Proxy advisory firm Stakeholders Empowerment Services (SES) has criticised ITC for issuing 10,000 options each to six independent directors (IDs) 20 days after the Rajya Sabha passed the Companies Bill, 2013, on August 8, 2013. The Bill was then a law waiting to be promulgated.
Section 197 (7) of the Companies Act, 2013, which prohibits companies from granting options to IDs, got legal force from April 1, 2014. ITC has defended itself saying that it has been granting stock options to all its non-executive directors since 2001 as per Securities and Exchange Board of India guidelines. “SES believes that the act of allotting options before provisions of the Act were to kick-in may have been an attempt to beat an impending law,” said J. N. Gupta, Founder and Managing Director, SES.
Dismissing these claims, ITC said that the options granted were for previous financial year and clearly in no way a pre-emptive action as suggested by SES.
SES said the said directors should not be considered to be independent, especially given the fact that all of them were members of the Remuneration Committee which allotted the options. Responding to this, ITC said: “The contention that directors lose their independence by virtue of holding shares in the company is not at all tenable as even the Companies Act has clearly laid down that a director is considered to be ‘interested’ only if his/her shareholding is more than 2 per cent of the company’s subscribed share capital. No director has shares remotely anywhere near this threshold. Therefore, to consider them ‘non-independent’ on this count is nothing but preposterous.”
