Legal Accountability of AI in Corporate Decision-Making: Who Bears the Risk?

In a rapidly digitizing corporate India, the rise of artificial intelligence (AI) is not merely a technological evolution—it is a legal and ethical reckoning.

- PANKAJ CHHUTTANI

As companies increasingly integrate AI into boardrooms and business processes, a fundamental question arises: Who is accountable when AI fails?

AI JOINS THE BOARDROOM From drafting contracts and conducting risk assessments to vetting loan applicants and flagging regulatory breaches, AI has assumed an influential role in corporate decision-making. Indian start-ups and conglomerates alike are adopting AI-powered tools to enhance compliance efficiency, reduce costs, and mitigate human error. However, these intelligent systems are not infallible. They function based on algorithms trained on historical data, which may be biased, outdated, or incomplete. This creates a potential minefield of legal and regulatory challenges when decisions made—or heavily influenced—by AI lead to financial loss, reputational damage, or regulatory non-compliance.

THE LEGAL VACUUM Indian corporate law, particularly the Companies Act, 2013, has not yet evolved to directly address AI's role in governance. The law continues to assign fiduciary duties—such as duties of care, diligence, and good faith—to human directors and officers. These obligations are non-delegable, meaning that a board cannot escape liability by blaming faulty AI tools.