NITI Aayog releases report on Deepening the Corporate Bond Market in India (See 'Corp Brief') India showcases Green Hydrogen Mobility with NISE-Toyota Fuel Cell Vehicle Pilot (See 'Corp Brief') ESIC approves Annual Accounts, CAG Report, and Annual Report for 2024-25 (See 'Corp Brief') A&C - Difference or controversy as to rate of interest clearly falls outside scope of challenge on ground of conflict with public policy of India unless it is evident that rate of interest awarded is so perverse: SC (See 'Legal Desk') Goyal inaugurates NEST-02 at Santacruz Electronics Export Processing Zone (See 'Corp Brief') Steering Committee for PM Vishwakarma scheme approves several proposals (See 'Corp Brief') A & C - By awarding reimbursement for second regular meal & welcome drinks, arbitrator had created new contract between parties, amounting to breach of Sec 28(3), which is patently illegal and against public policy: SC (See 'Legal Desk') India's Food Revolution takes Centre Stage at Annapoorna Interfood 2025 (See 'Corp Brief') IBC - It is mandatory duty of RP to verify every claim received and maintain updated list of creditors with requisite details including amount admitted, claimed, and security interest: IBBI (See 'Legal Desk') NBA releases Rs.6.2 Crore as Access and Benefit Sharing funds to beneficiaries in 5 States (See 'Corp Brief') PMLA - Secured creditor can stake its claim by moving application before Special Judge, PMLA Court, even before conclusion of trial, if excess amount is realised during auction sale: SAFEMA (See 'Legal Desk') Gati Shakti Vishwavidyalaya & Amazon sign MoU to promote Knowledge Sharing (See 'Corp Brief') India-EU Ideathon on Marine Plastic Pollution concluded (See 'Corp Brief') IBC - Moratorium does not protect development rights under agreement that was validly terminated for corporate debtor's non-performance before initiation of insolvency proceedings: SC (See 'Legal Desk') 37 supercomputers with total computing power of 40 Petaflops deployed under NSM (See 'Corp Brief') Scindia highlights major expansion and modernisation of India Post Network (See 'Corp Brief') A&C - Objections to execution lie within narrow compass typically only where decree is inherently void or was rendered by a forum lacking jurisdiction and therefore cannot be used to frustrate final arbitral award: SC (See 'Legal Desk') Controller General inaugurates onboarding of MTNL Pensioners onto SAMPANN (See 'Corp Brief') Misc - Till matter is finally decided by trial court, subject matter of suit needs to be preserved: HC (See 'Legal Desk') PM-KUSUM registers Significant Progress: 10,203 MW Installed (See 'Corp Brief') Competition Law - If entities which participated in bid-rigging were cover bidders and not even present in relevant market, and their relevant turnover was nil, then their egregious nature of conduct attracts maximum penalty in terms of Sec 27(b): CCI (See 'Legal Desk') CCI okays proposed acquisition of certain stake in Schneider Electric India Pvt Ltd & Schneider Electric JV Holdings 2 Pte. Ltd. (See 'Corp Brief') CCI nod to proposed combination involving Curefit, Cultfit & Fitness First Luxembourg (See 'Corp Brief') SARFAESI - Provident fund dues must be paid out first from auction proceeds of defunct factory, ahead of claims of secured creditor (the bank), with remaining amounts to satisfy other debts: SC (See 'Legal Desk') India Post unveils Kerala's First Gen-Z Post Office Extension Counter at CMS College, Kottayam (See 'Corp Brief') Global Organic Market rises; India strengthens Exports with Revised NPOP (See 'Corp Brief') A&C - Mere use of term 'arbitration' in contractual clause does not by itself establish binding intent to arbitrate unless parties have clearly agreed to resolve their disputes through that process: SC (See 'Legal Desk') MOIL achieves Best-Ever November Production and Sales Performance (See 'Corp Brief') Power Minister commences COD of 250 MW 3rd Unit of Tehri Variable Speed PSP (See 'Corp Brief') Misc - Adequate treatment is available domestically, mere preference for foreign medical facility does not justify permitting accused facing serious economic-offence allegations to leave jurisdiction: HC (See 'Legal Desk') MoS flags Off Tirupati-Sainagar Shirdi Express (See 'Corp Brief') A&C - No party can invoke Section 11 after competent civil court has already rejected Section 8 application by holding that arbitration clause does not constitute arbitration agreement: HC (See 'Legal Desk') FAME outreach, Niveshak Didi scheme promoting safe banking practices: MoS (See 'Corp Brief') Rail Infra proposals Reviewed to Strengthen Integrated Logistics Network (See 'Corp Brief') IBC - Regulation 2B(3) will not justify unilateral forfeiture of entire Earnest Money Deposit, when scheme is rejected on technical grounds: IBBI (See 'Legal Desk') Smart Metering Adoption: 4.76 Crore Smart Meters installed (See 'Corp Brief') UDBHAV 2025: Telangana tops Medal Tally as Tribal Talent shines nationwide (See 'Corp Brief') PMLA - FIRs being fundamental documents based on which entire case was initiated by ED, failure to serve same is fatal omission on part of enforcement directorate: SAFEMA TRIBUNAL (See 'Legal Desk') Australia-India Education and Skills Council meeting to be held in New Delhi (See 'Corp Brief') RM appeals for generous contributions to Armed Forces Flag Day Fund (See 'Corp Brief') The Human Impact of Raipur-Vizag Corridor (See 'Corp Brief') A&C - Court's scope of inquiry u/s 11 is limited to prima facie examination of existence of arbitration agreement while adjudication u/s 8 is to be made for both existence & validity: HC (See 'Legal Desk') HM inaugurates newly-constructed Bio-CNG and Fertilizer Plant by Banas Dairy (See 'Corp Brief') NMDC signs MoU with IIT Kanpur to strengthen Cybersecurity (See 'Corp Brief') Misc - Decision of Lokpal cannot be challenged in judicial review if there is no procedural infirmity or irregularity in manner in which either CVC or Lokpal conducted inquiry: HC (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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