RAJIV GANDHI NATIONAL

UNIVERSITY OF LAW

HOW ‘INDEPENDENT’ ARE INDEPENDENT DIRECTORS IN INDIA?

SUBMITTED BY: SUBMITTED TO:

PREETKIRAN KAUR Dr. VIPAN KUMAR
18124 Asstt. Prof. of Law
Group 20.
IMPARTIAL. UNABLE TO PERCEIVE ANY PROMISE OF PERSONAL ADVANTAGE FROM ESPOUSING EITHER SIDE
OF A CONTROVERSY.” - Ambrose G. Bierce, 19th century American writer

SECTION 149 (4)

OF THE
COMPANIES ACT,
2013

INTRODUCTION
TO ‘INDEPENDENT
INTERNATIONAL THE SECURITIES
FINANCE DIRECTORS’ AND EXCHANGE
CORPORATION BOARD OF INDIA
(‘IFC’) (‘SEBI’)
 REVALUATING ‘INDEPENDENCE’ OF
INDEPENDENT DIRECTORS
THE INFAMOUS SATYAM CASE
THE MAYTAS TRANSACTION
•Acquisition of two companies, Maytas Infra
Limited and Maytas Properties Limited
•significant amount of cash flowing from Satyam
to its individual promoters, the Raju family.
FRAUD IN FINANCIAL STATEMENTS
•Chairman of the company, Mr. Ramalinga Raju,
confessed to having
•falsified the financial statements of the
company, proposed Maytas buyouts were just
illusory transactions intended to manipulate the
balance sheet of Satyam.
LESSONS FROM SATYAM
• IDs cannot generally be expected to uncover frauds - decisions
they make are based on information provided to them by
management.
• IDs spend little time each year tending to matters pertaining to
each company on whose boards they serve.
• IDs were not willing to fiercely oppose the proposals of the
management and promoters who are in a position to influence
their appointment and continuance on the board.
• Constrained in the extent to which they can be effective in
whistleblowing frauds, even when they exercise a fair amount
of diligence in their action.
 REVALUATING ‘INDEPENDENCE’ OF
INDEPENDENT DIRECTORS
TATA-MISTRY BOARDROOM BATTLE
TATA MISTRY DISPUTE IN BRIEF
• Rs. 10 crore Electoral Bonds dispute
• A proposal for a fast food tie-up
EFFECT OF THE SAME ON INDEPENDENT
DIRECTORS
• IDs came out in support of Mistry.
• Nusli Wadia decided to be ousted after he
publicly backed Mistry.
ANALYSIS
• Companies Act, 2013 entrusts four responsibilities on IDs –
GRC drivers, protectors of minority shareholders and uphold
ethical practices in corporate governance, have an
independent voice and scrutinise the performance of
management.
• Failure to translate a legal principle into a practical reality.
• IDs have exercised their independence and taken an
independent line - such independence of judgement is
unacceptable and ejected them from the boards.
• IDs exercised their independence - the majority shareholder
makes all manner of alarming claims - an attempt to influence
other independent directors, take over the company in a
hostile manner and so forth.
 REVALUATING ‘INDEPENDENCE’ OF
INDEPENDENT DIRECTORS
YES BANK CRISIS
WHAT LED TO A CRISIS AT YES BANK?
• Loans kept on growing
• Deposits failed to grow at same pace
• Worsening of asset quality
THE CRISIS AND INDEPENDENT DIRECTORS
• Uttam Prakash Agarwal resigned in January, 2020
citing governance concerns at the cash-strapped
lender.
• Main reason for resignation: failure of corporate
governance; not satisfied with the system being
followed for raising capital.
• He was not allowed to perform his duties of an
independent director.
RE-ASSESSING THE DUTIES OF INDEPENDENT DIRECTORS
• In cases of conflict, independent directors are in true spirit
powerless.
• Should be given more legal powers and immunities for being a
whistleblower.
• Resignation owing to the fact their interventions are not heard
of, is not in true sense their independence.
• Cannot play an effective role in isolation.
• The ID of Yes Bank, Mr Uttam Agarwal raised several alarm
bells regarding fund raising (mal)practices but had resignation
as the only resort.
• Resigned and maintained highest levels of personal integrity
but when it came to his responsibilities, he effaced out.
JUDICIAL TREND ON DUTIES/IMMUNITIES OF
INDEPENDENT DIRECTOR
Briji Gopal Daga v. State of Kerala
Renuka Datla v. Biological E Ltd.
K.N. Shanth Kumar vs The Printers (Mysore) Private
Municipality of Bhiwandi & Nizampur v. Kailas Sizing Works.

National Small Industries v. Harmeet Singh Paintal,

IMMUNITIES DUTIES
 SUGGESTIONS
ENSURE INDEPENDENCE FROM
MANAGEMENT.

CORPORATE GOVERNANCE RATING

REFORMS IN APPOINTMENT PROCESS

CLEAR POLICY ON THE SPECIFIED
ROLE OF THE ID
RIGHT TO INTERVENE IN DAY-TO-DAY
ACTIVITIES