Lens on independent directors

CBI has named quite a few of them in its FIR, raising questions on appointment and removal processes

The case filed by the Central Bureau of Investigation (CBI) in connection with the ~6-billion IDBI Bank-Aircel fraud case has again put the spotlight on independent directors (IDs), supposed to the important gatekeepers of corporate governance at listed entities.

Individuals serving as IDs on boards of listed companies have been named in the CBI’s First Information Report (FIR). Sources say the companies in question could be considering their ouster.

The FIR was registered against former Aircel promoter C Sivasankaran and his company’s executives. The agency also booked 15 senior executives, current and former, of IDBI Bank. Besides IDs, some are nominee directors at marquee companies and some are ‘public interest’ directors, appointed by regulators.

For instance, Sethurathnam Ravi, an ID on the board of IDBI Bank, is also non-executive chairman of the BSE, the country’s second-largest stock exchange. He is also on the boards of other companies, such as Aditya Birla Health Insurance, UTI Trustee Company and SBI-SG Global Securities. He is also a member of the markets regulator Securities and Exchange Board of India’s (Sebi’s) takeover committee.

Ninad Karpe, ID at IDBI Bank, is on the boards of several companies including Aptech, BNP Paribas Asset Management and Savita Oil Technologies. Former IDBI Bank CMD M S Raghavan is on the board of Equitas Holdings, a listed company. Raghavan is also a member of Sebi’s expert panel on takeover.

According to legal experts, these individuals may continue to hold office until investigative agencies file a prosecution charge against them. However, shareholders could propose an ordinary resolution for their removal if they think corporate governance standards are getting compromised.

“The Companies Act has a clear criterion for disqualification of an ID, if the person has been convicted and sentenced by a court of any offence involving moral turpitude. The CBI’s report is only the first stage of investigation and cannot be the ground for disqualification or removal,” says Sandeep Parekh, founder, Finsec Law Advisors.

Citing Nusli Wadia’s removal from Tata Motors and Tata Steel in the feud between Ratan Tata and Cyrus Mistry, senior counsel Somasekhar Sundaresan said with or without prosecution, any director might be removed at any time by the shareholders, of the latter had reasonable cause.

The FIR has also raised concern over the due-diligence processes for appointed public interest directors at systemically important institutions such as stock exchanges.

“Due-diligence and 'fit and proper’ criteria are all based on past work and capabilities. Most IDs have a long-standing track record. Predicting adverse outcomes is difficult at the appointment stage,” said a corporate governance expert, requesting anonymity.