WHY INDEPENDENT DIRECTORS ARE RESIGNING CITING PERSONAL REASONS FROM INDIAN COMPANY BOARDS?

WHY INDEPENDENT DIRECTORS ARE

 RESIGNING CITING PERSONAL REASONS

 FROM INDIAN COMPANY BOARDS?

PERSONAL REASONS

​Independent directors across various companies globally and in India have recently resigned, often citing "personal reasons." However, these departures sometimes mask deeper concerns related to governance issues, legal risks, and ethical standards.

Many directors, when faced with allegations of corporate misgovernance, have chosen to resign under the pretext of “personal reasons,” leaving companies vulnerable during critical times.

Number of cessations of Independent Directors in 2024 stood at 2,465 against 2,311 appointments, according to primeinfobase.com.

GLOBAL CONTEXT

Mineral Resources (Australia): Denise McComish, a non-executive director, resigned amid a series of scandals involving the company's managing director, Chris Ellison. The resignations followed allegations of tax evasion and misuse of company funds, leading to an investigation by the Australian Securities & Investments Commission (ASIC).

INDIAN CONTEXTS

GENSOL ENGINEERING:

Two independent directors, Harsh Singh and Kuljit Singh Popli, resigned following allegations by the Securities and Exchange Board of India (SEBI) against the company's co-founders. The allegations included misuse of company funds and undisclosed related-party transactions.

DHANLAXMI BANK:

 Independent director Sridhar Kalyanasundaram resigned, citing factionalism within the board and differences regarding a rights issue. He also expressed concerns about the lack of in-depth banking knowledge among other board members. ​

PAYTM PAYMENTS BANK:

Independent director Manju Agarwal resigned, citing personal commitments. Her resignation came amid the Reserve Bank of India's move to curb operations at the bank.

R & B DENIM LIMITED

Resignation of Mr. Dharmesh Prafulchandra Mehta ,Mr. Girishkumar Prahladrai Kalawatia and Mr. Manak Lal Tiwari (as the Independent Directors of the Company, with effect from close of business hours on 27th December, 2023 citing pre-occupation and personal commitments.

TRENDS AND REGULATORY RESPONSES

RESIGNATION PATTERNS:

In the first three quarters of 2024, 94% of mid-term board cessations for independent directors in India's National Stock Exchange (NSE) companies were due to resignations. The most common reasons cited were preoccupation with other commitments (54%) and personal reasons (27%).

REGULATORY MEASURES:

The Securities and Exchange Board of India (SEBI) has proposed that independent directors disclose detailed reasons for their resignation, including an explanation if "personal reasons" are cited. Additionally, a mandatory cooling-off period of one year before they can join another board is being considered.

IMPORTANCE OF TRANSPARENCY AND ACCOUNTABILITY

These developments underscore the importance of transparency and accountability in corporate governance. While personal reasons are often cited for resignations, underlying issues such as governance failures and ethical concerns may be at play. Regulatory bodies are taking steps to address these challenges and enhance the integrity of corporate boards.​

R V SECKAR FCS,LLB 79047 19295