Power Minister inaugurates Pavilion at AI Impact Summit 2026 (See 'Corp Brief') CCI approves proposed Merger of Hinduja Leyland Finance into NDL Ventures (See 'Corp Brief') IBC - Resolution Professional is obligated to ensure that resolution plan complies with all provisions of law, and he cannot escape liability by claiming lack of available data: HC (See 'Legal Desk') IICA renews MoU with NALSAR to strengthen Academic Collaboration (See 'Corp Brief') CCI approves acquisition of portfolio services of Axis Securities by Axis Asset Management (See 'Corp Brief') Trade Marks - Section 35 permits bona fide use of one's own name or that of a predecessor in business, even if such use may otherwise amount to infringement under Section 29(5): HC (See 'Legal Desk') Finland-India Synergy can provide strong foundation for co-innovation: Finnish PM (See 'Corp Brief') Chouhan calls for Direct Farmer Feedback to strengthen Scheme Effectiveness (See 'Corp Brief') Trade Marks - Mere knowledge of respondents' registered trade mark or speculative potential for confusion in tenders cannot negate bona fide adoption where trade name is derived from the predecessor's own surname: HC (See 'Legal Desk') AI Compendia to serve as Guidebooks for Global South: Govt (See 'Corp Brief') Supreme Court Clears Path For Single Insolvency Proceedings Against Linked Group Companies (See CORP EINSICHT) AI is meant to augment, Not replace Clinicians: MoS (See 'Corp Brief') IBC - In real estate projects, single insolvency petition is maintainable against more than one corporate entity if they are intrinsically connected in execution and marketing of project: SC (See 'Legal Desk') Chouhan launches artificial intelligence-based scheme 'Bharat VISTAAR' Phase 1 in Rajasthan (See 'Corp Brief') PMLA - If Enforcement Directorate establishes connection between alleged predicate offences and accumulation or layering of assets, Adjudicating Authority's confirmation of provisional attachment may be upheld: SAFEMA (See 'Legal Desk') NHAI to develop First of its Kind 'Bee Corridors' along National Highways (See 'Corp Brief') AI to power India's global knowledge leadership, key to Viksit Bharat 2047: Pradhan (See 'Corp Brief') PMLA - If under-construction property was purchased using funds routed through shell entities, and neither shares are allotted nor executed any loan agreement, such transaction was benami transaction: SAFEMA (See 'Legal Desk') AI and Data Centres are one of Defining Energy Challenges of Our Time (See 'Corp Brief') Robust and High-Quality Data key to Advanced AI Deployment in Banking and Finance (See 'Corp Brief') SEBI - Noticee is prohibited from taking up any new clients as stock broker: SEBI (See 'Legal Desk') India AI Impact Summit 2026 showcases Women-led AI for Public Good (See 'Corp Brief') IBC - Spectrum allocated to Telecom Service Providers cannot be subjected to proceedings under Insolvency and Bankruptcy Code: SC (See 'Legal Desk') Misc - Delay in filing appeal u/s 74 of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 can be condoned u/s 5 of Limitation Act: SC (See 'Legal Desk') A&C - Section 29A does not impose any statutory bar on courts extending mandate after arbitral award has been delivered: SC (See 'Legal Desk') A&C - Parties cannot be compelled to arbitrate when very existence of contract containing arbitration clause was alleged to be fake: SC (See 'Legal Desk') NI Act - Person who is in charge of affairs of conduct of company is vicariously liable for offence u/s 138 of NI Act when cheque issued by company gets dishonoured: SC (See 'Legal Desk') A&C - Court exercising appellate jurisdiction u/s 37 cannot substitute its own assessment of compensation once Sec 34 court has fixed reasonable award within terms of contract: SC (See 'Legal Desk') A&C - Different interpretation of contract by in itself is no ground to interfere with arbitral award: SC (See 'Legal Desk') A&C - Non-issuance of a Sec 21 notice by one party is not fatal to raising claims before arbitral tribunal if disputes are otherwise covered by broadly worded arbitration clause: SC (See 'Legal Desk')

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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