Committee Of Creditors Are The Decision Makers—Court Perspective’ (Mondaq, 22 February 2019) <www.mondaq.com/india/insolvencybankruptcy/783964/committee-of-creditors-are-the-decision-makers--court-perspective> accessed 1 March 2020.

228 Report of the Expert Committee on Company Law (n 1588) Ch IV [5.1].

229 Goel (n 199) 428.

230 Companies Act 2013, s 149(1)(a).

231 Bainbridge and Henderson (n 17) 1068.

232 Petrin (n 14) 34.

233 ABSP liaison officer is essentially a senior manager of the BSP who acts as an intermediary/liaison between the BSP and the first level company (the client), similar to what a law firm partners do between their firms and their clients. The liaison officer’s role would primarily be to provide board advisory services and inputs at the first level companies’ board meetings.

234 The permissive threshold for the net worth requirement ought to be set at a reasonably high threshold, since companies with a large net worth would have greater visibility when compared to smaller companies which may potentially be used as fronts for deleterious purposes. Additionally, the net worth of private companies has to be disclosed in the annual returns (Form MGT-7) filed by private companies under the existing regime. Although the rationale differs, the threshold of a net worth of Rs 500 crore as a trigger for corporate social responsibility (CSR) obligations under s 135 of the Companies Act may be considered, in so far as the CSR obligation is primarily meant for ‘large’ companies to ensure not to financially burden them with mandatory CSR expenditure requirements.

235 Bainbridge (n 54) 84.

236 Petrin (n 14) 1003.

237 Section 4 of the Companies Act 2013, read with Schedule 1 to the Act, mandates companies to mention their objects in the memorandum of association (MoA). In our proposed framework, BSPs will be required to mention only one object, viz corporate governance services. This will create a narrow class of companies limited by function. Further, if BSPs were ever to go beyond providing corporate governance services, they would be acting ultra vires their MoAs, consequently rendering the infraction non-ratifiable by its shareholders.

238 Companies Act 2006, s 155(1); Companies Ordinance 2014 (HK), ss 456 and 457(2); Bainbridge (n 54).

239 Enriques and Zetzsche (n 91) 56–57.

240 Armour and Eidenmuller (n 67) 109.

241 NITI Aayog, National Strategy for Artificial Intelligence (2018) 20. Such sectors include healthcare, agriculture, infrastructure, transportation, and education.

242 Department for Promotion of industry and Internal Trade, Consolidated FDI Policy (15 October 2020), <https://dipp.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020_0.pdf> accessed 4 February 2021.

243 Vinay Mishra and Harshita Bhatnagar, ‘Foreign Direct Investment in Insurance Sector in India’ (2009) 6 Macquarie Journal of Business Law 203, 203.

244 For example, agriculture, e-commerce, and automobiles.

245 Mark Fenwick, Wulf A Kaal and Erik P M Vermeulen, ‘Regulation Tomorrow: What Happens When Technology is Faster than the Law?’ (2017) 6 American University Business Law Review 561, 591.

246 ‘Enabling Framework for Regulatory Framework’ (RBI, 13 August 2019) <m.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=938> accessed 3 May 2020.

247 Kindyldi (n 127) 40.

248 Andrea Downey, ‘Regulatory Sandbox for AI Needed to Test and Build Systems, NHSX says’ (Digital Health, 12 February 2020) <www.digitalhealth.net/2020/02/regulatory-sandbox-for-ai-needed-to-test-and-build-systems-nhsx-says/> accessed 18 August 2020.

249 Enabling Framework for Regulatory Sandbox (n 2466).

250 ‘Singapore Releases Model Governance Framework on AI’ (EDB Singapore, 31 January 2019), <www.edb.gov.sg/en/news-and-resources/insights/innovation/singapore-releases-model-governance-framework-on-ai.html> accessed 7 March 2020.

251 Enriques and Zetzsche (n 91) 54.

252 Shawn Bayern, ‘The Implications of Modern Business-Entity Law for the Regulation of Autonomous Systems’ (2015) 19 Stanford Technology Law Review 93, 112.

253 Armour and Eidenmuller (n 67) 107.

254 Pietrzykowski (n 1) 28.

Additional information

Notes on contributors

Rudresh Mandal

Rudresh Mandal is an associate in the capital markets practice group of Shardul Amarchand Mangaldas, New Delhi and a graduate of the NALSAR University of Law, Hyderabad.

Siddharth Sunil

Siddharth Sunil is an advocate in New Delhi and a graduate of the NALSAR University of Law, Hyderabad.