New Delhi: Resignation of four independent directors from the Board of Satyam Computers came in for criticism on Tuesday from corporate lawyers, company secretaries and chartered accountants, who raised the issue of ‘fiduciary duties’ of such nominees.
“By resigning, they (independent directors) failed in their fiduciary duty to protect the interest of shareholders and other stakeholders, whose interest they represent on the Board,” said senior partner of the law firm Titus and Co Diljeet Titus while commenting on the decision of the four independent directors to quit the company.
“In the present scenario, the board meeting would not be able to take crucial decision on buyback of shares,” President of Institute of Chartered Accountants of India Ved Jain said.
Resignation of the directors on the fiasco over acquisition of two companies promoted by Satyam Chairman B Ramalinga Raju’s sons would make the board meeting of the company on 10 January a farce, said a company secretary.
However, an official in the ministry of corporate affairs said that the meeting can, of course, take place but not before appointment of new independent directors, approved by the shareholders. Without wanting to be named, he said there was nothing wrong with the resignation of the independent directors, as “they might not be feeling comfortable”.
But company law practitioner Naseer Ahmed said, “Prima facie, they are accepting the wrong which had happened at the Satyam’s Board meeting... They should not run away from their collective decision and responsibility...it also appears that they are influenced by some vested groups in the company.”
Advocate Vibhu Bakhru, who practices with the Company Law Board, said the law makers had not made any distinction between promoter directors and independent directors. “It’s not a case of joint liability but that of several liability of each director,” he added.
Four independent directors, including M R Rao (Dean of Indian School of Business), V K Dham (regarded as father of Pentium processing), K G Palepu (Professor, Harvard Business School) and M Srinivasan had quit the company following the controversy. The only two independent directors on the Board of the Satyam Computer Services are former Cabinet Secretary T R Prasad and former Dean of IIT-Delhi V S Raju.
They left the SCS Board after the company abandoned the controversial deal to acquire two Maytas firms, promoted by the family of IT company Chairman Raju, in the face of stiff protests from investors who charged violation of corporate governance.
Commenting on the role of independent directors in the Satyam case, senior Supreme Court Advocate C A Sundaram said though the directors could resign any time, “if a fraud is committed in their tenure, they can be held liable and cannot escape responsibility”.
The liability of independent directors, he said, could not be brushed aside if they were aware of the information on the basis of which the controversial decision was made. They, he added, would also be held liable if they did not know something which they ought to have known.
“It’s not a good thing”, Titus said, adding the independent directors should have taken more care in safeguarding the interest of stakeholders, which includes debtors, creditors and society at large.
Adding further, Ahmed said that resignation was not the solution as the independent directors were appointed by the shareholders under Clause 49 of the Listing Agreement and had important functions to discharge.
“Their loyalty should be towards the shareholders and stakeholders, not towards Raju. In a case like Satyam, the independent directors should be more duty-bound towards the stakeholders and face the situation,” he added.