Application of the Business Judgment Rule in Indonesian SOE Governance: The PT KAI Investment Case and a Comparison with Singapore

Introduction

In 2008, PT Kereta Api Indonesia (Persero) (PT KAI) suffered substantial financial losses after investing IDR 100 billion in PT Optima Kharya Capital Management (OKCM), a private investment management company that ultimately failed to return the invested funds.[1] The investment, approved by PT KAI’s former President Director Ronny Wahyudi, was not includede in the company’s  Work Plan and Budget (Rencana Kerja dan Anggaran or RKA) and later became the subject of legal scrutiny for allegedly violating Undang-Undang Nomor 19 Tahun 2003 Tentang Badan Usaha Milik Negara (SOE Law), Undang-Undang Nomor 40 Tahun 2007 Tentang Perseroan Terbatas (Company Law), and PT KAI’s Articles of Association.[2] The case raises a fundamental legal question: should the investment be regarded as a legitimate business decision protected by the Business Judgement Rule (BJR), or does it constitute an abuse of authority that gives rise to legal liability?[3]

The issue reflects a broades challange in the governance of Indonesian state-owned enterprises (SOEs).[4] Although SOE Law and the principles of Good Corporate Governance (GCG) require SOEs to operate transparently and accountably, directors are expected to make commercial decisions that inevitably involve business risks.[5] To encourage sound business decision making, the Business Judgement Rule, as reflected in Article 97 of Company Law, protects directors from personal liability for decisions made in good faith, with due care, without conflict of interest, and in the best interest of the company.[6] In practice, however, the application of the BJR remains contentious because business losses are frequently equated with state financial losses, blurring the boundary between corporate accountability and criminal liability.[7] 

This article argues that the central challenge is not merely determining whether directors should be held liable, but reconciling the protection of legitimate business decisions under the Business Judgment Rule with the need to ensure accountability in managing state finances within SOEs. It contends that this imbalance is exacerbated by weaknesses in Indonesia’s supervisory framework, which often fails to distinguish business risk from unlawful managerial misconduct. By comparing Indonesia’s SOE oversight system with Singapore’s governance model, this article demonstrates that stronger institutional oversight and clearer governance standards are necessary to provide legal certainty while preserving directors’ ability to make legitimate commercial decisions.

Legal Framework

Regulation and Governance of State-Owned Enterprises in Indonesia

State-Owned Enterprises (SOEs) are enterprises whose capital is wholly or predominantly owned by the state through direct participation derived from separated state assets, as stipulated in Article 1 point 1 SOE Law.[8] As an SOE operating in the form of a Persero, PT Kereta Api Indonesia (Persero) is governed not only by the SOE Law but also by Company Law.[9]

In carrying out their business activities, SOEs are required to adhere to the principles of Good Corporate Governance (GCG), namely transparency, accountability, responsibility, independence, and fairness.[10] These principles are implemented through a governance structure that clearly separates the roles of the Board of Directors as the management body, the Board of Commissioners as the supervisory body, and the state, represented by the General Meeting of Shareholders (GMS) or the Minister of SOEs as the shareholder.[11] Beyond this institutional framework, SOEs are subject to both internal oversight, including internal audit and risk management functions, and external supervision by the Audit Board of Indonesia (BPK) and law enforcement authorities where indications of legal violations arise.[12] Accordingly, the legality of directors’ business decisions is assessed not solely on the basis of their financial outcome, but also on whether the decision-making process complies with the applicable principles of corporate governance.[13] 

Director’s Responsibility and the Business Judgement Rule Doctrine

Under Article 92 of the Company Law, the Board of Directors is entrusted with managing the company in pursuit of its objectives and best interests in accordance with the principle of fiduciary duty.[14] This obligation encompasses both the duty of loyalty and the duty of care, requiring directors to act in good faith, exercise reasonable diligence, prioritize the interests of the company, and make decisions based on sufficient and reliable information.[15]

To encourage directors to make commercial decisions without undue fear of personal liability, the Company Law recognizes the Business Judgment Rule (BJR), as reflected in Article 97 paragraph (5).[16] Under this provision, directors may be exempted from personal liability only if they can cumulatively demonstrate that the company’s losses did not result from their fault or negligence, that the decision was made in good faith and with due care in the best interest of the company, that no conflict of interest existed, and that reasonable measures had been taken to prevent or mitigate the resulting losses.[17] Consequently, the protection afforded by the Business Judgment Rule is determined by the integrity and prudence of the decision-making process rather than by the mere existence of financial losses.[18]

Case Law Analysis 

Overview of the PT Kereta Api Indonesia (Persero) Investment Case

The investment made by PT Kereta Api Indonesia (Persero) (PT KAI) in PT Optima Kharya Capital Management (OKCM) illustrates the legal tension between legitimate business risk and directors’ liability within Indonesian State-Owned Enterprises (SOEs).[19] In 2008, PT KAI invested IDR 100 billion in PT OKCM, a private investment management company that promised an annual return of 11 percent. The investment ultimately failed after PT OKCM was unable to return the invested funds, resulting in substantial financial losses for PT KAI.[20]

The dispute, however, extends beyond the financial losses themselves. Evidence presented during the trial showed that the investment had not been included in PT KAI’s Work Plan and Budget (Rencana Kerja dan Anggaran or RKA), while the Public Prosecutor argued that the decision violated the SOE Law, the Company Law, and PT KAI’s Articles of Association.[21] Consequently, Ronny Wahyudi, PT KAI’s President Director, was prosecuted for allegedly abusing his authority and causing state financial losses.[22]

Accordingly, the case raises the central legal question of whether the investment constituted a protected business decision under the Business Judgment Rule or an unlawful exercise of managerial authority.

Legal Issues in the Application of the SEO Oversight System

The PT KAI case highlights three key issues concerning the oversight of Indonesian SOEs.[23] First, the investment was approved despite not being incorporated into the company’s Work Plan and Budget (RKA), raising concerns over compliance with corporate governance procedures.[24] Second, the decision was allegedly made without adequate due diligence regarding PT OKCM’s financial credibility and the value of its asset guarantees, giving rise to questions about whether the directors fulfilled their duty of care.[25] Third, the approval of such a significant investment indicates potential weaknesses in the supervisory role of the Board of Commissioners and the company’s internal control mechanisms.[26]

Taken together, these issues demonstrate that the dispute concerns not only the failure of an investment but also the effectiveness of SOE governance in overseeing high-risk business decisions.[27] Accordingly, the directors’ liability must be assessed based on both compliance with their legal duties and the requirements for the application of the Business Judgment Rule.[28]

Critical Evaluation

Evaluating the Applicability of the Business Judgement Rule

The applicability of the Business Judgment Rule (BJR) in the PT Kereta Api Indonesia (Persero) case must be assessed based on the directors’ decision-making process, as required under Article 97 paragraph (5) of the Company Law.[29] The doctrine protects directors only when business decisions are made in good faith, with due care, without conflicts of interest, and with reasonable efforts to prevent losses.[30]

In this case, the IDR 100 billion investment in PT Optima Karya Capital Management (OKCM) was neither included in PT KAI’s Work Plan and Budget (Rencana Kerja dan Anggaran or RKA) nor supported by adequate due diligence.[31] These circumstances indicate a failure to satisfy the duty of care and the principles of Good Corporate Governance, thereby undermining the requirements for BJR protection. Although no evidence suggests that Ronny Wahyudi acted for personal gain or under a conflict of interest, the deficiencies in the decision-making process are sufficient to preclude the application of the Business Judgment Rule.

Business Judgement Rule and Criminal Liability

Although PT KAI operates as a Persero under corporate law, its status as a State-Owned Enterprise means that its assets remain part of state finances, as affirmed by Constitutional Court Decisions Number 48/PUU-XI/2013 and Number 62/PUU-XI/2013.[32] Consequently, losses suffered by SOEs may be subject to public accountability and state financial oversight.

Nevertheless, corporate losses do not automatically give rise to criminal liability. Constitutional Court Decision Number 003/PUU-IV/2006 confirms that criminal responsibility requires proof of an actual state loss together with unlawful conduct and culpability (mens rea).[33] Accordingly, while the PT KAI investment failed to satisfy the requirements of the Business Judgment Rule, the loss of such protection does not by itself establish criminal abuse of authority. Corporate liability and criminal liability therefore remain distinct legal regimes that must be assessed independently.

Implications for SOE Governance

The PT KAI case illustrates that the effectiveness of SOE governance depends not only on the outcome of a business decision but also on the integrity of the decision-making process. The absence of adequate due diligence, the failure to incorporate the investment into the RKA, and weaknesses in internal oversight demonstrate shortcomings in the implementation of Good Corporate Governance.[34]

At the same time, the case underscores the importance of distinguishing legitimate business risk from unlawful managerial conduct. Treating every corporate loss as a criminal offense would discourage directors from making strategic business decisions. Accordingly, effective SOE governance requires a balanced approach that combines consistent application of the Business Judgment Rule with stronger internal oversight and risk management mechanisms.

Comparative Perspective

Comparative Analysis of the Business Judgement Rule Framework in Indonesian and Singaporean SOEs:

The comparison demonstrates that the principal difference between Indonesia and Singapore does not lie in the existence of legal protection for directors, but in the institutional framework governing its application. Both jurisdictions recognize directors’ fiduciary duties and require accountability in corporate management. However, Singapore maintains a clearer separation between the State’s role as shareholder and the company’s commercial decision-making, enabling directors to exercise business judgment without undue concern that every unsuccessful decision will automatically attract criminal liability.[35]

For Indonesia, the PT Kereta Api Indonesia (Persero) case illustrates that the primary challenge is not the absence of the Business Judgment Rule, but the lack of legal certainty regarding its application within state-owned enterprises. The overlap between corporate governance and state financial accountability often causes legitimate business risks to be assessed through a criminal law perspective.

Accordingly, strengthening supervisory mechanisms, enhancing board oversight and internal risk management, and clarifying the parameters for applying the Business Judgment Rule would better distinguish lawful business decisions from managerial misconduct. Such reforms would improve accountability in managing state assets while preserving directors’ ability to make commercially rational decisions.

Conclusion

The PT Kereta Api Indonesia (Persero) investment case illustrates the persistent challange of applying the Business Judgement Rule (BJR) within Indonesian state-owned enterprises (SOEs). The analysis demonstrates that the investment decision failed to satisfy the cumulative requirements under Article 97(5) of the Company Law, particularly regarding due care and compliance with corporate governance procedures. Consequently, the decision could not benefit from the protection afforded by the business judgment rule. However, the absence of such protection should not automatically lead to criminal liability. As demonstrated through the Constitutional Court’s jurisprudence, director’s criminal responsibility must still be established by proving the elements of unlawful conduct and fault, rather than relying solely on the existance of corporate losses.

This article therefore confirms that the principal challenge in Indonesian SOE governance lies in balancing the protection of legitimate business decisions with the need to ensure accountability in the management of state finances. The comparison with Singapore further demonstrates that legal certainty is achieved not merely through the recognition of the Business Judgment Rule, but through a governance framework that clearly distinguishes commercial risk from managerial misconduct while reinforcing effective institutional oversight.

Accordingly, Indonesia should strengthen SOE governance by improving internal supervisory mechanisms, enhancing the role of boards of commissioners and corporate risk management, and providing clearer guidance on the application of the Business Judgment Rule within SOEs. These reforms would promote greater legal certainty for directors while safeguarding accountability in the management of state assets. Ultimately, strengthening the application of the Business Judgment Rule is not about shielding directors from liability, but about ensuring that accountability is imposed on unlawful conduct rather than on legitimate business risk. Only by maintaining this balance can Indonesian SOEs achieve both commercial effectiveness and responsible stewardship of state assets.

Reference(S):

Cases

Putusan Mahkamah Konstitusi Nomor 003/PUU-IV/2006.

Putusan Mahkamah Konstitusi Nomor 48/PUU-XI/2013.

Putusan Mahkamah Konstitusi Nomor 62/PUU-XI/2013.

Legislation

Undang-Undang Nomor 19 Tahun 2003 Tentang Badan Usaha Milik Negara.

Undang-Undang Nomor 40 Tahun 2007 Tentang Perseroan Terbatas

Secondary Sources

Dinda Yusuf and Sultan Azis Muhammad, ‘Implementasi Prinsip Good Corporate Governance dalam Pencegahan Tindak Pidana Korupsi di BUMN’ (2025) 13(1) Padjadjaran Law Review.

Eunike Graciella and Ariawan Gunadi, ‘Penggunaan Doktrin Business Judgement Rule dalam Hukum Perusahaan di Indonesia’ Jurnal USK 1(3).

Maria Phoebe Tjahja Putri et al, ‘Ketidakpatuhan Terhadap Prinsip Good Corporate Governance Dalam Kasus PT Jiwasraya: Tinjauan Hukum dan Implikasi Bagi Perusahaan BUMN’ (2023) 5(4) UNES Law Review.

Nawang Xalma Kaldera et al, ‘Peran BPK sebagai Lembaga Pengawas Eksternal Pengelolaan Keuangan Negara’ (2020) 1(2) Jurnal Fundamental Justice.

Purnama Hadi Kusuma et al, ‘Business Judgment Rule: Prinsip Perlindungan Bagi Direksi Dalam Pengambilan Keputusan Bisnis Perusahaan’ (2026) 3(1) Aliansi: Jurnal Hukum, Pendidikan, dan Sosial Humaniora.

Saproni, ‘Good Corporate Governance Pada Badan Usaha Milik Negara: Studi Systematic Literature Review’ (2022) 5(2) Jurnal Acitya Ardana.

Shigeko Desiputri Hadi et al, ‘Prinsip Business Judgement Rule Dalam Pertanggungjawaban Hukum Direksi BUMN Yang Melakukan Tindakan Investasi Yang Mengakibatkan Kerugian’ (2021) 4(2) ACTA DIURNAL Jurnal Ilmu Hukum Kenotariatan.

Sirait et al, ‘Pertanggungjawaban Direksi dalam Melaksanakan Duty of Loyalty dan Duty of Care Berdasarkan Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas’ (PhD diss, Universitas Sumatera Utara 2011).

Syarief, Amiroel Oemara and Merina Pratiwi, ‘Penerapan Prinsip Good Corporate Governance (GCG) pada Perusahaan Industri BUMN’ (2025) 5(1) ULIL ALBAB: Jurnal Ilmiah Multidisiplin.

Online Sources

ANTARAJABAR, ‘Mantan Dirut KAI Dituntut 12 Tahun Penjara’ (2012) https://jabar.antaranews.com/berita/40188/mantan-dirut-kai-dituntut-12-tahun-penjara accessed 16 July 2026.

Fumina Lestari, ‘Peran dan Pentingnya BUMN dalam Perekonomian Indonesia’ (Future Skills, 2023) https://futureskills.id/bumn/ accessed 16 July 2026.

Hazliansyah, ‘Dugaan Korupsi, Mantan Dirut PT KAI Jalani Persidangan’ (Republika, 2012) https://news.republika.co.id/berita/m4cpsx/dugaan-korupsi-mantan-dirut-pt-kai-jalani-persidangan accessed 16 July 2026.

Hukumonline, ‘Mantan Dirut PT Kereta Api Indonesia Disidang’ (2012) https://www.hukumonline.com/berita/a/mantan-dirut-pt-kereta-api-indonesia-disidang-lt4fb9b17f9521a/ accessed 16 July 2026.

Temasek Holdings, ‘Corporate Governance’ (2024) https://www.temasek.com.sg/en/about-us/corporate-governance accessed 18 July 2026.

[1] Hazliansyah, ‘Dugaan Korupsi, Mantan Dirut PT KAI Jalani Persidangan’ (Republika, 2012) https://news.republika.co.id/berita/m4cpsx/dugaan-korupsi-mantan-dirut-pt-kai-jalani-persidangan accessed 16 July 2026.

[2] ANTARAJABAR, ‘Mantan Dirut KAI Dituntut 12 Tahun Penjara’ (2012) https://jabar.antaranews.com/berita/40188/mantan-dirut-kai-dituntut-12-tahun-penjara accessed 16 July 2026

[3] Shigeko Desiputri Hadi et al, ‘Prinsip Business Judgement Rule Dalam Pertanggungjawaban Hukum Direksi BUMN Yang Melakukan Tindakan Investasi Yang Mengakibatkan Kerugian’ (2021) 4(2) ACTA DIURNAL Jurnal Ilmu Hukum Kenotariatan 173.

[4] Fumina Lestari, ‘Peran dan Pentingnya BUMN dalam Perekonomian Indonesia’ (Future Skills, 2023) https://futureskills.id/bumn/ accessed 16 July 2026.

[5] Saproni, ‘Good Corporate Governance Pada Badan Usaha Milik Negara: Studi Systematic Literature Review’ (2022) 5(2) Jurnal Acitya Ardana 97.

[6] Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas, art 97

[7] Undang-Undang Nomor 19 Tahun 2003 tentang Badan Usaha Milik Negara, art 1

[8] Undang-Undang Nomor 19 Tahun 2003 tentang Badan Usaha Milik Negara; Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas.

[9] Undang-Undang Nomor 19 Tahun 2003 tentang Badan Usaha Milik Negara; Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas.

[10] Peraturan Menteri BUMN Nomor 3 Tahun 2023, art 3; Amiroel Oemara Syarief and Merina Pratiwi, ‘Penerapan Prinsip Good Corporate Governance (GCG) pada Perusahaan Industri BUMN’ (2025) 5(1) ULIL ALBAB: Jurnal Ilmiah Multidisiplin.

[11] Peraturan Menteri BUMN Nomor 3 Tahun 2023, art 1.

[12]Maria Phoebe Tjahja Putri et al, ‘Ketidakpatuhan Terhadap Prinsip Good Corporate Governance Dalam Kasus PT Jiwasraya: Tinjauan Hukum dan Implikasi Bagi Perusahaan BUMN’ (2023) 5(4) UNES Law Review 3357–3358.

[13] Saproni (n 5) 97

[14] Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas, art 92

[15] Sirait et al, ‘Pertanggungjawaban Direksi dalam Melaksanakan Duty of Loyalty dan Duty of Care Berdasarkan Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas’ (PhD diss, Universitas Sumatera Utara 2011) 43.

[16] Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas, art 97(5).

[17] Hadi et al (n 3) 175.

[18] Eunike Graciella and Ariawan Gunadi, ‘Penggunaan Doktrin Business Judgement Rule dalam Hukum Perusahaan di Indonesia’ Jurnal USK 1(3) 8231; Purnama Hadi Kusuma et al, ‘Business Judgment Rule: Prinsip Perlindungan Bagi Direksi Dalam Pengambilan Keputusan Bisnis Perusahaan’ (2026) 3(1) Aliansi: Jurnal Hukum, Pendidikan, dan Sosial Humaniora 83–85.

[19] Hadi et al (n 3) 173.

[20] Hazliansyah (n 1); Hukumonline, ‘Mantan Dirut PT Kereta Api Indonesia Disidang’ (2012) https://www.hukumonline.com/berita/a/mantan-dirut-pt-kereta-api-indonesia-disidang-lt4fb9b17f9521a/ accessed 16 July 2026.

[21] ANTARAJABAR, ‘Mantan Dirut KAI Dituntut 12 Tahun Penjara’ (2012) https://jabar.antaranews.com/berita/40188/mantan-dirut-kai-dituntut-12-tahun-penjara accessed  16 july 2026.

[22] Hukumonline (n 20).

[23] Putri et al (n 12) 3357–3358.

[24] Peraturan Menteri BUMN Nomor 3 Tahun 2023; Dinda Yusuf and Sultan Azis Muhammad, ‘Implementasi Prinsip Good Corporate Governance dalam Pencegahan Tindak Pidana Korupsi di BUMN’ (2025) 13(1) Padjadjaran Law Review 49.

[25] Sirait et al (n 15) 43; Hadi et al (n 3) 175.

[26] Peraturan Menteri BUMN Nomor 3 Tahun 2023, Pasal 1; Nawang Xalma Kaldera et al, ‘Peran BPK sebagai Lembaga Pengawas Eksternal Pengelolaan Keuangan Negara’ (2020) 1(2) Jurnal Fundamental Justice 15.

[27] Saproni (n 5) 97.

[28] Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas, Pasal 97 ayat (5); Graciella and Gunadi (n 18).

[29] Undang-Undang Nomor 40 Tahun 2007 tentang Perseroan Terbatas, Pasal 97 ayat (5).

[30] Hadi et al (n 3) 175.

[31] Hazliansyah (n 1); ANTARAJABAR (n 2).

[32] Putusan Mahkamah Konstitusi Nomor 48/PUU-XI/2013; Putusan Mahkamah Konstitusi Nomor 62/PUU-XI/2013.

[33] Putusan Mahkamah Konstitusi Nomor 003/PUU-IV/2006.

[34] Saproni (n 5) 97; Putri et al (n 12) 3357–3358.

[35] Temasek Holdings, ‘Corporate Governance’ (2024) https://www.temasek.com.sg/en/about-us/corporate-governance accessed 18 July 2026.