In these circumstances, such a nominee director is not liable for retirement by rotation. The financial institution has a right to withdraw a nominee and appoint some other person in his place. In some cases, institutions insist that articles of association of a company be suitably altered to provide for appointment of nominee director and, if required, the company may increase the maximum number of directors to make room for such an appointment.

In some cases, institutions have subscribed to shares of a company under the scheme of preferential allotment. In such a scenario, agreement with company may provide for right to nominate directoron the board. The financial institution has a good case to appoint a nominee on the board of a company though its decision to invest in the company is purely commercial.It is a moot point whether institutions merely on the strength of their holding in the company can insist on having their board nominee.

After all, it was commercial decision of the financial institution to make investment in company's share and they were under no obligation to do so. Thus, they cannot claim to have any superior right than any other shareholder. In such case, the nominee of financial institution like any other director will be liable for retirement by rotation. If promoters of company or parent company of multinational is not favourably disposed to invite nominee of financial institution on their Board, the financial institution will have to give notice under relevant provisions of Companies Act for appointment of their nominee as director. Presently, UTI's credibility is at nadir, and one would not be surprised if on showof hands resolution to appoint nominee of UTI on board of a company is lost, particularly if the companys' track record by all standards is satisfactory.

Will UTI in such situation ask for poll? Promoters or foreign collaborators on their voting strength may vote against the resolution. We have witnessed this at Philips annual meeting when financial institutions opposed the resolution for sale of plant to Videocon and resolution on the strength of voting power of foreign holdings was carried with majority. Indian promoters generally take softline for demands made by financial institution. Their attitude is "remaining in water, one does not fight with fish, much less with sharks and crocodiles". Hence, they take the line of least resistance. Thus, FIs get away with unreasonable demands.

It is arguable to what extent a nominee director of a financial institution can make contributions at the deliberations of board meetings. There are companies belonging to well-known business houses which are having leantimes and are not able to withstand competition or face the consequences of slowdown in the industry. In these companies FIs have their nominee as director but he is not able to stem the rot. Of course one does not expect nominee director to make miracles. Their role is "to encourage, caution or warn" management of companies. The suggestion of UTI that their nominee can monitor company is too tall an order.

Time has come when RBI or finance ministry should prescribe guidelines giving circumstances under which financial institution can insist on nominating director on board of companies where institution shareholding is by way on investment. At this rate mutual fund, or other investment institutions like insurance companies, which has significant holdings in company may insist on their presence on the board of companies. Presently under Companies Act mutual funds do not have a right to vote at the meetings, further UTI may become mutual fund as per Parekh Committee report within forseeable future. It isarguable whether investment institutions like insurance companies, mutual funds, etc, should have nominee on companies where such nominee will be privi to market sensitive information.

As per Sebi rules he will undoubtedly be considered as insider. It is not known whether nominee directors report on the proceedings of board meeting will be available to a department in UTI or mutual fund or insurance company, which deals in trading. Presently, there is no evidence that "Chinese Wall" of a type and scale which exists in broking firms and investment institutions abroad, exist with UTI or mutual fund in India.

Investment institutions will need monitoring of company in which they have significant holdings. If they apprehend resources are diverted by promoters or investments are made in project which will be drag on company or business of company is likely to suffer owing to differences or infights within promoters group or with foreign collaborator. If track record of a company as regards profitability,professional management, corporate governance, transparency, in dealings is satisfactory financial institution has no case to appoint a nominee on the board of a company only on the strength of holding in the company. Finally, bullying tactics and tyranny of financial institutions on the strength of their holdings in a company does not augur well for functioning of corporate democracy. Perhaps, UTI will do well to mend their house instead of meddling and throw their weight at corporate boards. One would say "Physian cure thyself".

(The author is a Mumbai-based chartered accountant)