There is no lower limit of equity holding prescribed for being appointed as a director. Instances have been known of shareholders with one share trying to get themselves appointed on the board. Executive directors hold their positions on the board by virtue of having qualification shares.

There is also no shareholding limit at which one can demand a seat on the board. But even assuming that UTI is allowed a seat on the board, the fact remains as to how that will help the institution? They could, for example, very easily be voted out. Non-management shareholders in India do have certain rights--for instance the right to call an EGM.

That requires requisition by shareholders having at least 10 per cent ofthe paid-up capital (carrying voting rights). Only if a shareholder has more than 25 per cent of voting rights can it block a special resolution. But mutual funds are, by law, limited to acquiring not more than 10 per cent of the paid-up capital of a company.

Another problem is that mutual funds, except the UTI, do not have the right to vote. This is because mutual funds are constituted as trusts, while UTI is a separate entity governed by the UTI Act. Sec 153 of the Companies Act, 1956 requires that" no notice of any trust, express, implied or constructive shall be entered on the register of members". Sec 187 B provides that voting rights, in the case of a trust, can be exercised only by a public trustee. The public trustee is appointed by the Government and is a single individual for all trusts.

The section is the reason why mutual funds don't vote. The proposal to give voting rights to mutual funds was mooted but is currently gathering dust. Therefore, it is only the UTI, and the development financialinstitutions, which can vote.

As for the DFIs, there may be a conflict of interest between their primary role as lenders, and their equity stakes. There are instances where they have encouraged equity issues to repay outstandings. That leaves only the UTI as the institution most likely to stand up for shareholder rights.

The question is, will companies be able to refuse board representation to UTI? That will depend on the company. UTI's ultimate weapons are two--it can sell the shares of a company if it doesn't do what it wants, or it can announce that the company is afraid of giving UTI a seat on the board. But this will cut no ice if the company is a well-managed one with a good reputation. For instance, if UTI were to sell HLL shares there would be no dearth of buyers. UTI would also be open to severe cricticism if it sells shares which are likely to appreciate, never mind that they may refuse UTI a seat on the board.

But so far as the vast majority of companies are concerned, UTI is certainly in aposition to demand board representation. In case of refusal, UTI should simply send a notice under Section 257 of the Companies Act seeking to appoint a nominee on the board and let the management contest it at the AGM by giving reasons for voting against the resolution. This would be more than enough to create a stink for the company. That is why, for most companies, refusing a seat on the board to UTI will be practically impossible.

Of course, it is another matter altogether that representation on company boards by financial institutions has often failed to stop company managements from diverting funds away from the business. At the same time, there is no doubt that an institutional nominee can have a salutary effect in keeping management abuses in check. While UTI nominees may not achieve their desired objectives in all cases, they can, if they try, make a difference.