Can a cousin of a promoter be appointed as an Independent Director?

1. Background

Securities and Exchange Board of India (“SEBI”) issued an Informal Guidance Note^[1] on 2 March 2026, confirming that a ‘cousin’ of a promoter group member does not fall within the definition of a 'relative' under the Companies Act, 2013 (“Act”). As a result, a cousin of a promoter group member is not automatically disqualified from being appointed as an Independent Director ("ID") on the board of a listed company. This article examines the basis for that clarification, the regulatory framework within which it operates, and the observations of key corporate governance committees that have considered the broader question of what independence should mean in the context of board appointments.

2. Facts of the Case

• Maithan Alloys Limited (“Company"), a ferro-alloy manufacturer listed on the National Stock Exchange of India Limited and the Calcutta Stock Exchange Limited, approached SEBI seeking a regulatory clarification on the proposed appointment of an individual as an ID on its board.

  
  

• The question arose because the proposed appointee is the daughter of Mr. Siddhartha Shankar Agarwalla (a promoter group member’s father’s sister), making her his first cousin on the paternal side. Mr. Agarwalla holds the position of a director in 2 subsidiary companies of the Company.

  
  

• The Company placed reliance on Regulation 16 (1) (b) (iii) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations"), which requires that a person proposed to be appointed as an ID must not be a relative of the promoters or directors of the listed entity, its holding company, subsidiary or associate company. The Company submitted that the term 'related' in this regulation must be construed with reference to the definition of 'relative' under the Act. Since a cousin is not included within that statutory definition, the Company contended that the proposed appointee could not be regarded as a relative and therefore, was not disqualified from appointment as an ID.

  
  

• The Company further submitted that the wider definition of 'related to any promoter' appearing in Regulation 17 (1) (b) of the LODR Regulations which talks about composition of board of directors in listed entities, is confined in its operation to that provision alone and does not govern the interpretation of Regulation 16 (1) (b) (iii).

  
  

• Under Section 2 (77) of the Act read with Rule 4 of the Companies (Specification of Definitions and Details) Rules, 2014, the definition of "relative" is limited to a specified list of close family members, including father, mother, son, son’s wife, daughter, daughter’s husband, brother, sister.[2]

3. The Statutory Position and SEBI's Clarification

• SEBI, in its Informal Guidance Note, clarified that since a cousin does not fall within the statutory definition of 'relative' under the Act, the proposed appointment of a ‘cousin’ of a promoter group member as an ID is not prohibited under the applicable regulatory provisions.

  
  

• It is important to note that an Informal Guidance Note issued by SEBI represents the regulator's interpretive view of the applicable provisions in the specific context presented to it. It does not have precedential or binding effect and is confined to the facts presented by the applicant. The guidance is also expressly subject to the caveat that a different conclusion may be reached in light of different facts and circumstances. The Informal Guidance Note should therefore be understood as operating within the existing regulatory framework, rather than as a definitive or general pronouncement.

  
  

4.  Observations of Committees on Corporate Governance

• The guidance note, read alongside the observations of various committees that have examined corporate governance standards in India, highlights a broader and continuing conversation about what independence should mean in substance.

  
  

• The Kotak Committee on corporate governance constituted by SEBI in 2017 under the chairmanship of Mr. Uday Kotak observed that the appointment of relatives of promoters as IDs, even where legally permissible, should be assessed in the context of the spirit of independence that the institution is intended to represent.[3]

  
  

• The Companies Law Committee, while considering the scope of restrictions applicable to IDs under Section 149 (6) (e) (i) of the Act, noted that a relative of an ID may be in a position to influence the ID's conduct irrespective of the position that the relative holds within the company.[4]

  
  

• The Standing Committee on Finance, in its report on the Companies Bill, 2009, observed that the appointment of IDs should not be reduced to a matter of mere technical compliance with the letter of the law. The Committee emphasised that IDs must play their designated role effectively so as to protect the interests of stakeholders, particularly minority shareholders.[5]

5. Practical Implications

The implications of the statutory definition of 'relative' becomes apparent when considered in the context of board committee functions. Where the cousin of a promoter group executive director serves as an ID and is also a member of the Nomination and Remuneration Committee ("NRC"), the cousin ID would face no statutory impediment to participating in and voting on deliberations concerning that executive director's remuneration. When the same proposal is placed before the full board for approval, however, the executive director would be required to disclose his interest and abstain from voting on account of his personal interest in the resolution.

6. Conclusion and Observations

• The Informal Guidance Note sets out SEBI's interpretive position on the applicable provisions in the specific context of the Maithan Alloys case. On that basis, a cousin does not constitute a 'relative' under the Act, and the proposed appointment was accordingly not prohibited under Regulation 16(1) (b) (iii) of the LODR Regulations.

  
  

• The observations of the Kotak Committee, the Companies Law Committee, and the Standing Committee on Finance reflect a shared concern that eligibility criteria alone may not be sufficient to ensure the substantive independence that the ID framework is designed to achieve.

[1] ^{SEBI, 'Informal Guidance Note – Interpretive Letter dated March 2, 2026' (Issue No.: I/6076/2026), File No. HO/27/12/16(2)2025-LAD1-V2.}

[2] Section 2(77) of the Companies Act, 2013 read with Rule 4 of the Companies (Specification of Definitions and Details) Rules, 2014; Regulation 2(1)(zd) of the SEBI LODR.

[3] Report of the Committee on Corporate Governance’ (2017), p 25.

[4] Report of the Companies Law Committee (2016), para [11.5].

[5] Standing Committee on Finance (2009-2010), 'The Companies Bill, 2009', para [29].