Independent directors pushing Clause 49 limits

Ten months after new Sebi norms set in, some senior directors still hold more board seats than allowed

For an 84-year-old, Rajendra Ambalal Shah is a busy man. On Wednesday, the shareholders of Pune-based Deepak Fertilisers and Petrochemicals Corporation (DFPCL) will vote on a resolution to re-appoint Shah as a non-executive, non-independent director. Shareholders of Atul Ltd also voted on a similar resolution to appoint Shah on their board at the annual general meeting on Tuesday. If these resolutions go through, DFPCL will be the 10th listed firm on whose board the senior partner of Mumbai-based law firm Crawford Bayley & Co would sit.

While this in itself is within prescribed limits, Shah seems to have strolled into a grey area when it comes to independent directorships. According to the amended Clause 49 of the listing agreement that came into effect on October 1, 2014, a person cannot hold more than seven independent directorships.

However, according to data from Prime Database, Shah is listed as an independent director on eight firms as of date. These are Procter & Gamble Hygiene and Health Care, Pfizer, BASF India, Godfrey Philips India, Bombay Dyeing & Manufacturing, Abbott India, Colgate-Palmolive (India) and Lupin. In many of these companies, Shah’s relationships are decades old. According to corporate affairs ministry records, he has completed 51 years on the Procter & Gamble board. He was appointed to Pfizer board in November 1965 and BASF in 1968 He entered the Godfrey Philips board when group scion Lalit Modi was a four-year-old boy. Modi will turn 50 this November.

 

Shah is not alone. Prime Database showed two other directors who held eight independent directorships each, 10 months after the deadline to shed extra board positions expired.

The database also showed two managing directors, one of them of a prominent housing finance firm, were in breach of another listing agreement condition that barred people holding full-time positions from being on the boards of more than three firms as independent director. Business Standard is not naming others for this story as it had not reached out to them.

After Business Standard first reached out to Shah on July 31, Gaurav Jain, his representative, said in an email response on August 1: “Mr Shah is an Independent director of seven listed companies. So far as Abbott India Limited is concerned, he had sometime in the past notified to them that he should be treated as non-independent director in Abbott India Limited. Mr Shah is totally committed to corporate governance and unqualified compliance.”

 

However, Abbott India had not notified any change in Shah’s status to the exchanges. Its website continued to show him as an ‘independent director’ till date. When Business Standard reached out to Jain again on Monday (August 2) with these facts, he said Shah had indicated to Abbott India in February itself. However, since the company had some internal issues, the change could not be done immediately. He added that Shah intimated ‘verbally’ to the Abbott board on July 31 that he could not continue any longer.

In response to an email query, a spokesperson for Abbott India said, “Abbott India Limited has received an intimation from R A Shah to treat him as non-independent, non-executive director. Accordingly, the company has confirmed that Shah will be considered as non-independent, non-executive director with effect from July 31, 2015.”

In a fresh mail on August 4, Jain said on behalf of Shah: “I reiterate that Mr Shah is an independent director of seven listed companies as of today.”

J N Gupta, a former Securities and Exchange Board of India, or Sebi, official and founder of proxy firm SES, said: “The new listing agreement provisions came into effect on October 1, 2014. The fact that Shah was exceeding the prescribed limit till July 31 means he was in breach of the listing agreement.”

Business Standard also reached out to Atul and DFPCL, which were appointing Shah this week, for their responses. While Atul did not respond, a DFPCL spokesperson said: “As per the Companies Act, a person can take up to 10 directorships in public limited companies, out of which independent directorship is restricted to a maximum of seven. The resolution which you are referring to is for appointment of Mr Shah as non-independent and non-executive director and not as an independent director and therefore we are in compliance with the Companies Act, since as per our records, Shah has not surpassed more than 10 directorships in public limited companies.”