The ongoing boardroom tussle in the Tata Group has compelled the Securities and Exchange Board of India (SEBI) to review the norms for removal of independent directors in listed companies.
At the SEBI board meet held on January 14, the capital market watchdog took note of the fact that promoters by virtue of their majority holding in large listed companies can easily remove an independent director. An internal note presented to the SEBI board stated that the regulator should evaluate the option of barring the promoters from voting on resolutions seeking removal of independent directors.
“It is felt that the present provisions make the removal process less stringent than the appointment process. Therefore, since a special resolution is required for the re-appointment of an independent director, the same principle should be applied for his removal also i.e special resolution may be made necessary,” according to an internal note prepared by SEBI, which was presented to the board.
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Current framework
At present there is no restriction on promoters to vote on such kind of resolutions, it said referring to the current regulatory framework for removal of independent directors.
The capital market regulator has brought this issue to the notice of Ministry of Corporate Affairs (MCA) as well, based on the letters it received from Nusli Wadia who was removed as an independent director from Tata Motors, Tata Steel and Tata Chemicals.
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In one of his letters to SEBI, Mr. Wadia alleged that Tata Sons levelled false charges against him in the special notice sent to the shareholders of Tata companies in which he served as an independent director. He has also filed a ₹3,000 crore defamation suit along with a criminal defamation case against Ratan Tata, Tata Sons and its board of directors.
“In corporate India, freedom of independent directors is as important as independence of judiciary in our democracy,” said Vaneesa Agrawal, Partner, Suvan Law Advisors.
“SEBI listing regulations and Companies Act, 2013 needs to provide independent directors a fair process and the opportunity to debate their dismissal before the non-promoter independent shareholders, currently it does not require legally sufficient cause for dismissal, or any similar test,” said Ms Agrawal, who has earlier worked as a law officer at SEBI.
SEBI Chairman U.K. Sinha had recently said that he does not see any “compelling reason” to review norms for independent directors at this juncture.
Violation of laws
Meanwhile, the note presented to the board also stated that it would not be right on SEBI’s part to question the commercial decisions of the boards of companies unless there is any kind of violation of the securities laws.
“Intervention by the regulator is not envisaged in such situation unless there appears to be violation of securities laws,” it says, while referring to allegations made by ousted chairman Cyrus Mistry regarding some of the commercial decisions taken by the boards of listed Tata entities. The regulator has, however, directed the stock exchanges to seek information from the companies on the allegations made by Mr Mistry. The companies were asked to place the allegations before their respective audit committee as per SEBI guidelines. Only, Tata Teleservices (Maharashtra) and Tata Capital Financial Services have responded.