Cousin Can Be Independent Director as Cousins Are Not ‘Relatives’ Under LODR Rules

SEBI's Clarification on Independent Directors

The Securities and Exchange Board of India (SEBI) has issued a clarification which states that cousins do not fall under the statutory definition of 'relatives' as provided under the Companies Act and the Listing Obligations and Disclosure Requirements (LODR) Regulations. This ruling opens the door for cousins of promoter-group members to be appointed as Independent Directors on company boards.

This distinction is significant because it allows entities greater flexibility in board composition, particularly in regions where familial relationships can influence governance structures. The intent behind this ruling is to enhance corporate governance by broadening the pool from which companies can draw independent oversight.

Practitioners should take note of this development, as it presents new opportunities for corporate governance by diversifying the backgrounds of Independent Directors while still adhering to regulatory requirements. Careful consideration should still be given to the qualifications and independence of such directors to meet corporate governance standards.