The tussle between Dish TV’s erstwhile promoters and YES Bank has brought into sharp focus the conundrum of ‘non-retiring’ directors at India Inc.
The Companies Act, 2013, allows public companies to appoint directors not liable to retire. The concept, say legal experts, is to allow large institutional shareholders, such as Life Insurance Corporation of India, to appoint nominee directors. However, it can complicate matters in cases where individuals belonging to erstwhile promoter groups refuse to cease their position even when they lose the reins of the company, observe experts.
Earlier this month, shareholders of Dish TV voted against a resolution to reappoint Jawahar Goel as managing director (MD). He, however, continues to be director on Dish TV’s board since he is a non-retiring director under the company’s Articles of Association (AoA).
YES Bank wants to oust him from the board. In September 2021, the lender had proposed his removal as director, but decided not to go ahead with the motion.
Dish TV says Goel’s directorship is legally tenable.
“In terms of the extant provision of law, the directorship (non-executive position) of Goel survives even on vacation from the office of MD,” said a spokesperson for Dish TV.
Legal experts say YES Bank will have to propose a special resolution to remove Goel as director or to amend AoA to disallow him from being a non-retiring director.
“Goel was appointed a non-retiring director through AoA. Therefore, he continues to be a director even if the resolution on his appointment as MD was defeated. As a policy, we oppose the concept of non-retiring directors. Some promoters take birth as directors and go to the grave as directors, which is unfair,” said J N Gupta, MD of proxy advisory firm Stakeholder Empowerment Services.
The Companies Act, 2013, mandates at least two-thirds of directors be liable to retire by rotation.
“For the remaining directors, the company can provide for necessary regulation in its AoA, subject to which they can be appointed in a general meeting. Generally, listed companies, vide their AoA, provide power to the board of directors to determine the directors whose period of office is or is not liable to retire by rotation,” said Anish Shah, associate partner-M&A tax and regulatory services, BDO India.
Dish TV has denied reports that Goel’s position as non-retiring director was not disclosed adequately and has said it is not aware of any complaints on this front.
“It is totally incorrect and misconceived to state that the AoA was hidden from shareholders. As a matter of fact, the AoA of the company has been available as part of the inspection. In addition, the same is also a public document that can be accessed by anyone. The company is not aware of any complaint or correspondence of YES Bank with Securities and Exchange Board of India (Sebi),” the spokesperson added.
Experts say YES Bank, thanks to its 24.8 per cent stake in Dish TV acquired via invocation of pledged shares, has the muscle to oust Goel through legal recourse without knocking at Sebi’s door.
“Without getting into the merits of the case, under the Companies Act, with over 10 per cent stake, a shareholder would also be in a position to requisition a shareholder meeting and YES Bank could, much like in the case of Zee-Invesco, seek to requisition such a meeting, where the shareholder could consider the issue of removal of Goel as director,” said Sahil Arora, partner, Saraf & Partners. Business Standard