It is July 2026, two months after the Insolvency and Bankruptcy Code (Amendment) Act, 2026 came into force. In Mumbai, in a boardroom, a director appointed by an institutional lender is looking at the agenda item that will shape a company for the next eighteen months. The emergency interim financing super-priority debt proposed in the resolution may keep the company alive. The bank that appointed him is silently preparing for a creditor-initiated insolvency resolution process. Pulling the company into CIIRP protects the bank's liquidation priority. The interim finance may be diluted by voting him in.

He has thirty seconds before the chairperson calls for the vote.

According to Section 166 of the Companies Act, 2013, A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, and the community and for the protection of environment. His institutional headmaster expects more, but the IBBI's regulations do not specify anything substantive. SEBI's disclosure framework is a checklist, not a guide, and Indian law has no answer, however ambitious its recent reinvention may be. With the recently effective 2026 amendment now in place, that moment is coming to boardrooms throughout the nation every day.

The Lie at the Heart of the Appointment

A nominee director arises because no commercial relationship is based on complete trust, bitter but true. That is why banks, private equity funds, and institutional investors want a seat in the boardroom and a voice at the table when decisions affecting their risk-to-reward balance are being taken. There is nothing wrong with this. It is a sensible, commercially viable solution, already in place to some extent across every mature jurisdiction in the world.

Under Section 166, the issue relates to the impersonation of nominee directors by Indian law; it prescribes the same fiduciary duty to each director, independent promoter, or nominee without distinction. But the nominee system is structurally premised on a completely different function. They are not on the board to serve the company conceptually. They are there to work for an institution, too, whose financial interests sometimes do and often do not align with the best interests of the company.

This is not principled jurisprudence to treat them at the same standard as all fiduciaries, but it is parading as willful ignorance and neutrality.

In the eyes of the law, a person defined by divided loyalty is expected to be absolutely loyal, and the divergence between those two sides has never been resolved. It has just not been paid much attention to until now; it can no longer be.

How the 2026 Amendment Made Everything Worse

The IBC (Amendment) Act, 2026, formalizes group insolvency coordination and establishes CIIRP; it further enhances the Committee of Creditors' control during the liquidation process. These are the consequential reforms. But viewed through the lens of corporate governance, each one adds to the nominee director's structural conflict in ways those in the legislature seem not to have grappled with.

With group insolvency coordination, a nominee can now cast votes on asset transfers and cross-collateralization arrangements affecting other members of the corporate group at any one board level. Their clashes are no longer two-way; they replicate across a network of associated claims to bankruptcy sets. Under the CIIRP, a director nominated by a bank is subject to obligations that in many cases pull in opposite directions: fiduciary duty to the enterprise pulls toward saving it as a going concern; institutional loyalty pulls him toward executing the very CIIRP his bank put together. And where the same individual serves on both the board and the CoC, that a governance wall exists between these roles, as company law and insolvency law assume it will be, is well-nigh fraudulent in practice.

Creditors never had more power than proceedings under Indian insolvency law than that bestowed upon them by the 2026 Amendment. Instead, it has done little for the people whom that debt row of creditors has ushered into troubled boardrooms, resulting in absolute distress inside those boardrooms.

A Jurisprudence That Speaks Loudly and Says Nothing Useful

Indian courts have never shied away from fiduciary rhetoric. Dale & Carrington Investment (P)Ltd. v. P.K. Prathapan. defined the fiduciary duty in unforgiving, categorical terms. The substantive obligation, not merely the formal procedural requirement, was again reiterated in Miheer H. Mafatlal v. Mafatlal Industries Ltd. The principles are good, well understood, and fundamentally useless to a nominee director who has to vote on a resolution impacting their institution's exposure before the next board meeting.

After Vidarbha Industries, major trends or legislative priorities have dominated the judicial and legislative conversation in insolvency: admission timelines, default thresholds, and creditor hierarchies. The 2026 amendment clearly fits into this pattern by creating a strict rule on NCLT admission by strictly entailing at least 14 days.

What Reform Must Look Like

Therefore, do we weaken Section 166? No, the fiduciary duty of directors should not be undermined. The answer is to provide it the operational infrastructure that it has always lacked. The three essential things are the following:

1. The statutory recognition: The statutory acknowledgement that nominee directors are in a structurally different position and an operational definition of what is an institutional, group-level, or insolvency-near conflict.

2. Mandatory recusal protocols: Clear, mandatory recusal rules with bright-line rules, such as prior to a meeting, so a nominee can know whether they are allowed to be present for a particular vote.

3. A conditional safe harbour: A conditional safe harbour for nominees who disclose their conflict in full, comply with a written board protocol, and cast votes consistent with a reasonable conclusion as to the company's interests. It would not provide any immunity, as it would only stimulate principled action, not inertia or obstruction. Well, it has to be strictly unavailable where fraud, willful misconduct, or oppression of minority shareholders is at stake.

In the United Kingdom, under Section 172 of the Companies Act 2006 and the case law from Eclairs Group Ltd. v. JKX Oil & Gas plc,.permits nominees to consider their interests in appointing an institution if they genuinely believe this is in furtherance of the company's long-term success. Delaware and Australia have also built a similar framework. All of this has played out before India, which decided to look the other way. Now we can say that the decision is just too much for the system to handle.

The Boardroom Will Not Wait

Out of almost a decade of jurisprudence under the IBC, we have created an extraordinarily detailed map of debt, and nothing has been made for the people navigating it. The 2026 amendment has widened that gap at the very time it should have been closing it.

Every nominee director who has taken their seat at a boardroom table, aware that while their institution may desire one thing, their fiduciary obligations demand otherwise, deserves better than what Indian law now provides. When the boardroom has two masters, the law cannot ignore the conflict. It is high time Indian law acknowledged it and created something to deal with it.

Author is an Advocate practicing at High Court of Delhi. Views are personal.