NTWB welcomes Jan Vishwas Amendments (See 'Corp Brief') Anand Kumar Pal joins MoF as Chief Cost Adviser (See 'Corp Brief') India-GCC reaffirms commitment to Regional Stability (See 'Corp Brief') India-Bahrain stresses stability, Supply Chain Resilience and Stronger Economic Ties (See 'Corp Brief') J&K youth can be torchbearers of India's growth story in coming years: MoS (See 'Corp Brief') India Skills National Competition 2025-26 concludes in Greater Noida (See 'Corp Brief') MoFPI holds Parliamentary Consultative Committee and NIFTEM Council Meetings in Shillong (See 'Corp Brief') Minister to inaugurate 2-day Interactive forum to mark World Homoeopathy Day 2026 (See 'Corp Brief') IPR - Controller of Patent would decide whether differences, viewed in knowledge of alleged invention, constitute steps which would have been obvious to ordinary person skilled in art and rule out hindsight approach: HC (See 'Legal Desk') MoS asks private sector to accelerate its participation in R&D activities (See 'Corp Brief') 'Sahkar se Samriddhi' Vision guides National Review Conference in Varanasi (See 'Corp Brief') Department of Higher Education organises interactive session on Indian Knowledge Systems (See 'Corp Brief') IPR - Generic disclosure does not, by itself, defeat novelty of specific disclosure; Prior art that teaches away from claimed invention cannot serve as foundation for anticipation: HC (See 'Legal Desk') Pradhan Mantri Mudra Yojana completes 11 Years of empowering Small and Micro Entrepreneurs (See 'Corp Brief') International Conference on Spacecraft Mission Operations being held in Bengaluru (See 'Corp Brief') IPR - Prior user of trademark has superior rights over subsequent user who holds registration for same or similar mark: HC (See 'Legal Desk') Sirsa to review status of saline water Aquaculture cluster notified under PMMSY (See 'Corp Brief') TRAI releases paper on Satellite Communication Network Authorisation (See 'Corp Brief') Union Minister of Power to embark on 4-Day Visit to Bhutan (See 'Corp Brief') Benami Act - If no loan was repaid in actual, and just funds have been rotated among same group of parties, thereby establishing benami transaction, provisional attachment is justified: SAFEMA (See 'Legal Desk') CCI nod for acquisition of shares by Coastal Cedar Investments in Fleur Hotels (See 'Corp Brief') CCI approves acquisition of equity of KNR SPVs by Indus Infra Trust (See 'Corp Brief') CCI approves acquisition by Citrus Investment LLC of shares in Hitachi Construction Machinery (See 'Corp Brief') CCI okays acquisition of equity shares of Aditya Birla Housing Finance Ltd. by Indriya Ltd. (See 'Corp Brief') Company Law - Sourcing pre-condition deposit unlawfully from corporate funds in direct violation of Sec 185, or executing settlement agreements without effectuating actual refunds or delivering legally valid & habitable possession, is illegal: SC (See 'Legal Desk') CCI approves acquisition of equity in Nabha Power by Torrent Power Ltd. (See 'Corp Brief') Prototype Fast Breeder Reactor at Kalpakkam attains First Criticality (See 'Corp Brief') Policy for Transit Oriented Development for providing affordable housing in Delhi (See 'Corp Brief') PMLA - Initiating proceedings under PMLA for continuing possession or use of proceeds of crime acquired prior to enactment of PMLA does not violate Article 20(1) of Constitution: HC (See 'Legal Desk') Ministry of Mines notifies Amendment in Rules for Faster Operationalisation of Mines (See 'Corp Brief') Govt to curb Distress Sale in APT Crops; Value Addition to boost Farmers' Income (See 'Corp Brief') Navi Mumbai turning Textile Waste into Opportunity for People (See 'Corp Brief') TRAI releases Paper on 'Formulation of Regulatory Framework for ALTD Services (See 'Corp Brief') IPR - Minor alteration to well-established trademark, such as changing single letter, does not render new mark dissimilar, especially when it remains phonetically and visually close to original: HC (See 'Legal Desk') GeM achieves Rs 18.4 Lakh Crore GMV, Emerges as Key Digital Public Procurement Platform (See 'Corp Brief') Benami Act - Burden of proof of benami transaction rests strictly upon person asserting it, and reliance solely on uncorroborated statements of third parties recorded in unrelated Income Tax proceedings, is insufficient: SAFEMA (See 'Legal Desk') Union Minister to inaugurate NCVET Capacity Building (See 'Corp Brief') FEMA - Continuing adjudication u/s 16 of FEMA despite competent authority's refusal to confirm seizure u/s 37A of FEMA, is contrary to law: SC (See 'Legal Desk') Minister calls for stronger research-industry linkages to scale food innovation sector (See 'Corp Brief') A&C Act - Doctrine of 'transnational issue estoppel' applies to enforcement proceedings u/s 48 of Arbitration Act, barring enforcement court from undertaking merits-based review: SC (See 'Legal Desk') MoS backs scaling up indigenous Insulin production amid global supply concerns (See 'Corp Brief') A&C - Mere existence of document, despite it containing arbitration clause, would not qualify as arbitration agreement, unless it is signed by parties seeking to invoke clause as also party against whom enforcement is sought: HC (See 'Legal Desk') New Sainik School reflects Centre's Vision for Nation-Building through Education (See 'Corp Brief') A&C - Agreement to sell being unregistered and unstamped as per Registration Act, Transfer of Property Act, and Indian Stamps Act, cannot be enforced: HC (See 'Legal Desk') Supreme Court Clears Path For Single Insolvency Proceedings Against Linked Group Companies (See CORP EINSICHT)

Independent Directors - responsibility, remuneration and liability

Published: Nov 26, 2020

By V Ranganathan

INDEPENDENT director is a subject that is constantly in the news nowadays and hardly for the right reasons. The most recent is the resignation of a well-known former banker from the post of an Independent Director (ID) of a corporate that has been in the news for its failed  attempt to delist. There are concerns raised by investors who found the stated reasons for resignation  specious and vague. There have been many more such cases in recent times and the investor community seeks more specific reasons for such resignations to know if there are governance related triggers for these. This puts the spotlight yet again on the vexed issues of the role, responsibility, expectations and rewards and liabilities of IDs. The article is not delving into the origin and legal frame work of this subject as these are much and too often discussed. The attempt is to find some answers to a few vexed questions.

It is a fact that in the Indian context the concept of ID co-exists with the phenomenon of a corporate sector that is predominantly controlled and managed by promoter groups. There is a level of opposition or tension as the IDs are expected to represent the interests of the non-promoter shareholders but owe their appointment to the grace of the promoters as the largest single shareholders. This is a structural dichotomy that is practically difficult to reconcile however much it is professed that IDs are of such maturity and caliber that they can straddle this chasm. As long as the promoters are managing the company in everyone's interests the IDs can sail through comfortably; but if such is not the case, then arises the dilemma whether the ID compromises the integrity of his role and get the along or leave the role to avoid confrontations. The third alternative of the ID is remaining in her role and try and educate the promoter to change his ways is more a will-o-the-wisp. Therefore, it is necessary to accept a construct for IDs that acknowledges these imperfections and equally provide for a regime where the honest ones are not driven away by the rigours of law and punishment and the dishonest ones don't feel incentivised to game the system.

A critical point that often comes up for consideration is the form and quantum of reward or remuneration for IDs. Commonly, a very liberal remuneration structure is seen as creating a conflict in independence and equally a very measly reward is a deterrent to get high quality talent on board. Ideally, the compensation should be left to market forces and should not be indicative of any implicit compromise or collusion if it is on the liberal side. However the liability for proven failure to perform the role expected of an ID should clearly be linked to the compensation in some form and manner. While it is not to suggest that a well-paid ID is to be seen as more guilty in a situation as compared to a less paid one, the factor of compensation in some manner represents the level of involvement of a ID in matters beyond what is typically discussed in a board meeting and hence in some manner indicative of the possible awareness of failures in compliance or governance which a less involved ID may not be privy to. This cannot be reduced to a scientific formula to convince everyone but is perhaps the right starting point to attempt a fair and equitable system of reward and punishment.

When a corporate scandal or a misdemeanour surfaces, the first attention is drawn by the press and governance agencies to the names of IDs and the remuneration drawn by them. Thus linking the penalty for established failure of IDs after due investigation to the remuneration drawn over the tenure does better justice than slapping criminal cases and harass the person by seeking her presence at a magistrate court or a police station. The monetary penalty or disgorgement is a better way to provide comfort to IDs that unless some criminal intent is established by any investigating agency, a ID will have the liberty to walk away from any corporate scandal by paying a proportion of the remuneration drawn. In some sense, it is like a composition scheme and relieves the person of any further disability under the law. The time has come for the government and agencies keen to improve corporate governance to devise a punishment system that is not seen as vindictive but yet comforts the constituencies that suffer the consequences of corporate failures that they are not the only victims in this system.

[The author is Former Director, Tax, E&Y Chennai and the views expressed are strictly personal.]

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