Conceptual · Article 7.3.12

Directors & Officers (D&O) Insurance.

Protecting the People Who Run the Company — Personally.

Published as on 22 July 2026

D&O Insurance protects the personal assets of a company's directors and senior officers when shareholders, regulators, creditors or employees allege they made wrongful management decisions — errors, omissions, misleading statements, neglect or breach of duty. It pays for legal defence and any civil settlement against the individual, not merely the company. Three structural shifts — the Companies Act 2013, the Insolvency and Bankruptcy Code 2016, and SEBI's personal enforcement powers — have turned D&O from an MNC nicety into essential protection for anyone sitting on an Indian company board. Cover is written as Side A, Side B and Side C on a claims-made basis; the premium is usually company-paid, deductible under Section 37(1), with 18% GST claimable as input tax credit.

Side A / B / C

Three-Part Cover

Sec 197(13)

Enabling Provision

18% GST

ITC Eligible

Claims-Made

Policy Basis

Executive Summary · Page 2

Executive Summary · 6 Findings

Most liability insurance protects the company. D&O protects the people who run it — personally. When a resolution professional pursues a director under the IBC, when SEBI names a managing director in a show-cause notice, or when shareholders file a class action, it is the individual's savings and home on the line, not the firm's balance sheet. D&O answers one question: who pays to defend the director, and any civil liability, when the allegation is a wrongful act of management?

Covers what D&O is and who is insured, the three structural shifts that made personal director liability real in India (the Companies Act 2013, IBC 2016 Section 66, and SEBI enforcement), the Side A/B/C coverage structure, what is covered and excluded on a claims-made basis, how limits are sized, the Section 37(1) deductibility and 18% GST/ITC treatment, five checks before buying, and six questions Indian directors ask.

Key Findings

It insures the person, not the company.

D&O covers the personal financial exposure of directors and senior officers — executive, non-executive and independent directors, the MD, CEO, CFO, COO and company secretary — when they face claims alleging wrongful acts in managing the company. It is distinct from Public Liability (bodily injury) and Professional Indemnity (service errors); it insures management conduct and decisions.

Personal liability in India is now real, not theoretical.

Once relevant mainly to MNC boards, D&O now matters domestically because three regimes create direct personal exposure: codified director duties and class actions under the Companies Act 2013, personal contribution orders under IBC Section 66, and SEBI's power to penalise, bar and disgorge individual directors. The threshold for exposure is negligence, not just fraud.

Side A is the coverage that actually saves you.

A comprehensive policy has three parts: Side A protects individuals directly when the company cannot or will not indemnify — precisely the insolvency scenario; Side B reimburses the company after it indemnifies its officers; Side C covers the listed entity itself for securities claims. Side A is the critical rung: at the moment a director is most exposed, the company is least able to help.

Claims-made — the retroactive date decides everything.

D&O responds to claims made during the policy period, not acts committed during it. A board approval from years ago can trigger an IBC or SEBI claim long after the fact, so the retroactive date must cover the director's entire tenure. "Defence until proven" applies: legal costs are paid through investigations — even criminal ones — until a final, non-appealable judgment establishes fraud or dishonesty.

The company pays; it is a business expense, not an 80C/80D deduction.

The premium is almost always paid by the company and is deductible under Section 37(1) of the Income Tax Act as a legitimate business expense. The 18% GST is claimable as input tax credit where the company is GST-registered, making the effective added cost nil. Crucially, this is not a personal 80C or 80D deduction for the director — it is a corporate cost.

Not universally mandatory — but effectively unavoidable.

No law compels every company to buy D&O. But SEBI LODR Regulation 25(10) mandates D&O cover for the independent directors of the top 1,000 listed companies, and PE/VC subscription agreements, IPO preparation and MNC parent frameworks routinely require it. Section 197(13) of the Companies Act is the statutory basis permitting corporate purchase.

At A Glance

Feature	Position	Detail
Who is insured	Directors & officers	Personally
Trigger	Wrongful act	In management
Policy basis	Claims-made	Retroactive date
Structure	Side A / B / C	Individual · Co · Entity
Enabling law	Sec 197(13)	Companies Act 2013
Who pays	The company	Sec 37(1) deductible
GST	18%	ITC claimable
Best for	Any real board	Listed, PE-backed, growth

Exhibit 01: Indicative Cover Limits by Company Type

Company Type	Any-One-Claim Limit
Startup / small private	₹5–25 cr
Mid-size listed	₹25–100 cr
Large listed	₹100–500 cr
Banks / large NBFCs	₹500 cr+

*Indicative, FY 2025-26. Limits scale with market cap or revenue, industry risk (financial services, pharma and infrastructure attract more), number of independent directors, and jurisdictions of operation — US-listed Indian companies face materially higher litigation exposure. Request quotes from IRDAI-registered D&O brokers.

The Opening · Page 3

The Opening

A director signs a board resolution. Years later the company slides into insolvency, a resolution professional reviews old decisions, and the National Company Law Tribunal is asked to order that director to personally contribute to the creditors' pool. No fraud is alleged — only that the director "ought to have known" the company was heading for the wall and did too little. There is no company balance sheet left to fall back on. This is the exact moment D&O insurance exists for: it defends the individual and funds any civil liability when the corporate shield has vanished.

"Ordinary business insurance protects the company. D&O protects the people who run it — at the precise moment the company can no longer protect them. When a firm is insolvent, its indemnity is worthless; Side A is the cover that still stands."
Personal, Not Corporate

What it is. D&O is a general insurance product that responds when directors and officers face legal claims alleging wrongful acts — errors, omissions, misleading statements, neglect, breach of duty or breach of trust — committed in their capacity as company leaders. It is not about physical harm to others, nor professional service errors; it insures the conduct of management as corporate decision-makers.

Why now. D&O was long treated as an MNC-board formality. Since FY 2013-14, three regulatory shifts have changed that: the Companies Act 2013 codified director duties and introduced class actions; the IBC 2016 created personal contribution liability for wrongful trading; and SEBI increasingly names individual directors, with insider-trading penalties reaching ₹25 crore against the person, not just the firm.

The Honest Boundary: D&O does NOT cover proven fraud, criminal conduct or personal dishonesty — though it pays defence costs until a final conviction establishes them. It does NOT cover bodily injury or property damage (that is Public Liability). It does NOT indemnify corporate entity fines levied on the company itself. It DOES defend directors personally and fund civil liability for genuine management errors and good-faith decisions that go wrong.

Structure

Part I

What D&O Is, Who Is Covered & Where It Fits

Part II

Three Structural Shifts: Companies Act, IBC & SEBI

Part III

Side A/B/C, What's Covered, Sizing, Tax & GST

Part IV

The Verdict: Five Checks Before You Sign

You Likely Need It If

✓ Listed, or preparing for IPO

✓ PE/VC-backed with nominee directors

✓ External lenders or minority shareholders

✓ An independent director on any real board

Common Misreadings

✕ "It covers the company's fines"

✕ "Only fraud triggers liability"

✕ "It's a personal tax deduction"

✕ "Unlisted private boards are safe"

Part I

What D&O Insurance Is, Who It Covers, and Where It Belongs

The wrongful acts it responds to and the people it names; how it differs from Public Liability and Professional Indemnity; and the statutory basis — Section 197(13) — that lets a company buy this cover for the individuals on its board.

Part I · Page 4

Who Is Covered

Insured Person	Included
Executive / non-exec directors	Yes
Independent directors	Yes
MD, Chairperson, CEO	Yes
CFO, COO, Co. Secretary, CCO	Yes
Shadow / de facto directors	Some policies

D&O responds to wrongful acts in the capacity of a company leader: errors, omissions, misleading statements, neglect, breach of duty or breach of trust in managing the company. The claimants are typically shareholders, regulators, creditors and employees — not the customers or public who trigger a Public Liability claim.

How It Differs

Product	Insures	Trigger
D&O	Directors personally	Management acts
Public Liability	The entity	Injury / property
Professional Indemnity	The professional	Service errors

The Enabling Provision

Section 197(13), Companies Act 2013

This is the Indian statutory basis for corporate D&O purchase. It explicitly permits a company to buy D&O insurance for its directors and officers — except where the claim involves fraud, breach of trust or wilful default. The premium so paid is not treated as part of the director's remuneration.

Who Typically Buys

From MNC Nicety to Board Standard

Listed companies on BSE/NSE (increasingly standard); PE- and VC-backed private companies (investors require it as a funding condition); large unlisted firms preparing for IPO or dealing with lenders; banks and NBFCs (board members face specific RBI regulatory liability); and MNC India subsidiaries under parent governance frameworks.

The core idea: a company is a separate legal person, but its directors are not shielded behind it when the law reaches for the individual. D&O restores a personal safety net — funding the defence and the civil liability of a named human being — so that competent people are willing to serve on boards without betting their homes on every decision.

Part II

Three Structural Shifts That Made Personal Director Liability Real

The Companies Act 2013 codified duties and armed shareholders with class actions; the IBC 2016 made directors personally contribute for wrongful trading under Section 66; and SEBI now penalises, bars and disgorges individual directors directly — with negligence, not fraud, as the trigger.

Part II · Page 6

The Three Shifts

1 · Companies Act 2013

Section 166 codified director duties, making breach directly actionable. Section 245 introduced class action suits — 100 members or 10% of shareholders can sue directors for mismanagement. Section 447 empowers the SFIO to investigate, arrest and prosecute for fraud, with imprisonment up to 10 years; D&O funds the defence until a final conviction.

2 · IBC 2016 — The Biggest Shift

Section 66(2) creates personal liability: a director who knew or ought to have known insolvency was unavoidable and failed to minimise creditor losses can be ordered by the NCLT to personally contribute to the debtor's assets. Once insolvency is foreseeable, the duty of care extends to creditors. Negligent inaction — not fraud — is enough.

3 · SEBI Personal Enforcement

Insider-trading penalties under Section 15G reach ₹10 lakh to ₹25 crore, or 3× the profit, against the individual director. SEBI can bar directors from the market, order disgorgement of UPSI-related gains, and levy personal penalties for LODR disclosure failures. D&O funds the defence; civil penalties and disgorgement are typically covered, criminal convictions are not.

IBC Section 66 — In Focus

Provision	Effect
Sec 66(1)	Contribution for intent to defraud creditors
Sec 66(2)	Personal liability for wrongful trading
Sec 69	Criminal — 1–5 yrs, ₹1L–₹1cr fine

Resolution professionals actively examine past management conduct and pursue directors for pre-insolvency wrongful acts. Section 66(2) is a civil standard — and D&O covers civil contribution claims under it. Section 69 criminal penalties are excluded on conviction, but defence costs are paid up to that point.

The "Defence Until Proven" Principle

D&O pays legal defence through investigations, show-cause responses and proceedings — including criminal ones — until the excluded conduct (fraud, personal dishonesty) is established by a final, non-appealable judgment. A director accused of fraud has as much right to a funded defence as one accused of negligence. Only proven guilt ends the cover.

Part III

The Three Sides, What's Covered and Excluded, Sizing and Tax

Side A protects individuals when the company cannot; Side B reimburses the company; Side C covers the listed entity for securities claims. Then: the covered claims and standard exclusions, how limits are sized, and the Section 37(1) deductibility and 18% GST/ITC treatment.

Part III · Page 8

The Three Sides

Side	Protects	When
Side A	Individuals	Company can't indemnify
Side B	The company	After it indemnifies
Side C	The entity	Securities claims (listed)

Why Side A Matters Most

Side A responds when the company cannot or will not indemnify — insolvency with no assets to fund a defence (the IBC scenario), a court prohibiting indemnification, or a legal bar. At the moment a director most needs protection, the company is least able to help. Side A operates independently of company resources; a policy without robust Side A is significantly incomplete.

What It Covers / Excludes

Covered	Excluded
Shareholder derivative actions	Proven fraud / dishonesty
SEBI / SFIO defence costs	Post-conviction penalties
NCLT Sec 66 civil contributions	Bodily injury / property
Class actions (Sec 245)	Insured vs insured*
Civil settlements & judgments	Personal profit / pollution

*Insured-vs-insured (one director suing another) is excluded to prevent collusion, with a standard carve-out for shareholder-initiated derivative actions. Prior known circumstances and pending litigation at inception are also excluded.

Tax Treatment (FY 2025-26)

Company-Paid — Section 37(1)

When the company pays the D&O premium — the typical case — it is deductible as a business expense under Section 37(1), being incurred wholly and exclusively for business. Protecting the governance of the business is a legitimate need; this deductibility is well-established. It is not a personal 80C or 80D deduction for the director.

18% GST — Input Tax Credit

D&O is a commercial general insurance product, taxed at 18% GST — unchanged by the September 2025 GST Council reset, which cut rates only for individual retail life, health and personal-accident cover. For a GST-registered company buyer, the 18% is claimable as input tax credit, making the effective added cost nil.

Director-Paid & Payouts

If a director personally pays (uncommon), deductibility under Section 57 is unsettled and not clarified by CBDT — take specific CA advice. Side A proceeds reimbursing a director's legal costs and settlements are generally not taxable income, being reimbursement of a liability, not profit.

Sizing the Limit

Exposure	Scale
SEBI Sec 15G penalty	Up to ₹25 cr / 3× profit
SFIO investigation costs	Can run to crores
IBC Sec 66 contribution	Potentially substantial
Small private board	₹5 cr may suffice

Part IV

The Verdict

Insure the person. Check the fine print that decides whether it pays.

Part IV: The Verdict · Page 10

30-Second Summary

D&O insurance protects directors and senior officers personally when shareholders, regulators, creditors or employees allege wrongful acts in managing the company. In India it has shifted from an MNC formality to essential board protection because the Companies Act 2013, the IBC 2016 and SEBI's enforcement powers all create direct personal liability — often at the negligence threshold, not just fraud. Cover is structured as Side A (individuals when the company cannot indemnify), Side B (company reimbursement) and Side C (entity securities cover), written on a claims-made basis.

The premium is usually company-paid and deductible under Section 37(1), with 18% GST claimable as input tax credit — it is not a personal 80C/80D deduction. It is not universally mandatory, but SEBI LODR Regulation 25(10) requires it for independent directors of the top 1,000 listed companies, and PE/VC and IPO processes demand it. The policy's value is decided in the fine print: robust Side A, a retroactive date covering full tenure, and IBC-specific language that does not vanish exactly when directors need it.

"A D&O policy is only as good as the day it is tested. That day usually arrives when the company is insolvent, the regulator has named a person, and the corporate indemnity is gone. Buy for that day — uncapped Side A, full-tenure retroactive cover, explicit IBC Section 66 protection — or you have bought paper, not protection."
The Final Orientation

The Bottom Line: If you sit on — or fund, or lend to — any board with real external stakeholders, treat D&O as infrastructure, not luxury. Insist on robust, ideally uncapped Side A; set the retroactive date to cover the director's entire tenure; confirm civil claims under IBC Section 66(2) are explicitly covered; understand the insured-vs-insured carve-outs; and size the limit for realistic regulatory exposure, not the cheapest number. Have the company pay it — deductible under 37(1), GST reclaimable — and remember it defends the person, not the corporate fine. Verify wording with an IRDAI-registered D&O broker before binding.

ADWIZR · July 2026

Five Checks Before Buying

Insist On

✓ Side A included and uncapped

✓ Retroactive date = full tenure

✓ IBC Sec 66(2) explicitly covered

✓ Limit sized to real exposure

Watch For

✕ Broad insolvency exclusions

✕ Narrow insured-vs-insured carve-out

✕ Retroactive date too recent

✕ A ₹5 cr limit for a listed board

Three Misconceptions

What Directors Get Wrong

(1) "It pays the company's fines." No — it covers the individual's liability, not corporate entity fines. (2) "Only fraud creates liability." IBC Section 66(2) and SEBI actions reach mere negligence. (3) "Private boards are safe." Section 66 and Section 245 apply regardless of listed status.

Mandatory?

Not Universal, But Effectively Required

No law compels every company. But SEBI LODR Regulation 25(10) mandates D&O for independent directors of the top 1,000 listed companies, and PE/VC agreements, IPO prep and MNC parent frameworks require it. Section 197(13) enables corporate purchase.

A / B / C

Structure

Side A is critical

37(1)

Deductible

18% GST · ITC

Claims

Made basis

Retroactive date

Investor FAQ

Questions Indian Directors Ask

Six questions, answered directly.

Investor FAQ · Page 12

Frequently Asked Questions

Q1 Does D&O cover an independent director who missed signs of fraud?

Yes — this is one of the most common D&O claim scenarios in India. An independent director accused of having "known or ought to have known" about fraud and failed to act is precisely the person a D&O policy is designed to protect. The policy pays legal defence costs and any civil settlement. If a court ultimately finds deliberate complicity in fraud — not mere oversight failure — the criminal-conviction exclusion may apply. For directors who exercised good-faith judgment but were deceived, full cover applies.

Q2 A SEBI show-cause notice names the MD personally. Is that covered?

Yes. D&O covers legal defence costs from the moment a SEBI show-cause notice is received and through all subsequent investigation, adjudication and appeal stages. A resulting civil penalty or disgorgement order is typically covered too. If the matter ends in a final criminal conviction — rare, since SEBI enforcement is predominantly civil — criminal-penalty cover ends at conviction.

Q3 Is D&O relevant for a director of a private limited company?

If the company has external investors with board seats, minority shareholders, external lenders or employees who could file claims — yes. IBC Section 66 personal liability applies regardless of listed or unlisted status, and Companies Act Section 245 class actions apply to private companies with 10% shareholder standing. As a company raises external capital and grows, D&O becomes progressively more important.

Q4 Our PE investor is insisting on D&O. What limit should we buy?

PE investors insist on D&O because their nominee directors sit on the board and need personal protection. The right limit depends on company size, capital raised and investor requirements — but as a starting point for a PE-backed company at Series A or B, ₹10–25 crore any-one-claim is typical. The investor's subscription agreement may specify a minimum limit, so read it before buying.

Q5 Does D&O cover a director if the company itself is fined by SEBI or RBI?

D&O covers personal director and officer liability — not corporate entity fines. If SEBI fines the company, that is the company's expense, not a D&O claim. But if SEBI simultaneously names individual directors in the same action and imposes personal penalties or disgorgement on them, those personal exposures are covered. On listed-company policies, Side C separately extends entity cover for securities-related claims.

Q6 Can a director be personally liable under IBC without committing fraud?

Yes — and this is the most important IBC point for directors. Section 66(2) creates personal contribution liability for directors who "knew or ought to have known" that insolvency was unavoidable and failed to exercise due diligence to minimise creditor losses. Negligent inaction — not fraud — is sufficient. It is a civil standard, not a criminal one, and D&O insurance covers civil claims under Section 66(2).

Key Terms & Definitions

D&O Insurance

A general insurance product that protects the personal financial exposure of company directors and senior officers against claims alleging wrongful acts in managing the company — errors, omissions, misleading statements, neglect or breach of duty. It insures the person, not merely the entity.

Side A / B / C

The three coverage sections. Side A protects individuals directly when the company cannot or will not indemnify them; Side B reimburses the company after it indemnifies its officers; Side C covers the listed entity itself for securities-related claims.

Claims-Made Basis

The policy responds to claims first made during the policy period, regardless of when the alleged wrongful act occurred — provided it falls after the retroactive date. This makes the retroactive date, and continuous renewal, decisive for long-tenured directors.

IBC Section 66(2)

A civil provision allowing the NCLT to order a director who "knew or ought to have known" insolvency was unavoidable, and failed to minimise creditor losses, to personally contribute to the corporate debtor's assets. Negligence suffices; D&O covers such civil claims.

Section 197(13)

The Companies Act 2013 provision that enables a company to purchase D&O insurance for its directors and officers — except where the claim involves fraud, breach of trust or wilful default. It is the statutory basis for corporate D&O purchase in India.

Defence Until Proven

The principle that D&O pays legal defence costs through investigations and proceedings — including criminal ones — until a final, non-appealable judgment establishes excluded conduct such as fraud or personal dishonesty. Only proven guilt ends the cover.