SKS says shareholders do not have right to nominate directors

Akula's plan to re-enter SKS board likely to face resistance

Vikram Akula's re-entry in the board of SKS Microfinance may not be easy with the micro-lender today claiming its shareholders do not have right to nominate director.

"The company states that under its articles of association, no shareholder has any right to nominate a director. All requests for appointment as director are required to be made in accordance with the Companies Act and the articles of association of the company and will be processed in accordance with law," SKS said in a statement.

Only a couple days back, SKS Trusts, the largest shareholder in the microfinance company, had requested it to induct Akula as its nominee on the board with immediate effect. SKS Trusts comprises of five mutual benefit trusts whose beneficiaries are self-help groups of borrowers of SKS Microfinance. The sole trustee of SKS Trusts is SKS Trust Advisors.

It claimed that Akula had started these Trusts and his unique understanding of the microfinance industry will help SKS Microfinance in achieving its goal of promoting financial inclusion and enhance long-term shareholder value. The Trusts recently increased its stake in the micro-lender to 12.6% and became the single largest shareholder of the company.

In 2011, Akula had to step down as the chairperson of SKS Microfinance following claims of conflict between him and other board members over the running of the company.

People familiar with the development said it is unlikely that SKS' board will be keen to induct him again.

"The board composition has not changed when Akula was forced to step down. The shareholding pattern is also more or less the same. The current management has been able to turn around the company. So, there is no reason why the board will be willing to reappoint Akula," said a person requesting anonymity.

In November, 2011 when Akula resigned SKS Trusts was still the largest shareholder in the microfinance company with 11.55% stake. Its shareholding was reduced after SKS expanded its capital base by raising money through a qualified institutional placement (QIP).

Industry analysts also said it will be difficult for SKS Trusts to win a legal battle over Akula's appointment as the articles of association do not offer shareholders the right to nominate directors in SKS Microfinance.

"Taking a legal action is always an option. But it is not necessary that one will win a legal battle. SKS' shareholders do not have the right to nominate directors as per the company's articles of association. Hence, it will be difficult for Akula to re-enter the board if other members are unwilling," said an analyst.