The common-sense view

While the SC has interpreted the law as it stands to deny Mr Kampani anticipatory bail, there is surely a clear case for re-looking at the law

The Supreme Court’s decision to not grant anticipatory bail to Nimesh Kampani, one of the country’s leading investment bankers, could have unfortunate consequences. The charge, under which Mr Kampani can get up to 10 years in prison if he returns from Dubai, where he has remained for several months in order to avoid arrest, is of course a serious one— Mr Kampani was a non-executive or independent director of Nagarjuna Finance, which failed to return Rs 98.3 crore to 85,000 depositors, money that was collected when Mr Kampani was on the board of directors. Though independent directors are not responsible for a company’s day-to-day actions, it can be argued that even independent directors have to face some sort of penalty for the actions of the companies they govern. Otherwise, firms get celebrity directors who make depositors feel their money will be safe—only to learn, when it is too late, that these directors bear no responsibility for the actions of the companies whose boards they adorn.

 

The problem that Mr Kampani faces is that the Andhra Pradesh law that governs such instances gives him little protection. But the facts of the case also need to be considered from a common sense point of view. And these are that Mr Kampani ceased to be a director of Nagarjuna in April 1999; when he left the company, its track record in repaying its debtors was very good. The auditors’ report of 1998-99 makes this clear— outstanding deposits, which were Rs 191 crore at the beginning of the year, were Rs 119 crore at the end of the year. Indeed, the auditors’ report for 1999-2000, written a full year after Mr Kampani ceased to be on the company’s board, points out that things remained pretty much under control — “Your company during the last three years had an unblemished track record of having repaid over Rs 275 crore of fixed deposits, which constitutes over 73 per cent of the highest levels of deposits held.”

While the Supreme Court has interpreted the law as it stands in order to deny Mr Kampani anticipatory bail, there is surely a clear case for re-looking at the law— for how can a person be held guilty for an action taken by a company long after s/he has ceased to be responsible for its affairs? If non-executive directors can be incarcerated for long periods of time for matters beyond their control, no one will join any company as a director. It is true that both independent and other directors have failed to do their job in company after company (Satyam is a case in point), but targetting Mr Kampani in this fashion sends out wrong signals to the entire community of non-executive directors, and the stock market regulator may find that companies are simply unable to find good directors to sit on their boards, as the declared corporate governance norms stipulate.

Questions also need to be asked of the Andhra Pradesh government, as to why it is so intent on pursuing Mr Kampani, and whether this is linked in any way to his decision to invest in a newspaper company that has been very critical of the Reddy government in the state. It will be recalled that an earlier investor pulled out of putting its money in the same newspaper company when the finance ministry in New Delhi did not approve the investment, even though it met all existing stipulations. There is a pattern here that creates lively suspicions of political vendetta.