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

CAN AN INDIVIDUAL BE APPOINTED AS CFO CUM COMPANY SECRETARY IN A LISTED COMPANY?

 

CAN AN INDIVIDUAL  BE APPOINTED AS

 CFO CUM COMPANY SECRETARY IN A

 LISTED COMPANY?

Asian Paints Ltd, a listed company has appointed Mr. R J Jeyamurugan, CFO & Company Secretary,  who is  the Key Managerial Personnel ("KMP") of the Company in accordance with the provision of Sections 2(51) and 203 of the Act read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Please note that in respect of a listed company in which the appointment of chief financial officer and company secretary both in whole time employment was not done though, the company was mandatorily required to appoint both the position (being KMPs), since the company was the listed entity.

As per the Companies Act 2013, every listed company and every other public company having a paid-up share capital of ten crores rupees or more are required to appoint a chief financial officer and also a company secretary.

In pursuant to section 203(1) of the Companies Act 2013 ,every listed company and every other public company having a paid-up share capital of ten crores rupees or more, under Rule 8 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 shall have the following whole-time key managerial personnel:-

(i) Managing director or Chief Executive Officer or manager in their absence a whole time director;

(ii) Company Secretary and

(iii) Chief Financial Officer.

As per above, each listed company shall have at least 3 KMPs, i.e. CEO, CFO and CS.

 How come one person can have more than one office as in the case of Asian Paints Limited ?

PENAL PROVISIONS FOR DEFAULT (IF ANY) COMMITTED

 BY THE COMPANY

As per section 203(5) of the Companies Act 2013, any company which is mandatorily required to appoint a chief financial officer and company secretary, if don’t appoint, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

POINTS TO PONDER?

1.     Some professionals are arguing that there is no explicit prohibition regarding the appointment of the same person as CFO and CS .

However we need to understand the intention of the law. As a way of interpretation, the same person can be appointed as CEO, CFO and CS all offices. And while signing the financials also the same person can sign in the capacity of three offices.

2.     However, some  argue that these offices are all independent as per understanding and interpretation, how Asian paints have it, that's the matter of case study.

3.     We have to refer to Article 78 of Table F. It is expressly restricted for an individual to occupy two KMPs role.

4.     Article 77 allows a director to be appointed as CS or CFO subject to 78. But there is no such provision allowing the same person to be CS and CFO. There is conflict of interest.

5.     Some professionals are arguing that the Articles of Association (AOA) can be modified in accordance with the company requirements.

6.     But it is practically may not be able to fill and file the required forms for two KMPs for both positions for a single person because as we have of linked the same PAN for both KMPs.

7.     The intention of the law is very clear, each person shall be appointed for each office especially if you are a listed company or a large public company.

8.     We could request MCA to clarify the same, by having the article in model Table F .MCA have clearly mentioned the intention that separate persons shall be appointed. But they have allowed in Asian paints case.

9.     Consider these questions.

If the Audit Committee wants to discuss something in the absence of CFO,    and CS is the CFO, what happens?

If, as a CFO you don't want to disclose something, but as CS you have to ensure compliance, what happens?

Can we go on compromising on compliance issues?

10. Let MCA clarifies that action of Asian Paints is correct by appointing a same person as CFO and CS in a listed company?

11. This will help other listed companies or large public companies to club the two or three KMPs into one?

R V SECKAR FCS ,LLB  79047 19295

PRAVAAH - RBI PORTAL FOR FILING ONLINE APPLICATIONS FOR REGULATORY AUTHORISATIONS, LICENSES, AND APPROVALS WITH EFFECT FROM MAY 01, 2025

 PRAVAAH - RBI PORTAL FOR FILING ONLINE APPLICATIONS FOR REGULATORY AUTHORISATIONS, LICENSES, AND APPROVALS WITH EFFECT FROM MAY 01, 2025

RBI Processing of Regulatory Authorisations/ Licenses/

 Approvals through PRAVAAH

PRAVAAH (PLATFORM FOR REGULATORY APPLICATION,

 VALIDATION AND AUTHORISATION) PORTAL

The Reserve Bank is committed to achieving end-to-end digitization of all internal workflows involved in regulatory approval processes to enhance efficiency, transparency, and timeliness in service delivery. To this end, the Reserve Bank had launched PRAVAAH (Platform for Regulatory Application, Validation And AutHorisation) portal on May 28, 2024 to streamline online applications for regulatory authorisations, licenses, and approvals ensuring seamless, secure and faster delivery of services in a transparent manner.

FILING THROUGH SPECIFIC FORM OR GENERAL  FORM

With effect from May 01, 2025, all applicants, including Regulated Entities (REs) are advised to use PRAVAAH for submitting applications for regulatory authorisations, licenses, and approvals to the Reserve Bank using the application forms already available in the portal. Applications for which a specific form is not available can be submitted using the general-purpose form.

SUBMITTING APPLICATION DIRECTLY TO RBI WHERE

 PRAVAAH IS NOT ACCESSIBLE TO PUBLIC

In exceptional cases, where members of the public are unable to submit their applications through PRAVAAH system, they may submit their applications directly to the Reserve Bank as hitherto. However, such applications also will be processed through the PRAVAAH system by the Reserve Bank and the applicants will be duly notified of the same.

R V  Seckar FCS, LLB  79047 19295

RESIGNATION OF A LISTED COMPANY AUDITOR IS NOT AN EASY JOB- VARIOUS INFORMATION HAS TO BE OBTAINED FROM LISTED ENTITY AFTER AUDITOR RESIGNATION. MANAPASAND BEVERAGES LTD’S AUDITOR RESIGNED FOR NON –PAYMENT OF AUDIT FEES AND LITIGATIONS FACED BY THE COMPANY.

 

RESIGNATION OF A LISTED COMPANY

 AUDITOR IS NOT AN EASY JOB- VARIOUS

 INFORMATION HAS TO BE OBTAINED FROM

 LISTED ENTITY AFTER AUDITOR

 RESIGNATION.

MANAPASAND BEVERAGES LTD’S

  AUDITOR RESIGNED FOR NON –PAYMENT

 OF AUDIT FEES AND LITIGATIONS FACED

 BY THE COMPANY.

RESIGNATION BY AN AUDITOR FROM A LISTED ENTITY

BAGARIA & CO, AUDIT FIRM HAS CONSIDERED THE DEVELOPMENTS SINCE THE LAST AUDIT REPORT INCLUDING VARIOUS PROCEEDING AND LITIGATIONS FACED BY THE COMPANY AND LONG OVERDUE AUDIT FEES.

THEY  HAVE REASSESSED OUR ABILITY TO CONTINUE AS AUDITORS IN TERMS OF APPLICABLE FRAMEWORK INCLUDING SQC 1 & CODE OF ETHICS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND WE ARE OF THE VIEW THAT OUR INDEPENDENCE TO CONDUCT THE AUDIT STANDS IMPACTED.

ACCORDINGLY, THEY TO HEREBY CONVEY OUR RESIGNATION AS STATUTORY AUDITORS OF THE COMPANY WITH IMMEDIATE EFFECT.”

AS PER SEBI, RESIGNED AUDITOR SHOULD OBTAIN THE FOLLOWING INFORMATION IMMEDIATELY AFTER HIS RESIGNATION FROM AUDIT OF AN LISTED COMPANY.

Information to be obtained from the listed company by resigned auditor as per SEBI Circular  CIR/CFD/CMD1/114/2019 dated 18 October 2019

Information to be obtained from the statutory auditor upon

 resignation

1.Name of the listed entity/ material subsidiary:

2.Details of the statutory auditor:

a.Name:

b.Address:

c.Phone number:

d.Email:

3.Details of association with the listed entity/ material subsidiary:

a.Date on which the statutory auditor was appointed:

b. Date on which the term of the statutory auditor was scheduled to expire: 

c. Prior   to   resignation,   the   latest   audit   report/limited   review   report submitted by the auditor and date of its submission.

4. Detailed reasons for resignation:

5.In  case  of  any  concerns,  efforts  made  by  the  auditor  prior  to  resignation (including approaching the Audit Committee/Board of Directors along with the date of communication made to the Audit Committee/Board of Directors)

6.In  case  the  information  requested  by  the  auditor  was  not  provided,  then following shall be disclosed:

a. Whether the inability to obtain sufficient appropriate audit evidence was due to a management-imposed limitation or circumstances beyond the control of the management.

b. Whether the lack of information would have significant impact on the financial statements/results.

c. Whether the  auditor  has  performed  alternative  procedures  to  obtain appropriate  evidence  for  the  purposes  of  audit/limited  review  as  laid down in SA 705 (Revised)

d. Whether the lack of information was prevalent in the previous reported financial   statements/results.

  If   yes,   on   what   basis   the   previous audit/limited review reports were issued

.7.Any other facts relevant to the resignation:

R V SECKAR FCS ,LLB79047 19295

VARIOUS VIOLATIONS OF MARKET REGULATIONS BY LISTED COMPANIES ON THE BOMBAY STOCK EXCHANGE (BSE) WHICH HAVE FACED PENALTIES, SUSPENSIONS, AND LEGAL SCRUTINY.

 VARIOUS VIOLATIONS OF MARKET REGULATIONS BY

 LISTED COMPANIES ON THE BOMBAY STOCK

 EXCHANGE (BSE) WHICH HAVE FACED PENALTIES,

 SUSPENSIONS, AND LEGAL SCRUTINY.

SUSPENSION & PENALTIES FOR NON-COMPLIANCE

1. BHARAT GLOBAL DEVELOPERS (DEC 2024):

The Securities and Exchange Board of India (SEBI) suspended trading in Bharat Global Developers after discovering a pump-and-dump scheme that inflated its stock price by over 10,000% between November 2023 and November 2024. The company was found to have made false disclosures to manipulate its stock price, benefiting only a few investors linked to its management.

2. ADANI GROUP COMPANIES (2024):

SEBI is investigating the Adani Group for potential breaches of disclosure norms and investment limits by offshore investors. A dozen offshore funds were found to have violated disclosure rules and investment limits. The regulator is also examining whether these funds acted "in concert" with the group's key shareholders. Some offshore funds have approached SEBI to settle charges by paying penalties without admitting guilt.

3. INDIAN OIL, BPCL, GAIL, AND OTHERS (2024):

Major state-owned oil companies, including Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and GAIL (India) Ltd, were fined for failing to meet listing norms, such as having the required number of independent and women directors on their boards. These companies faced fines for five consecutive quarters, with amounts ranging from  ₹2.41lakh to ₹5.36 lakh per company.

REGULATORY ACTIONS BY BSE AND SEBI

The BSE and SEBI have taken stringent actions against companies violating listing norms:

SUSPENSION OF TRADING:

Companies failing to comply with listing regulations for consecutive quarters have had their trading suspended. For instance, in 2017, BSE suspended trading in seven companies, including Bio Green Papers and Gujarat Carbon & Industries, for non-compliance with regulations. 

FREEZING OF PROMOTER SHAREHOLDING:

 In cases of non-compliance, BSE has frozen the entire promoter shareholding of the concerned companies until further notice. This measure was implemented in 2016 for companies like Gangotri Iron & Steel Company and Gupta Synthetics. 

R V SECKAR , FCS ,LLB  79047 19295

DISCLOSURE OF MATERIAL EVENTS AND INFORMATION TO STOCK EXCHANGES PROMPTLY BY LISTED COMPANIES, ENSURING TRANSPARENCY AND PROTECTING INVESTOR INTERESTS

 DISCLOSURE OF MATERIAL EVENTS AND INFORMATION TO STOCK EXCHANGES PROMPTLY BY LISTED COMPANIES, ENSURING TRANSPARENCY AND PROTECTING INVESTOR INTERESTS

Listed companies in India are mandated by the Securities and Exchange Board of India (SEBI) to disclose material events and information to stock exchanges promptly, ensuring transparency and protecting investor interests.

These requirements are outlined in SEBI's Listing Obligations and Disclosure Requirements (LODR) Regulations, particularly under Regulation 30.

TIMELINES FOR DISCLOSURE

As of July 15, 2023, SEBI has specified the following timelines for disclosure:​

·       30 minutes: From the closure of a board meeting where a decision on a material event is taken.

·       12 hours: From the occurrence of a material event originating within the company (e.g., financial results, acquisitions, changes in shareholding).

·       24 hours: From the occurrence of a material event originating outside the company (e.g., media reports, regulatory actions) .​

FOR CERTAIN EVENTS, SEBI MANDATES EVEN STRICTER TIMELINES.

For instance, family settlement agreements affecting management control must be disclosed within 12 hours if the company is a party, and within 24 hours if it is not.

MATERIAL EVENTS REQUIRING DISCLOSURE

SEBI's Schedule III (Part A) lists events that require disclosure, including:​

Business Insider

·       Changes in the general character or nature of business. (Merger & Acquisition)

·       Disruption of operations due to natural calamities.

·       Commencement of commercial production or operations.

·       Developments related to pricing or realization due to changes in the regulatory framework.

·       Litigation or disputes with a material impact or regulatory actions

·       Revision in credit ratings.​ 

·       Change in Key Managerial Personnel 

·       Financial restatements or significant losses

·       Bankruptcy Filings

Additionally, companies must disclose events such as resignation of directors, initiation of forensic audits, and proceedings of general meetings within specified timelines. 

Best Practices for Listed Companies

TO COMPLY WITH SEBI'S DISCLOSURE REQUIREMENTS:

·       Establish internal protocols to identify material events promptly.

·       Ensure board decisions are communicated to stock exchanges within the stipulated time.

·       Regularly monitor media reports and respond to market rumors within 24 hours if they pertain to material events .

·       Maintain an updated record of all disclosures on the company's website for a minimum of five years .​

·       Strong internal governance and compliance teams.

·       Periodic reviews of disclosure obligations.

·       Transparent communication policies.

·       Whistle blower protection for internal reporting.

ENFORCEMENT AND PENALTIES

SEBI WARNING TO OLA  ELECTRIC

SEBI enforces these disclosure norms strictly. For example, in January 2025, SEBI warned Ola Electric for sharing information about its store expansion on social media before disclosing it to investors through stock exchanges, violating the principle of equal and timely access to information.

VEDANTA LTD – ₹30 LAKH FINE

In June 2023, SEBI imposed a ₹30 lakh penalty on Vedanta Ltd for breaching disclosure norms. The company published a press release on its website suggesting a partnership with Foxconn to manufacture semiconductors in India. However, the deal was with its holding company, Volcan Investments Ltd, not Vedanta Ltd itself. SEBI found that the press release was misleading and remained on the company's website for an extended period, despite being unrelated to the listed entity.

SHAPOORJI PALLONJI AND COMPANY – ₹7 LAKH FINE

In September 2023, SEBI fined Shapoorji Pallonji and Company ₹7 lakh for violating disclosure rules. The company converted non-convertible debentures (NCDs) into a term loan in March 2021 without prior approval from the stock exchange. Additionally, it failed to submit required documents, such as the auditor's certificate on fund utilization and reports to the debenture trustee, as mandated by the LODR regulations.

BURNPUR CEMENT LTD – ₹6 LAKH FINE

In a case involving Burnpur Cement Ltd, SEBI imposed a total penalty of ₹6 lakh for non-disclosure of contingent liabilities. The company failed to disclose an undisclosed income of ₹63.11 crore and a tax liability of ₹15.53 crore in its financial statements, as required by Ind AS-37 and Regulation 48 of the LODR regulations. SEBI found that the company's financial statements did not present a true and fair view of its affairs. ​

NEW DELHI TELEVISION LTD (NDTV) – ₹2 CRORE FINE

In 2018, SEBI fined NDTV ₹2 crore for failing to disclose a ₹450 crore tax demand raised by the Income Tax Department in February 2014. The company did not inform the stock exchanges immediately, and the disclosure was made only after being prompted by the exchanges. SEBI noted that timely and accurate disclosures are essential for investor protection and the proper functioning of securities markets.

The above cases highlight the importance of adhering to disclosure norms to maintain transparency and protect investor interests in the Indian securities market.

R V SECKAR FCS,LLB 79047 19295

 

#PENALTY ON A COMPANY FOR DELAY IN CIRCULATING BOARD MEETING MINUTES

In a recent adjudication order, the Registrar of Companies imposed penalties over Rs 1 lakh on a Company and its Directors combined for failure to circulate Board meeting minutes before fifteen days as required under Secretarial Standard 1.

Clause 7.4 of SS1 says: "Within fifteen days from the date of the conclusion of the Meeting of the Board or the Committee, the draft Minutes thereof shall be circulated by hand or by speed post or by registered post or by courier or by e-mail or by any other recognized electronic means to all the members of the Board or the Committee, as on the date of the Meeting, for their comments."

It was found that the Company circulated minutes almost after one month and two months of two board meetings. This is a substantial violation of secretarial standards.

The Ministry of Corporate Affairs (MCA) has invoked Section 118 of the Companies Act, 2013, to impose penalties on Blue Sapphire Healthcares Private Limited for the delayed circulation of draft minutes of its board meetings.