Though we are reaching space, the technological gap is also broadening between tech giants and the rest of the population. In an era where billion-dollar rockets breach the stratosphere and artificial intelligence writes code, composes music, and answers customer queries, it's easy to marvel at our species' digital ascent. But there is another trajectory we rarely discuss the widening chasm between those who control the algorithms and those displaced by them. As corporations harness Artificial Intelligence (AI) to transform operations, they're also rewriting the rules of employment and accountability. And not always for the better.

The recent decision by Zomato to lay off 600 employees under its Zomato Associate Accelerator Program (ZAAP) is only the latest example in a global trend that is beginning to expose significant cracks in the framework of corporate governance. While corporate giants harness artificial intelligence to streamline operations and maximize profits, the human cost is often borne silently by those displaced, untrained, or left behind.

This evolving dynamic makes it imperative to revisit our corporate governance frameworks, especially under the Companies Act, 2013, to ensure that the integration of AI does not erode foundational principles of accountability, transparency, and fairness particularly in the realm of employment.

The Legal foundation
At the heart of India's corporate ecosystem lies the Companies Act, 2013 a legislative blueprint that defines how businesses are governed, directed, and held accountable. While the Act was not crafted in an age where algorithms could analyse financial statements or forecast boardroom decisions, its provisions are now being re-examined in light of emerging AI capabilities. But here's the paradox: as AI rises in capability, the law continues to ground corporate responsibility firmly in human hands. Let's unpack why.

What is corporate governance?

Corporate governance is not merely a corporate buzzword it's a legal and ethical infrastructure that ensures companies are run in a manner that is transparent, accountable, and aligned with the interests of all stakeholders. Legally, it is rooted in statutory obligations, regulatory frameworks, and judicial interpretations that together shape how companies conduct business.

In India, the Companies Act, 2013, SEBI (LODR) Regulations, and judicial pronouncements from courts and tribunals provide the bedrock for governance practices. As the corporate world embraces artificial intelligence and ESG mandates, the laws are being interpreted in newer ways to uphold corporate conscience in a digitized era.

Modern corporate governance goes beyond mere legal compliance. It has become a strategic compass, ensuring that the company operates not only for financial gain but also with ethical integrity, social responsibility, and long-term sustainability.

Well-governed companies tend to:

• Make transparent decisions that build trust with investors and the public.
• Encourage ethical conduct at all levels of the organization.
• Balance innovation with accountability, enabling risk-taking without recklessness.
• Create a culture where oversight isn't feared, but embraced as a pathway to growth and resilience.

The safeguard boundary of corporate governance under the Companies Act 2013

When AI recommends workforce downsizing purely on the basis of cost-efficiency or productivity metrics, directors must consider whether such decisions align with their statutory obligations to protect the company's broader stakeholder community.

Key Sections of the Companies Act

• Section 149(1): The Human Firewall of the Boardroom
  This section clearly stipulates that every company must have a Board of Directors made up of individuals. The language is unambiguous, "individual" refers to a natural person, i.e., a human being. This sets the first and most immovable boundary for AI in governance: an AI, regardless of its intelligence, cannot occupy a seat at the boardroom table. Why? Because directors are not mere data processors. They are entrusted with strategy, ethics, and judgment—qualities that require human intuition and moral reasoning, which AI simply cannot replicate in any legal or philosophical sense. This clause effectively prohibits what some futurists have dreamt of: a board with an algorithm as one of its voting members.
   
• Section 166: Fiduciary Duties Anchored in Human Ethics
  This section outlines the moral and legal duties of directors ranging from acting in good faith to ensuring the best interests of the company, its employees, shareholders, and the wider community. These aren't just checkboxes on a governance form—they're deeply ethical responsibilities that involve subjective judgment, empathy, and foresight. An AI, no matter how advanced, lacks the emotional intelligence, social context, and ethical compass to truly grasp "good faith" or to navigate the ethical gray zones directors often face. In essence, Section 166 reminds us that governance is not just a matter of execution—it's a matter of values.
   
• Section 134: Accountability Cannot Be Automated
  Under this provision, the responsibility of approving and signing off on financial statements rests with designated human officers such as the CEO, CFO, and authorized directors. This section underscores a crucial legal reality: AI may prepare, analyze, or highlight trends in financial data, but it cannot assume accountability. AI systems cannot stand in a courtroom. They cannot be cross-examined. They do not possess legal personality. Hence, while AI may enhance the quality of disclosures and aid in fraud detection, the final attestation of integrity must come from a human.

While the Companies Act is structurally resistant to the notion of AI as a legal entity, it doesn't prohibit the use of AI as a support mechanism. In fact, forward-thinking companies in India are already working within this legal framework to blend human oversight with AI precision.
 

The Emerging Role of AI in Corporate Governance: An Unstoppable One

Artificial Intelligence (AI) is not merely an auxiliary tool in modern corporate governance—it is steadily transforming the very manner in which boards function, decisions are made, and stakeholders are engaged. While traditionally human-centric, corporate governance in the 21st century is increasingly becoming a hybrid of human intellect and machine efficiency.

• Decision Making: One of the most pronounced impacts of AI in this domain is in decision-making. Boards and executives are no longer constrained by historical data or conventional analysis methods.
   
• Regulatory Compliance: In the sphere of regulatory compliance, AI introduces a transformative shift. Compliance officers and legal departments can now rely on automated systems that track legislative changes, cross-reference obligations across jurisdictions, and flag potential non-compliance in a timely fashion. By streamlining such tasks, AI reduces administrative burden, improves reporting accuracy, and ensures that regulatory duties are met without delays. Yet, the ultimate responsibility remains with the human stewards of the company—reinforcing the legal principle that accountability cannot be outsourced to algorithms.
   
• Risk Management: Another cornerstone of governance, has also been redefined by AI. Through the analysis of complex and often unstructured data sets, AI systems can detect anomalies, recognize suspicious patterns, and provide early warnings for potential threats—from financial discrepancies to cybersecurity vulnerabilities. This proactive approach allows companies to build resilience in the face of uncertainty.

AI's utility extends beyond internal operations. In shareholder relations and stakeholder engagement, AI-infused systems are proving instrumental. Intelligent bots and natural language processing tools enable companies to respond swiftly to investor queries, personalize communication, and even conduct sentiment analysis to gauge public and shareholder perception.

While AI promises precision, automation, and scalability, its rapid assimilation into core operational processes has exposed a widening chasm between commercial efficiency and ethical integrity. The legal and human consequences of this transformation are far from abstract—they are manifesting in boardroom decisions, restructuring policies, and employment contracts across industries.

India at the crossroads: Are we prioritizing algorithms over our demographic dividend?

India, with its 1.4+ billion citizens, proudly holds the title of the world's most populous nation. But this statistic is far more than just a number—it signifies a deep reservoir of human capital, skilled labour, and intellectual potential. Our demographic dividend is not merely an economic advantage; it is the very soul of the Indian developmental model. In such a context, the rising tide of Artificial Intelligence and automation must be examined not only through the lens of technological progress, but more importantly, through the prism of human rights, employment law, and constitutional mandates.

When corporations begin to rely heavily on AI to drive decisions be it through algorithmic hiring, data-led dismissals, or productivity surveillance they inadvertently devalue the human component of business. In a country like India, where employment generation remains a constitutional and economic imperative, the substitution of human judgment with machine logic risks displacing our most valuable resource: people.

Moreover, Indian labour laws and constitutional principles from the Directive Principles of State Policy (Article 39 and 41) to the right to livelihood under Article 21 underscore the State's obligation to ensure gainful employment and protect against exploitative practices. AI, when unchecked and unregulated, poses a silent challenge to these constitutional values. The mass layoffs across sectors, often attributed to "optimization" and "technological restructuring," paint a sobering picture. They signal not just business adaptation, but a shift in values away from inclusion and employment, toward efficiency and depersonalization.

Are we on the right path?

The answer lies in how we balance technological innovation with inclusive growth. AI should be a tool to enhance human productivity, not replace it. It must be deployed in ways that augment decision-making, create new categories of employment, and strengthen governance, not erode job security or human dignity. India's real strength lies not in competing with machines but in leveraging them to empower its vast human potential.

What we need is not a rejection of AI, but a legally guided integration one that prioritizes ethical deployment, transparency, and human oversight. A people-first approach to AI is not just morally right; it is economically and constitutionally necessary.

Impact of AI integration on employment

1. Mass layoffs in India's IT sector
   India's IT sector, once a beacon of growth and employment, is currently grappling with unprecedented challenges. The convergence of mass layoffs, rapid AI integration, and questionable corporate governance practices has created a perfect storm, threatening the livelihoods of millions and raising critical questions about the future of work in the country. The scale of job losses in the Indian IT industry is staggering:
   • 2024: Over 1,30,000 IT employees have been laid off, with major firms like Cisco, Intel, and Microsoft leading the downsizing efforts.
   • 2025: The trend continues, with more than 22,000 layoffs reported in the first quarter alone.
   • Silent Layoffs: An estimated 20,000 tech professionals have been affected by unannounced or "silent" layoffs, where employees are subtly pressured to resign without formal termination notices.
   These layoffs predominantly impact low-wage, entry-level workers, many of whom are the primary earners in their families and lack alternative employment opportunities.
   
   
2. AI and automation: double edged sword
   Artificial Intelligence (AI) and automation, while driving efficiency and innovation, have also accelerated job displacement:
   • A report by TeamLease Digital predicts that up to 22 lakh (2.2 million) IT professionals may voluntarily leave their jobs by 2025, citing dissatisfaction and lack of growth opportunities.
   • The demand for specialized tech roles like AI and Machine Learning is expected to surge by 30-35% in 2025, highlighting a skills gap that many current employees are unprepared to bridge.
   While AI offers significant benefits, its rapid deployment without adequate workforce reskilling initiatives exacerbates unemployment and underemployment issues.
   
   
3. Corporate Governance: A System Under Scrutiny
   The ethical dimensions of these layoffs have brought corporate governance practices into question:
   • Lack of Transparency: Many layoffs have been executed without clear communication or justification, eroding trust between employers and employees.
   • Inadequate Legal Protections: India's labor laws, such as the Industrial Relations Code, 2020, primarily protect blue-collar workers, leaving white-collar employees vulnerable to arbitrary dismissals.
   • Overwork and Mental Health: The tragic death of a 26-year-old Ernst & Young executive in Pune, attributed to overwork, has spotlighted the dire need for better workplace regulations and employee well-being initiatives.
   • The Human Cost: Behind every statistic is a human story—families disrupted, careers derailed, and dreams deferred. The psychological toll of sudden unemployment, especially in a culture where job stability is highly valued, cannot be overstated.

These issues underscore the necessity for robust corporate governance frameworks that prioritize ethical practices, transparency, and employee welfare.

Challenges in AI integration in corporate governance

1. Data Governance: Legal Safeguards Against Digital Overreach: The deployment of Artificial Intelligence in corporate frameworks invariably engages sensitive corporate and personal data, necessitating strict adherence to legal obligations under the Digital Personal Data Protection Act, 2023. As AI systems analyse vast swathes of information from employee records to shareholder communications, companies are duty-bound to protect data from misuse, unauthorized access, and breach. Failure to implement robust data protection mechanisms not only violates statutory norms but also exposes corporations to civil penalties, reputational harm, and potential class-action litigations.
   
   
2. Algorithmic ambiguity and the problem of legal responsibility: AI's decision-making opacity, often described as the "black box" problem, poses a profound legal quandary. For instance, if an AI-powered governance tool influences a financial or strategic decision, the question arises: who bears accountability if the decision turns out to be flawed or prejudicial? Under Section 166 of the Companies Act, 2013, directors owe a duty of diligence, loyalty, and care to the company. Delegating decision-making to opaque algorithms risks undermining this statutory obligation unless such tools are used strictly in an advisory capacity with final decisions vetted and endorsed by human agents.
   
   
3. AI and the ethical crisis of workforce redundancy: One of the most contentious fallouts of AI integration is the accelerated trend of workforce reduction—an issue that has taken centre stage globally and domestically, with companies including Zomato and major IT service providers initiating mass layoffs under the pretext of "tech-driven optimization." While organizational restructuring per se is not unlawful, mass layoffs prompted by algorithmic efficiency can violate the principles of natural justice if not preceded by adequate consultation, notice, and severance. In India, where human capital is the nation's core economic asset, the indiscriminate use of AI to displace workers threatens not just livelihoods but also raises constitutional questions under Article 21, which guarantees the right to livelihood as part of the right to life.
   
   
4. Inadequate regulatory guidance and legal uncertainty: India's legislative infrastructure has yet to evolve in step with the pace of AI deployment. There exists no standalone regulatory statute governing corporate AI adoption, leaving companies to navigate a labyrinth of sectoral laws ranging from the Companies Act and IT Act to evolving SEBI guidelines. This regulatory fragmentation creates legal uncertainty, particularly around accountability for AI-induced errors or bias.
   
   
5. Economic disparities and the challenge of equitable access: Beyond legal issues, AI presents a developmental challenge: the risk of deepening inequality between large conglomerates with access to high-end technology and MSMEs that cannot afford such transformation. This digital asymmetry could evolve into a competitive imbalance, undermining the level-playing field that India's Competition Act, 2002 seeks to preserve.
   
   
6. Human displacement vs. legal personhood: Finally, the legal architecture of corporate governance under Indian law is explicitly human-centric. The Companies Act, 2013, through Section 149(1) and Section 166, affirms the irreplaceability of individual directors acting with ethical discretion and moral foresight. While AI may serve as an intelligent aide, it cannot legally or ethically assume the role of conscience-bearer for a company. Replacing human roles with automated systems not only contravenes legislative intent but risks creating a vacuum of responsibility—a void that no algorithm can fill.

New problem needs innovative solution:

• AI-Impact Assessment as mandatory corporate disclosure
  In light of this, a recalibration of the regulatory landscape is imperative. One compelling innovation would be the statutory incorporation of an Artificial Intelligence Impact Assessment (AIIA). Much like environmental impact disclosures, an AIIA would mandate all companies intending to implement AI-driven automation to publish a public report outlining the scope of job displacement, the categories of employees affected, and the mitigation strategies proposed whether by way of reskilling, redeployment, or transitional welfare. This obligation could be situated within the framework of Corporate Social Responsibility norms under the Companies Act, 2013, thereby enforcing a pre-emptive ethical audit prior to AI deployment.
  
  
• AI-layoff excise tax
  Furthermore, there must be a fiscal recognition of the cost of automation-induced layoffs. The law could impose a sector-specific AI-Layoff Excise Tax, akin to a cess, on companies replacing a threshold number of employees with machines or software. The proceeds of this tax would be credited to a dedicated Workforce Transition Fund, statutorily managed by the Ministry of Labour and Employment, to provide transitional basic income, government-backed upskilling vouchers, and microcredit access for affected employees. This model mirrors the redistributive logic embedded in the Carbon Credit system and offers a forward-compatible method of offsetting human capital loss in a digital economy.
  
  
• Legal recognition of digital layoff distress as a rights violation
  From a constitutional standpoint, the concept of "dignity of labour" as a facet of Article 21 jurisprudence must evolve to encompass what may be termed as digital layoff distress. Terminations delivered through impersonal emails, coerced resignations masked as performance exits, and absence of grievance forums collectively constitute a violation of the right to livelihood with dignity. It is proposed, therefore, that a dedicated quasi-judicial body The Digital Employment Redressal Commission, be established through central legislation, empowered to adjudicate such grievances swiftly and impose civil liabilities or compliance directions on defaulting corporations. This body would be particularly instrumental in protecting contract employees and low-wage tech workers, who often lack union representation or legal recourse.

In essence, India must now legislate not merely for employment protection in the traditional sense, but for algorithmic accountability, humane automation, and technological justice. The future of work, if it is to be just, must be anchored in anticipatory regulation, digital infrastructure, and constitutional fidelity to the dignity of the working citizen. The law must not follow change — it must lead it.

Future pathways of AI in corporate governance: employment at the crossroads

As of now, India does not have a standalone law that governs AI. However, foundational legal principles under the Information Technology Act, 2000, Companies Act, 2013, and emerging regulatory frameworks like the Digital Personal Data Protection Act, 2023 (DPDP Act) are being tested against the growing influence of AI. The proposed Digital India Act is expected to provide more clarity, especially around algorithmic accountability, data fiduciaries, and compliance liabilities arising from AI decision-making. Moreover, as AI becomes embedded in routine operations, labour and employment law — particularly statutes like the Industrial Disputes Act, 1947 and the Code on Social Security, 2020 — will need to address questions related to layoffs triggered not by economic distress but by technological substitution. The absence of "automation" as a recognized ground for retrenchment protection under Indian employment law leaves a vulnerable gap in safeguarding workers displaced by AI.

Ethical AI and employment disruption

As the government works toward a framework for "Responsible AI," inspired in part by global efforts like the EU AI Act and OECD AI Principles, there is a growing call for embedding ethical checks into automated systems. However, ethics must not only be a feature of AI design but must also extend to how its implementation impacts livelihoods. The tech-led layoff trends observed in companies like Zomato, Byju's, and even global players reflect a broader pivot toward cost-efficient automation. The recent wave of layoffs, especially in tech-driven sectors, highlights how AI has enabled corporations to eliminate roles related to customer service, logistics coordination, and basic analytics. While companies assert that these changes are part of a strategic digital transformation, the legal vacuum around AI-induced redundancy creates a precarious situation for workers.

Judicial and policy outlook

Although Indian courts have yet to confront AI-related employment disputes directly, the Supreme Court of India in several landmark judgments — such as Workmen of Meenakshi Mills Ltd. v. Meenakshi Mills Ltd., AIR 1992 SC 1379 — emphasized the need for fair labour practices even during economic transitions. These principles could be judicially extended to AI-related retrenchments, especially if such decisions are perceived to lack transparency or fail to comply with procedural fairness. Further, the National Strategy for Artificial Intelligence (NSAI) by NITI Aayog has underlined the need for AI-skilling initiatives, but this must now be backed by enforceable obligations on employers to retrain or redeploy displaced workers. A statutory mandate akin to Section 25N of the Industrial Disputes Act — which requires permission before layoffs in certain sectors — may need to evolve to include AI-induced restructuring.

Three legal and policy-level transformations become necessary:

• Recognition of "Technological Displacement" as a distinct cause of retrenchment in employment statutes, warranting protections such as severance, retraining, and relocation support.
• Mandatory algorithmic impact assessments before the implementation of AI-based decisions in HR and governance, as part of corporate disclosures under Section 134 and 135 of the Companies Act.
• Enhanced role of Company Secretaries and Compliance Officers to oversee AI deployment ethically, ensuring adherence to both data protection norms under the DPDP Act and equitable employment principles under labour laws.

Conclusion:
The future of AI in Indian corporate governance is not solely a technological question it is a constitutional one. It touches upon fundamental rights such as the right to livelihood under Article 21 of the Constitution and the right to equality under Article 14, both of which are threatened if AI-led governance is permitted to proceed unchecked by law. As India advances towards becoming a digitally empowered society, it must ensure that its laws and governance models evolve to protect its greatest asset its people.

AI may well be the future, but in India, it must be a future with humans at its heart, not in its shadows.

References:

• Tanmay Mukund Pethkar, Artificial Intelligence (AI) in Corporate Governance: Transformative Trends and Legal Pathways in India, (2024) 54 Chartered Secretary 93.
• Companies Act, No. 18 of 2013, §§ 134, 149, 166, 178, 179.
• Industrial Disputes Act, No. 14 of 1947, §§ 25F, 25N.
• Digital Personal Data Protection Act, No. 22 of 2023.
• Information Technology Act, No. 21 of 2000, §§ 43A, 72.
• Code on Social Security, No. 36 of 2020.
• Workmen of Meenakshi Mills Ltd. v. Meenakshi Mills Ltd., AIR 1992 SC 1379.
• NITI Aayog, National Strategy for Artificial Intelligence (2018), available at https://www.niti.gov.in/ (last accessed 13 Apr. 2025).
• Ministry of Electronics and Information Technology, India AI Programme (2023), available at https://www.meity.gov.in/ (last accessed 13 Apr. 2025).
• Business Standard, Zomato Layoffs and AI Restructuring Trends, available at https://www.business-standard.com/ (last accessed 13 Apr. 2025).
• TrustCloud, The Impact of AI on Corporate Governance: Opportunities and Challenges (2024), available at TrustCloud Article (last accessed 13 Apr. 2025).