Brief Understanding of Supplier Due Diligence Laws in India

Supplier due diligence laws are being enacted around the world, with countries requiring large companies based within their borders / operating within their borders to ensure that:

1.       human rights violations / modern slavery is not taking place within their supply chains;

2.       environmental risks are mitigated in their supply chains; and

3.       risks associated with social and ethical issues are noted and addressed.

In general, provisions / policies are being put in place to make supply chains more transparent to ensure that the end customer is able to take a decision on whom to purchase from based on their values and goals. To this end, countries, including Germany, the United Kingdom, Australia etc. are or have enacted laws requiring large entities operating in areas under their jurisdiction to ensure their suppliers comply with human rights requirements / transparency requirements etc.

In India, while there is no one all-encompassing enactment that requires large corporates to undertake supplier due diligence, several legislations do exist for the protection of human rights and the environment and risk mitigation and around other social and ethical issues.

Current and upcoming guidelines adjacent to Supplier Due Diligence

Currently, only a few guidelines promulgated by the Securities and Exchange Board of India (“SEBI”) in relation to supply chain due diligence are mandatory and those are applicable to the top 500 listed entities (by market capitalisation), for FY 2025-26 and the same will be applicable to the top 1000 listed entities from FY 2026-27.

There are also some non-mandatory guidelines in relation to other entities which are discussed later.

SEBI Guidelines

Vide Circular No. SEBI/HO/CFD/CMD-2/P/CIR/2021/562 dated May 10, 2021[1], SEBI prescribed the Business Responsibility and Sustainability Report (“BRSR”) format which was subsequently incorporated in the Master circular for compliance with the provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015[2] by certain listed entities.

Based on the recommendations of the ESG Advisory Committee and pursuant to public consultation, SEBI introduced the BRSR Core for assurance by listed entities[3].

ESG disclosures have been made a part of the BRSR from financial year (“FY”) 2021-22, on a voluntary basis and from FY 2022-23 on a mandatory basis. Entities are also required to provide assurances in relation to the disclosures made, with the requirement of providing assurance being enforced in a phased manner: the top 150 listed entities (by market capitalisation) were required to provide an assurance in relation to their disclosures from FY 2023-24, the top 250 listed entities from FY 2024-25, the top  500 listed entities from FY 2025-26 and the top 1000 listed entities from FY 2026-27.

ESG disclosures for the value chain of the aforementioned entities is also mandated. For this purpose, value chain is defined as follows:

“Value chain shall encompass the top upstream and downstream partners of a listed entity, individually comprising 2% or more of the listed entity’s purchases and sales (by value), respectively. However, the listed entity may limit disclosure of value chain to cover 75% of its purchases and sales (by value), respectively.”

Therefore, while no mandatory regulations apply, disclosures are required to be made, making it easier for end users and customers to better understand the supply chains involved in the products they purchase.

The information that would need to be disclosed by listed entities in the BRSR include responses relating to questions on:

1.       change in greenhouse gas footprint;

2.       change in water footprint;

3.       investments made in reducing its environmental impact;

4.       details related to waste management by the entity;

5.       measures taken to enhance employee wellbeing and safety;

6.       measures taken to enable inclusive development, etc.

Other Guidelines

India has introduced guidelines for all entities operating in India. As these are guidelines, they are not mandatory or monitored by any governmental agency per se. The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 (“NVGs”) were released in 2011.

Subsequently, the United Nations Guiding Principles on Business and Human Rights, the UN Sustainable Development Goals (SDGs), Paris Agreement on Climate Change (2015), and Core Conventions 138 and 182 on Child Labour were adopted / ratified by India and the NVGs were superseded by the National Guidelines on Responsible Business Conduct, 2018 (“NGRBCs”)[4].

The NGRBCs set out the key principles to be followed by businesses in India, and core elements of those principals. Whilst the principles themselves do not specify any supplier due diligence requirements, the more detailed clauses set out under certain principles mention that core elements would apply to the “value chains” of the entities themselves. The principles are set out below:

a.       Principle 1: Businesses should conduct and govern themselves with integrity, in a manner that is ethical, transparent and accountable.

b.       Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe.

c.       Principle 3: Businesses should promote the wellbeing of all employees, including those in their value chains.

d.       Principle 4: Businesses should respect the interests of, and be responsive towards, all its stakeholders.

e.       Principle 5: Businesses should respect and promote human rights.

f.        Principle 6: Businesses should respect, protect, and make efforts to restore the environment.

g.       Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.

h.       Principle 8: Businesses should support inclusive growth and equitable development.

i.        Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner.

The manner in which a value chain of a business is to be covered has been set out in detail in the NGRBCs.

Direct responsibility legislation

While there are no specific supplier due diligence legislations applicable for India, there are several robust direct responsibility legislations, which will likely then feed into supplier chain DDs, if and when enacted.

In relation to employees being treated fairly, the prevalent laws include:

1.       the Minimum Wages Act, 1948;

2.       the Equal Remuneration Act, 1972; and

3.       the Rights of Persons with Disabilities Act, 2016

As India is a quasi-federal country, in additional to national level legislation, there are also several laws with respect to employee protection that are state specific. Each state in India has enacted specific laws in relation to shops and establishments which deal with conditions of work, hours of work etc. As the labour codes which have been promulgated to replace a large number of labour laws in India are not yet in force the same are not being discussed here.

In relation to environmental issues, the main laws in India are:

1.       the Environment Protection Act, 1986;

2.       the Water (Prevention and Control of Pollution) Act, 1974; and

3.       the Air (Prevention and Control of Pollution) Act, 1981.

Given environmental concerns faced by the world today, several rules have also been issued under these legislations that govern disposal of e-waste, plastic waste, hazardous waste etc.

India has also enacted laws on social issues / on matters relating to ethical concerns, such as child labour, human trafficking, protection of the rights of persons with disabilities, prevention of discrimination, prevention of sexual harassment etc..

While the aforementioned laws impose stringent obligations on the companies themselves, and often on the directors / key managerial personnel of the companies, they do not impose obligations on the companies to ensure that entities in their supply chains adhere to these laws.

Conclusion and new developments

In addition to the enactment of legislations by various countries, certain courts have also started to take action against companies which are not ensuring that their suppliers treat their workers properly, notably, as per recent articles, an Italian fashion house has been placed under court administration for allegedly facilitating the exploitation of workers by subcontractors[5].

At present there is not, to our knowledge, a plan for a mandatory supply chain due diligence law in India (for private limited companies). However, it would be advisable for private limited companies, to also comply with the NGRBCs even though they are not mandated to do so. While SEBI provisions do not apply directly to such entities, if such entities are part of the ‘value chain’ of the top 1000 listed entities they may need to disclose details to the listed entities whose value chain they are a part of.

[1] https://www.sebi.gov.in/legal/circulars/may-2021/business-responsibility-and-sustainability-reporting-by-listed-entities_50096.html
[2] https://www.sebi.gov.in/legal/regulations/may-2025/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-may-01-2025-_93799.html
[3] https://www.sebi.gov.in/legal/circulars/jul-2023/brsr-core-framework-for-assurance-and-esg-disclosures-for-value-chain_73854.html
[4] https://www.mca.gov.in/Ministry/pdf/NationalGuildeline_15032019.pdf
[5] https://legal.economictimes.indiatimes.com/news/regulators/loro-piana-luxury-fashion-brand-under-court-scrutiny-for-worker-exploitation/122520943?utm_source=latest_news&utm_medium=homepage