Two proxy advisory firms have flagged many corporate governance issues at Finolex Cables and have advised shareholders to vote down the appointments of three directors at the annual general meeting slated for Tuesday.
Proxy advisory firms Stakeholder Empowerment Services (SES) and Ingovern Research have accused the Pune-based company headed by Deepak Chhabria of taking its shareholders for a ride by violating many provisions of the Companies Act and Sebi norms and have advised shareholders to reject the appointments of these directors.
Established in 1958, the Rs 7,500-crore Finolex Cables manufactures electrical and telecom cables, and is the flagship company of the Finolex Group. The company is holding its AGM on Tuesday.
The nearly USD 3-billion Finolex Group comprises Orbit Electricals and Finolex Cables of Deepak Chhabria. While Orbit holds 30.7 percent in Finolex Cables, Finolex Industries holds 14.5 percent in the company. Finolex Industries is run by estranged cousin Prakash Chhabria.
These three companies have four common directors– Deepak Chhabria and cousin Prakash Chhabria, Sunil Pathak, and Sanjay Asher.
The main points of contentions are regarding the appointment of directors.
The board, which had appointed PR Barpande, Avinash Shridhar Khare and Firoza Fredoon Kapadia as additional directors on September 30, 2020, is now seeking shareholders’ nod to appoint them as directors again, even though they are liable to retire by rotation, under resolutions 3, 4 & 5 for the AGM. At the same time, the board seeks to appoint them as independent directors for a five-year term under resolutions 8, 9 & 10 and making them not liable to retire by rotation.
According to SES, these resolutions are superfluous for one and violative of Sebi norms apart from going against the spirits of the law.
Asking shareholders to vote down appointments of these directors, SES said, “We are of the view that resolutions 3, 4 & 5 are superfluous and does not serve any objective since the company has proposed to appoint these directors as independent directors under resolution 8, 9 & 10… and that if the superfluous resolutions 3, 4 & 5 passed would have the unintended consequence of allowing these directors to continue as directors even if their independence gets compromised.”
Law never intended that an independent director should continue to remain a director even if his/her independence is vitiated, unless expressly reappointed by shareholders.
It has also accused the company of not disclosing any reasons for the change in directorship of Shishir Lall from an independent director to a non-independent director, stating that such conversion/transfer has raised serious questions over the independent directors on the board.
These firms have charged the company of violating section 196 of the Companies Act and also have flayed the manner in which it has appointed these directors last year, apart from hiding disclosures.
“The resolution does not clearly show as to what is the intent of the company for placing two different resolutions for same appointees. If both resolutions are treated as valid, there is inherent conflict in the two. For one, an independent director cannot be appointed on retiring basis, it is against law. Secondly, according to the first resolution, director is appointed on rotation basis, whereas in another resolution they are appointed on non-rotation basis. Which resolution will prevail?” asks SES.
It also feels that some of the proposed resolutions are not in the best interest of shareholders and that certain similar concerns were also raised in the past. It also has issues with the composition of its newly-constituted board and re-designation of a director without assigning any reason.
The Companies Act and Sebi regulations stipulate that independent directors can be appointed for a maximum of five years (three plus two). Further, the law requires two-thirds of the non-independent directors to retire by rotation at the AGM.
And that if an independent director is already aware that he/she would continue as a director even after completion of the tenure as independent director, this will impact his/her independence immediately since the term is not specific, the report argues and notes that in the 2020 AGM too, Finolex had proposed a similar resolution to appoint Devender Kumar Vasal, Jayaram Rajasekara Reddy and Kavita Bhaskar Upadhyay as directors, who were liable to retire by rotation as well as independent directors in two separate resolutions.
However, the shareholders voted out those resolutions.
Stating that these resolutions cast doubt on the independence of these directors, whose appointments are being sought, SES said if shareholders confirm the appointments of Barpande, Khare and Kapadia as directors, it will create a situation where they would continue as directors despite their stint as independent directors being completed.
A few days ago Ingovern had urged shareholders to vote against appointments of directors as articles of association of the company are in violation of the provisions of Section 152 (6) of Companies Act apart from violating Sebi’s listing norms, thus defeating corporate governance.
According to Ingovern, all directors, including executive chairman Deepak K Chhabria, should be liable for retirement by rotation. But the company had appointed him as a permanent director for life, in violation of the provisions of Companies Act.