How Independent Directors Failed Rs 2,500 Crore in Value

On May 7, 2026, in a courtroom at the National Company Law Tribunal's (NCLT) Principal Bench in New Delhi, a procedural order quietly underlined the gathering legal momentum in a case that may redefine the architecture of corporate accountability in India. The NCLT permitted the substitution of M/s Monet Securities Pvt Ltd as the new lead applicant in Company Petition No. 58/245/PB/2024, replacing the original petitioner Ankit Jain after his exit from the proceedings a development that Jindal Poly Films Limited (JPFL) publicly described as carrying "no implications on the merits of the case." The company's restraint was telling. Because the merits of the case, once examined fully, are substantial, consequential, and deeply uncomfortable for India's corporate governance establishment.

The First of Its Kind

This is not just another corporate dispute. According to reporting by BW Legal World and Business Standard, the Jindal Poly Films case is the first substantive class action to be admitted and to survive appellate scrutiny under Section 245 of the Companies Act, 2013 a provision that, as Rajasekhar V.K., a former Judicial Member of the NCLT, wrote in a March 2026 analysis for IBC Laws, "sat in the statute book like a fire alarm behind glass" for nearly a decade. Everyone knew it was there. For eight years after the rules were operationalised in 2016, nobody reached for it.

Section 245 allows shareholders of a listed company collectively holding at least 2 percent of share capital to file a class action at the NCLT, seeking remedies ranging from restraining ultra vires acts, to claiming damages from directors, auditors, consultants, or advisors for acts of fraud, mismanagement, or misconduct. The NCLT's principal bench admitted the petition filed by shareholders led by Ankit Jain who collectively held approximately 4.99 percent of JPFL's share capital after rejecting the company's preliminary objections. The National Company Law Appellate Tribunal (NCLAT), in a bench comprising Justice (retd) Yogesh Khanna and Technical Member Ajai Das Mehrotra, upheld that decision on February 27, 2026, in Comp. App. (AT) No. 47 of 2026, refusing to interfere at the threshold stage.

The Transactions at the Centre of the Storm

The factual allegations in the petition, as reported across multiple credible outlets, centre on a series of related-party transactions involving JPFL's investments in group power companies Jindal Powertech and Jindal Thermal accumulated between 2013 and 2017 through preference shares worth approximately Rs 704 crore. What followed is contested, but the sequence as alleged by petitioners is striking in its pattern.

According to reporting by BW Legal World, in 2019-2020, JPFL reportedly wrote off significant portions of loans extended to these group entities, an action the petitioners allege substantially improved the financial standing of Jindal Thermal and made its equity inherently more valuable. Subsequently, optionally convertible preference shares (OCPS) valued at Rs 440 crore were allegedly sold to SSJ Trust a promoter-controlled entity whose trustees include Shyam Sunder Jindal and his wife Subhadra Jindal for just Rs 66 crore. Separately, redeemable preference shares (RPS) worth Rs 263 crore were allegedly transferred to Jindal Poly Investment for only Rs 39 crore. The total alleged transfer: Rs 703 crore in securities for approximately Rs 105 crore in consideration.

The timing, as reported by TICE News, raised significant questions: the company reportedly held Rs 1,250 crore in liquid assets at the time, suggesting no financial urgency compelling a distress sale at steep discounts. In a further transaction, a Rs 31 crore stake in Jindal Thermal was sold at Re 1 per share to another promoter-linked entity. The petitioners allege the cumulative loss to the company from these transactions exceeds Rs 2,500 crore, translating to a proportional loss of approximately Rs 138.79 crore to the minority shareholders holding 4.99 percent equity.

The class action petition names prominent members of the promoter family Shyam Sunder Jindal, Subhadra Jindal, and Bhavesh Jindal as well as a range of present and former directors, including Sonal Agarwal, Sanjeev Aggarwal, Rathi Binod Pal, Sanjeev Saxena, Devinder Kumar Rithaliya, Vijender Kumar Singhal, current CEO Vinod Kumar Gupta, and former non-executive director Punit Gupta. Jindal Poly Films has maintained in public statements that "all business decisions were taken in accordance with commercial prudence and applicable law," and that the NCLT proceedings remain sub-judice with no findings yet determined on merits.

The Enforcement Directorate Dimension

The governance concerns escalated sharply in September 2025. As reported in detail by Moneylife, the Enforcement Directorate (ED) conducted search operations across 13 premises linked to the BC Jindal Group on September 18-19, 2025, under the Foreign Exchange Management Act (FEMA). The agency publicly announced an investigation on September 24, 2025, revealing what it described as a potential scheme involving the alleged transfer of Rs 505.14 crore to Dubai-based entities Topaz Enterprise DMCC and Garnet Enterprise DMCC ostensibly as overseas direct investment to acquire shareholding in a foreign entity.

The ED alleged that Topaz Enterprise DMCC was 100 percent owned by Shyam Sundar Jindal, and that funds passed through Garnet DMCC into Netherlands, US, and other jurisdictions via step-down entities. Two separate valuation reports by related valuers are said to have been used to support the remittance structure. In response, the BC Jindal Group issued a statement asserting that "no group entity has made any remittances or payments which are not in accordance with law" and that "all transactions have been executed following Government rules and procedures as also in conformity with RBI regulations." The group added that it was "extending full support and cooperation to law enforcement agencies." The ED investigation remains active and no charges have been conclusively established in a court of law.

These parallel developments add a regulatory dimension to what began as a shareholder dispute. On April 9, 2026, the Principal Bench of the NCLT issued notice on an intervention application filed by SEBI in the ongoing class action, allowing the market regulator to place its own findings on governance violations and securities law breaches on record, as reported by Business Standard. On April 27, 2026, JPFL disclosed receiving a SEBI show cause notice referencing alleged violations of multiple sections of the SEBI Act, 1992, including Sections 15HA and 15HB, in relation to transactions and corporate governance matters, per disclosures reported by ScanX. As of May 17, 2026, the case is before the NCLT Principal Bench, now led by newly appointed President Justice (retd) Anupinder Singh Grewal.

The Structural Illusion of Independent Directors

It is in the governance architecture surrounding these transactions that the case presents its most uncomfortable institutional questions. The petition implicates not just promoter-family members but also a slate of independent and non-executive directors who, by regulatory design, were supposed to serve as the internal check against exactly the kind of related-party conduct being alleged. That they are now named respondents in India's first class action of this kind is itself a verdict not on their guilt, which remains to be determined but on the systemic adequacy of independence as currently structured in listed Indian entities.

SEBI Chairman Tuhin Kanta Pandey, addressing the 2025 Annual Directors' Conclave in August 2025, was direct: independent directors "cannot afford to be treated merely as honorary appointees or friendly critics," and must instead act as "vigilant guardians of shareholder interest," as reported by Indian Economy and Market. The chairman's remarks acknowledged a structural problem that the Jindal Poly Films case has brought into stark relief: that the legal threshold for independence centred largely on the absence of a formal pecuniary relationship with the company or its promoter can mask what might be called crony independence: the condition where a director is technically independent by checklist, but practically aligned with promoter interests through institutional deference, asymmetric information, or the socially embedded nature of boardroom appointments in India's closely-held business groups.

As noted by Yash B Joglekar, counsel at the Bombay High Court, and cited in Business Standard, corporate class action jurisprudence in India remains "nascent." Past large-scale collective governance failures Satyam, Fortis Healthcare, IL&FS were addressed by regulators or courts, not by shareholders invoking Section 245. Boards with independent director majorities presided over each of those episodes. What distinguished those failures from ordinary mismanagement was precisely the silence of institutional oversight mechanisms that were, on paper, fully operative.

A 2025 analysis published on the Cyril Amarchand Mangaldas blog identified the central regulatory gap: in the absence of bright-line rules requiring substantive independence as opposed to formal independence evaluating directors on a formulaic basis that fulfils requirements on paper is insufficient. Companies, the analysis argued, "need to shift from focusing solely on technical criteria of independence to assessing substantively the role played by independent directors in safeguarding corporate governance." The question that the Jindal Poly Films case forces into the open is precisely this: if an audit committee composed partly of independent directors was in place during the period when transactions now alleged to represent Rs 2,500 crore in losses occurred what does the label "independent" actually protect?

The Audit Committee and the Accountability Gap

Under India's SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, the audit committee of a listed company must consist of a majority of independent directors and is legally mandated to review related-party transactions, assess internal controls, and flag financial irregularities. SEBI's enforcement record in recent years has made clear that this obligation is not ceremonial. In Vishal Ahuja v Securities and Exchange Board of India, the Securities Appellate Tribunal (SAT) upheld an order holding independent directors personally liable for failing to detect fictitious purchases and undisclosed related-party transactions at Setubandhan Infrastructure Limited, as reported by Law.asia. The SAT explicitly rejected the "well-worn defence" that independent directors had not known of, or participated in, day-to-day affairs. The ruling reinforced an older principle drawn from a 1973 Supreme Court judgment that independent directors may be held liable for losses arising from negligence, even absent personal participation in the alleged conduct.

This evolving standard has consequences for the Jindal Poly Films proceedings. The allegation is not merely that the promoters of BC Jindal Group transferred valuable assets below market value it is that a series of transactions of this scale and nature occurred inside a governed, listed, SEBI-regulated entity with an audit committee, a board, statutory auditors, and compliance officers all in place, without any documented, public dissent from the oversight infrastructure. Whether any individual independent director flagged or objected to these transactions privately remains unknown at this stage. But the public record offers no evidence of any board-level pushback, any auditor qualification triggered by the asset transfers, or any audit committee report that identified the undervaluation concerns now at the centre of the petition.

In FY25 alone, 549 independent directors resigned voluntarily from listed company boards many, according to reporting in Indian Economy and Market, reassessing their exposure in the wake of heightened SEBI scrutiny and enforcement. The mass exit speaks to a broader recognition that the position of independent director has been understated in terms of legal risk, and overstated in terms of actual board-level power a paradox that the Jindal Poly Films case crystallises with unusual clarity.

Section 245 as a Structural Corrective and Its Limits

The activation of Section 245 in this case is significant for reasons that extend beyond JPFL. As former NCLT Judicial Member Rajasekhar V.K. observed in his March 2026 analysis for IBC Laws, the provision addresses "not merely the fate of one application, but the practical utility of a remedy long dormant." The structural design of Section 245 addresses a core collective action problem in listed companies: individual minority shareholders often holding fractions of one percent have neither the financial incentive nor the procedural standing to litigate against a promoter group controlling over 74 percent of equity, as is the case with JPFL's promoters. The class action mechanism creates the possibility of aggregating those interests, and the NCLT's willingness to admit the petition on this basis coupled with the NCLAT's refusal to dismiss at threshold represents a meaningful step in operationalising that possibility.

The case also illustrates, however, how demanding the process remains. The original lead applicant, Ankit Jain, has exited the proceedings. As of May 7, 2026, 45 intervention applications have been filed by additional minority shareholders seeking to be impleaded, while M/s Monet Securities Pvt Ltd which had by April 2026 built an 11.40 percent stake in JPFL through open market purchases has been substituted as the new lead applicant. The evolution of the petitioner roster reflects both the expanding civil interest in the case and the practical costs of sustaining class litigation against a well-resourced corporate respondent over multiple years.

SEBI's formal intervention through its own application seeking to place its findings on securities law violations and governance irregularities on record adds a regulatory layer that was absent from the initial proceedings. As reported by Business Standard on May 1, 2026, the market regulator submitted that JPFL had filed its reply to the SEBI intervention application, with the matter now proceeding before the newly constituted Principal Bench. The combination of a class action, an ED investigation, and a SEBI show cause notice directed at the same entity, its promoters, and its key management personnel is, by Indian regulatory standards, an unusually concentrated confluence of legal and regulatory pressure.

What This Means for Corporate India

The Jindal Poly Films case does not, at this stage, establish guilt. The NCLT has explicitly clarified that admission is not a finding on merits. Jindal Poly Films' position that all decisions were taken with commercial prudence and necessary approvals remains on record and will be tested. What the case has already done, irrespective of its eventual outcome, is structurally consequential: it has demonstrated that Section 245 is justiciable, that shareholder thresholds are workable, and that past and completed transactions are not beyond the tribunal's remedial jurisdiction a point the NCLT made expressly in rejecting JPFL's preliminary objections. It has established that SEBI can intervene as a party in class action proceedings to support its findings alongside private litigation, creating a new mode of regulatory reinforcement. And it has put every audit committee member, independent director, and statutory auditor of a listed Indian company on notice: the institutional label of oversight is no longer sufficient protection against accountability.

The question that will linger long after this case is resolved on whatever terms is the one that India's corporate governance framework has never satisfactorily answered: what does it mean to be independent on a board where you are nominated, where the promoter controls over 74 percent of the vote, and where the asymmetry of information between the board room and the public shareholder is vast and structural? The Jindal Poly Films case has made that question legally, not merely theoretically, urgent.