Who Is Minding the Algorithm? Section 166(3) of the Companies Act, 2013 and a Process Standard for AI-Assisted Board Decisions
Hari Akshath M KOct 18, 202610.5281/zenodo.23456504pp. 623–63311 pages
Section 166(3) of the Companies Act, 2013 requires directors to act with 'due and reasonable care, skill and diligence' and to exercise 'independent judgment'. The provision was drafted for human decision-makers and is silent on what that duty demands when a board relies on an algorithmic system whose reasoning it cannot inspect. This article argues that the gap is practical, not theoretical. Indian courts have not fixed a consistent standard of care, the protections available to directors under sections 463 and 149(12) operate only after a dispute arises, and the regulatory material now addressing AI in Indian finance, from SEBI's 2025 consultation paper to the RBI's FREE-AI report and 2026 draft model-risk guidance and the Digital Personal Data Protection Act, 2023, binds entities rather than defining the individual director's duty of care. Drawing on Delaware's process-based oversight cases and on the distinction between substance and process in corporate governance scholarship, the article proposes a five-part Board AI Oversight Standard (identify, understand, challenge, monitor and document). It recommends two routes to give the Standard legal force: an amendment to Regulation 21 and Schedule II of the SEBI Listing Regulations, and a rebuttable presumption of due care under section 166(3) for boards that follow it. The proposal gives firms an ex ante and auditable benchmark for defending board decisions, and gives courts a workable test.