India Gate Basmati chair terms independent director’s exit ‘hostile’, denies governance lapses

“We could never imagine that he would become so hostile without any reason and would write so adversely about the company where he had been a director for one year," said Anil Kumar Mittal, chairman and managing director of KRBL, in an analyst call on 16 September following the exit.

Former chairman of state-owned Steel Authority of India Ltd, Anil Kumar Chaudhary, stepped down from KRBL’s board on 8 September, citing governance-related concerns. The company, however, notified the stock exchanges on 13 September.

“I am not getting hostile, and I have all the supporting evidence available with me to support my concerns," Chaudhary told Mint over the phone in response to Mittal’s remarks, adding that, given the opportunity, he would like to present the evidence to the regulator or an independent third-party reviewer.

“I feel that Anil Kumar Mittal is too ignorant, he does not know what is the meaning of the word hostile. He has been using this word very loosely," Chaudhary said.

After Chaudhary’s resignation, KRBL now has a seven-member board chaired by the company’s founder and managing director, Anil Kumar Mittal. The company is already on the lookout for Chaudhary’s replacement and will try to fill this gap as early as possible, it said. They have three months to find another independent director.

KRBL informed the stock exchanges about his resignation on 13 September, five days after it was tendered. In an investor conference call on 16 September, the KRBL chairman said that the whole management was “under shock" and “puzzled," which resulted in a delay in informing the stock exchanges.

Governance issues

In the two board meetings Chaudhary attended, “he never ever raised any issues before the Board or within the Committee", said Mittal.

“If, at all, any issues were raised by him, they were articulated and settled then and there. But if a person has decided or if he was cooking up some stories within himself, that cannot be answered," Mittal added.

The management is waiting for the independent auditors to vet the whole allegation and review all the papers on record to ensure that there has been strict compliance with all the regulations.

If investors had confidence in the KRBL management commentary, the stock price would have recovered after the 10% fall on the day the letter was disclosed, Shriram Subramanian, managing director of proxy advisory firm InGovern Research and an expert on corporate governance, said. The capital market regulator, Securities and Exchange Board of India, should issue a show-cause notice or institute a forensic audit, as investors see the letter by the independent director as a red flag. It is not easy for the company to regain its reputation, he added.

In his resignation letter, Chaudhary flagged several governance concerns at the country’s largest exporter of basmati rice, including concerns over the usage of corporate social responsibility (CSR) funds, a write-off of certain export receivables without adequate deliberation, an arbitrary distribution of variable pay and annual increments to persons holding office or place of profit, and significant changes to the company’s object clause without comprehensive discussion with the board.

Company response

Refuting the claims, the company’s chief financial officer, Ashish Jain, said that the export receivables were of an Africa-based customer who defaulted on payments for rice shipments. KRBL tried to recover the dues and even sent legal notices to the client. Finally, the company was left with no alternative but to write off the ₹58-crore bad debt under the Foreign Exchange Management Act, 1999 and the Reserve Bank of India’s export directions.

Regarding the CSR and variable pay allegations, Jain said KRBL follows a “due process in CSR wherein an annual operating plan is presented and approved," and the pay hikes and bonuses for directors and senior executives, benchmarked to the industry, are vetted by the Nomination & Remuneration Committee, and approved by shareholders.

The company’s stock has declined by 12.3% since it made Chaudhary's resignation letter public on 13 September, while the benchmark index Nifty remained unchanged at 0.4% gain.

When contacted, KRBL reiterated its 15 September exchange filing, saying the board has called for an independent third-party review within 30 days. The report will be examined by board committees, which will then present their recommendations to the board.