Law-and-Economics of Business Judgment Rule in India

This piece is co-authored by faculty member Mr. Rahul Singh, and Pratyay Amrit, IV Year BA LLB (Hons) student at NLSIU.

The article argues that the contours of the ‘business judgment rule’ (hereinafter, ‘the rule’ or ‘the doctrine’) have not been properly delineated and add avoidable transaction costs in terms of business decision-making. On the premise of ‘influence’ existing between Board Directors and countervailing requirements of legal compliance, it becomes imperative to study both components. In the absence of any clear legalese on the latter component incentivizes Directors in two ways – by inhibiting judgment or by incentivizing abuse for a perceived higher probability of economic gain.