Relief for Maruti's Bhargava: Sacked IL&FS directors can be on other boards

Directors who have been 'suspended' can seek legal remedy to get reinstated, Ministry of Corporate Affairs

The government has not disqualified directors of the Infrastructure Leasing & Financial Services (IL&FS) who have been suspended from its board. They can continue to be part of other firms’ boards, sources in the government clarified on Wednesday.

Senior corporate affairs ministry officials said these directors have been “suspended” and they could seek legal remedy to get reinstated. The government had suspended 15 directors of IL&FS, accusing the board of violating corporate governance norms.  

There was some confusion over whether they could serve on the boards of other firms. For instance, R C Bhargava, an independent director, can continue to be Maruti Suzuki chairman.

Sources said the government had approached the National Company Law Tribunal (NCLT), Mumbai, under sections 241 and 242 of the Companies Act. Section 241 empowers the government to approach the tribunal if it thinks that a company is not being run in the public interest. The other section talks about what the NCLT can do. 

Sources said the government did not approach the NCLT under the Section 164 of the Act, as this would disqualify the directors and prevent them from being on the board of other companies as well. 

The section has enumerated disqualifications such as having an unsound mind, being insolvent, or having been declared as an offender by courts. If a tribunal or a court has disqualified them to be a director in any company, then also they cannot be directors in other companies, according to the section.

Also, if a person is a director in a company which has not filed statutory returns for a period of three years, they will lose their directorship in other companies for five years.

Using this clause, the government disqualified 300,000 directors of companies that have not filed statutory returns. 

In its petition to the NCLT, the Ministry of Corporate Affairs had made 10 IL&FS directors, including Vice-Chairman and Managing Director (MD) Hari Shankaran and joint MD and Chief Executive Officer Arun Saha as respondents, along with independent directors. 

The NCLT also allowed the government to appoint a new board.