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After InGovern Research, another proxy advisory firm, Stakeholders Empowerment Services (SES), has advised shareholders of Finolex Cables Ltd to vote against the appointment of certain directors at the company’s 29 September annual meeting.

Finolex has sought shareholders’ approval for the appointment of Padmanabh R. Barpande, Avinash S. Khare and Firoza F. Kapadia as directors who will retire by rotation as well as independent directors, SES said, adding that the resolutions are contradictory to one another as the companies law states that independent directors do not have to retire by rotation.

“If both resolutions are treated as valid, there is an inherent conflict between the two. Firstly, an independent director cannot be appointed on a retiring basis; it is against the law. Secondly, as per the first resolution, a director is appointed on a rotation basis, whereas in another resolution, on a non-rotation basis. Which resolution will prevail?" SES noted in its report.

According to SES, these resolutions cast doubt on the independence of these directors, whose appointments are being sought.

If the appointments of Barpande, Khare and Kapadia as directors are confirmed, it will create a situation where they would continue as directors despite their stint as independent directors being completed, SES said.

“If the independent director is already aware that he/she would continue as a director even after the completion of tenure as independent director, this would impact independence right now itself since the term is not specific," the SES report said.

The proxy advisory firm noted that at the AGM held in 2020, Finolex had proposed a similar resolution for the appointment of Devender Kumar Vasal, Jayaram Rajasekara Reddy and Kavita Bhaskar Upadhyay as directors liable to retire by rotation as well as independent directors in two separate resolutions. The resolutions were rejected by shareholders.

The resolutions may have been proposed because of a conflict between the promoters over control of the flagship company of the $3 billion Finolex Group.

“It was due to two major corporate shareholders, namely: Orbit Electricals Pvt. Ltd holding 30.7% and Finolex Industries Ltd holding 14.5%, aggregating to 45.2% of the paid-up share capital of the company who voted against each of the resolutions for their respective reappointments. Both the aforesaid major corporate shareholders are under the management control of Mr. Prakash Chhabria, one of the promoters of the company against whom Mr. D.K. Chhabria, another promoter who is in management control of the company, is in dispute, which explains the reasons for such negative votes being cast by those companies," Finolex Cables said in its 2021 annual report.

“A contention has been raised that the votes cast by the aforesaid two companies were contrary to the mandate under their constitutional documents/contractual commitments, and these are the subject matter of challenge before the court(s) and the matter is thus sub judice," the annual report added.

Proxy advisory firms have also raised concerns over the change of status of Shishir Lall from independent director to non-executive non-independent director.

“The company has not disclosed the reason or process through which the status of Mr. Shishir Lall has changed from ID to non-independent director (NID) liable to retire by rotation. This kind of conversion/transfer from ID to NID raised serious questions over the independent directors on the board," SES said.

InGovern, in its report, noted that the composition of the board of Finolex Cables, when considered for the past year, or even the past three years, may have violated the Companies Act, 2013, and the Securities and Exchange Board of India’s listing regulations.

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