Kisan Credit Cards ensuring wider Credit Access: Goyal (See 'Corp Brief') IPR - Writ Court is yet to decide plea of Lenskart as to no intention to infringe in using Titan's trademark on websites: HC (See 'Legal Desk') IICA set to host North-East Conclave 2025 in Shillong (See 'Corp Brief') IPR - Registrar of Trademarks must give reasoned order for pre-acceptance advertisement: HC (See 'Legal Desk') New CoE to drive Innovation in 5G/6G, AI, Quantum Computing, and AR/VR (See 'Corp Brief') IPR - Courts can't decline protection to plaintiff on sole ground that subject matter of passing off action happens to be registered design: HC (See 'Legal Desk') Workshop on rehabilitation education program on using Sign Language to teach English to deaf students to be held (See 'Corp Brief') Animal Husbandry is cash-generating sector, contributing 31% to total agricultural GVA (See 'Corp Brief') IPR - Copyright infringement by rogue websites who were using modern technology to hide their identities while unlawfully benefiting from JioStar's copyrighted works, calls for dynamic injunction: HC (See 'Legal Desk') Ministry of Mines launches 'Aspirational DMF Programme' (See 'Corp Brief') MSTC becomes engine of E-Transparency: Minister (See 'Corp Brief') IPR - Registrar of Trade Marks need to consider factors mentioned u/s 11(6) of Trade Marks, while deciding whether mark is known or recognized in relevant section of public: HC (See 'Legal Desk') Dholpur gets First Science Centre in Aspirational Districts Push: MoS (See 'Corp Brief') Mandaviya kicks off ASMITA Weightlifting League (See 'Corp Brief') IPR - Any entity cannot seek to set aside interim injunction passed against it in trademark infringement suit, merely because its business or IPO launch is jeopardized due to such injunction: HC (See 'Legal Desk') CCI okays stake in Smart Shift Logistics jointly by Kedaara Sapphire and Kedaara Capital Fund (See 'Corp Brief') BCCL revives Legacy Coal Mine via MDO Model (See 'Corp Brief') IPR - Requirement of sufficiency u/s 64(1)(h) of Patents Act, is satisfied when disclosure made in claims is sufficient to enable whole width of claimed invention to be performed: HC (See 'Legal Desk') CCI approves acquisition of certain businesses of UBS AG by 360 ONE Entities (See 'Corp Brief') IPR - Merely because ban on certain other applications has been lifted, is no ground for TikTok to claim that similar treatment shall also be allowed to it: HC (See 'Legal Desk') Centre plans Rs 5,000-Cr Investment to develop N-E Waterways: Sonowal (See 'Corp Brief') IPR - Defendants' attempt to use suit trademarks with sole intention of riding piggyback on plaintiffs' immense reputation, calls for injunction: HC (See 'Legal Desk') Chouhan, Dhami hold meeting on agriculture and rural development (See 'Corp Brief') IPR - Use of word 'ordinary' lead average consumer to infer that other Chyawanprash are either inferior, or spurious, as compared to Chyawanprash of Patanjali, which was claimed to be prepared by following ayurvedic traditions: HC (See 'Legal Desk') Rs.14,147 Cr transmission scheme discussed to evacuate solar power from key zone (See 'Corp Brief') IPR - Registering any mark already known to belong to another, without intent to use it bona fide, constitutes 'dishonest intention' and trademark squatting: HC (See 'Legal Desk') Family pension: 1451 cases redressed in first week of Special Campaign 2.0 (See 'Corp Brief') IPR - For software or computer programme to qualify u/s 3(k) of Patents Act, it should be more than mere sequence of instructions: HC (See 'Legal Desk') Why Family Businesses in India Are Losing Their Own Bloodline (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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