Constitution of India - Where more than one interpretation can be given to Court's order, then benefit has to be given to party against whom contempt is alleged: HC (See 'Legal Desk') SEBI Act - Merely attending board meetings cannot lead to conclusion that appellant is involved in day to day affairs of Company: SAT (See 'Legal Desk') Competition Act - Grievances of Informants like payment of maintenance and electricity charges is in nature of contractual issue and disputes not having any Competition concern: CCI (See 'Legal Desk') India attends G20 Working Group Meeting at Brasilia (See 'Corp Brief') SEBI ICDR Regulations, 2018 - By not locking entire pre-preferential allotment shareholding of two allottees Noticee violated SEBI ICDR Regulations : SEBI (See 'Legal Desk') Arbitration Act - Serving officer of respondent shall act as arbitrator is invalid stipulation which makes it incumbent on Court to appoint independent sole arbitrator to adjudicate disputes : HC (See 'Legal Desk') SEBI Act - Appellant is misleading its investors that it is registered with SEBI as investment advisor and played fraud in violation of IA Regulations : SAT (See 'Legal Desk') CCI okays subscription to CCPS B of API Holdings by MEMG LLP and 360 ONE (See 'Corp Brief') PMLA - Court will not cancel interim bail granted to respondent as interim bail is about to expire within short period of time : HC (See 'Legal Desk') CCI approves 100% acquisition of Lanco Amarkantak Power by Adani (See 'Corp Brief') CGST Act - Case does not fall under ambit of Anti-Profiteering provisions of CGST Act : CCI (See 'Legal Desk') BRO connects strategic Nimmu-Padam-Darcha road in Ladakh (See 'Corp Brief') Arbitration Act - Any party having failed to make substantive claim in arbitral proceedings, cannot seek recovery by way of interim mandatory injunction u/s 17 : HC (See 'Legal Desk') SEBI Act - Trading pattern of appellants with other noticees indicate that there is meeting of mind between appellants and other noticees : SAT (See 'Legal Desk') SARFAESI Act - Respondent shall not take any coercive steps against Petitioner prior to 15th March, 2024 provided Petitioners file appeal before DRAT on or before March 01, 2024 : HC (See 'Legal Desk') Guj Govt sets up Telecom Facilitation Centre to support stakeholders (See 'Corp Brief') SEBI Act - SEBI shall not initiate any enforcement action against Applicant for SAST violations provided representation made in settlement proceedings are subsequently not found untrue : SEBI (See 'Legal Desk') India, Bhutan ink MoUs on clean energy, agriculture & tourism (See 'Corp Brief') PMLA - Surgery of knee cannot be categorized as 'life-threatening situation' and surgery which is to be undergone by applicant is not of such nature which necessitates applicant's release on interim bail only : HC (See 'Legal Desk') NCC, NPCIL ink MoU to raise awareness on peaceful use of nuclear power (See 'Corp Brief') SEBI - Any violation committed by Company which is fraudulent in nature has to be attributed to individual acting as Director at relevant point of time : SAT (See 'Legal Desk') Golden Jubilee Celebration of KVKs held in Puducherry (See 'Corp Brief') PMLA - Court declined to grant bail to Satyendar Jain in money laundering case and also cancelled interim bail granted as there are sufficient material collected by ED to show that he is prima facie guilty of alleged offences : SC (See 'Legal Desk') 42nd IPHE Steering Committee to be hosted by EU (See 'Corp Brief') IBC - Application filed u/s 7 of code can be admitted as debt and default has been established : NCLT (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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