No escape: independent directors won’t go scot free

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New Delhi: Even though four of the independent directors on Satyam’s board resigned last month they would not be able to go scot free once investigations are done in the company’s affairs. This is because as per the present law governed by the Companies Act, 1956, there’s no distinction between indepedendent directors and other directors. Further, legal experts contend that the board on the whole is responsible for discharging their fiduciary duties, which was not done in the case of Satyam.

Four of Satyam’s independent directors resigned last month, including M Rammohan Rao, dean ISB, who chaired the December 16 controversial board meeting when the acquisition of Maytas was given a green signal. Harvard professor, Krishna Palepu, a non-executive director and father of prentium processor, Vinod K Dham, non-executive and independent director were the other two who put in their papers. Earlier Mangalam Srinivasan, the board’s longest serving member also put in her papers. Post which the company’s nine member board was almost halved to five.

Legal experts maintain that some of the independent directors started resigning only when they realised the enormity of the situation.

At the Express group’s Idea Exchange programme on Tuesday, the minister for company affairs Prem Chand Gupta had said, “ independent directors on company boards will have difficulty escaping liability for any negligence by managements, as the Company’s Act of 1956 does not define their status”.

Commenting on the various cases such as where independent directors were being charged saying that this was a very complex issue owing to the fact that an independent director indeed has no say or knowledge of the day to day operations of the concerned company, Gupta said that the new Companies Bill would specifically address the issue

The new Companies Bill defines a new category called ‘key management personnel and it will include executive directors, chief financial officer and company secretary. Other directors would not be held responsible unless their involvement is proven beyond doubt by the investigating agencies.

However until the new Bill comes into effect independent directors would face the flak of any such scandal.