Some “Independent Directors” nominated by the government to the Board of Directors of Bharat Electronics Ltd (BEL) are not “independent” as per Clause 49 of SEBI’s regulation on Listing Agreement
To
Dr. Manoj Govil
Secretary (Corporate Affairs)
Government of India
Shri Ali Raza Rizvi
Secretary
Department of Public Enterprises (DPE)Government of India
Dear Dr Govil and Shri Rizvi,
From the point of view of the autonomy of the CPSEs and to ensure that the government as the majority shareholder encourages CPSEs to adopt good corporate governance practices, both your Departments should make sure that the government maintains an arms-length distance between itself and the CPSEs. This assumes particular importance when CPSEs are listed on the national stock exchanges and their management has the additional responsibility of safeguarding the interests of minority shareholders, mostly small investors who are shareholders of such CPSEs.
In the specific case of listed CPSEs, the Security Exchange Board of India (SEBI) has issued Clause 49 regulations applicable to the Listing Agreement applicable to a CPSE, defining the term “Independent Director” appointed in terms of the relevant provisions of the Companies Act. According to SEBI’s regulations on the subject, a Director nominated by the Government to a listed CPSE’s Board should not be considered as an “Independent Director”. On that basis, the DPE has also issued guidelines on the subject (Guidelines for Administrative Ministries/Departments and CPSEs as updated till 30-9-2018).
The above-referred SEBI requirement seems to have been openly flouted by the administrative Ministries in the case of several listed CPSEs (https://thewire.in/economy/sambit-patra-ongc-narendra-modi-bjp)
In particular, the administrative Ministry in the case of Bharat Electronics Ltd (BEL) has nominated several Directors to BEL’s Board, showing them as “Independent Directors”, implying that those persons are discharging the responsibilities of “Independent Directors” of the CPSE. BEL’s website (https://bel-india.in/Leadership.aspx?MId=3&CId=1&LId=1&link=0) shows as many as seven persons as Independent Directors, all of whom have been nominated as such by BEL’s administrative Ministry, namely, the Ministry of Defence. Out of them, at least four persons have affiliation with the BJP, which is a dominant part of the political executive at the Centre.
For example, the background of one of the above-cited persons shown as an Independent Director, as displayed prominently on BEL’s website reads as follows:
“Shri. Mansukhbhai Shamjibhai Khachariya, aged 61 years, is a Science Graduate and is a business entrepreneur in Rajkot, Gujarat. He is presently holding the post of BJP Rajkot District President. He is also a Director on the Board of Classic Cotton Pvt. Ltd, Rajkot“
The Companies Act requires Independent Directors to exercise oversight of the company’s management and safeguard the minority shareholders’ interests. They can veto a related party transaction if it is not in the interest of the company’s minority shareholders. In the specific case of a CPSE, each one of the Independent Directors has the additional responsibility of safeguarding the public interest, as it is the public at large that owns the CPSE.
In the specific case of BEL, it is entrusted with the onerous and highly responsible task of manufacturing and supplying components of the Electronic Voting Machine (EVM) System and also being a secure custodian of the source code embedded in the EVM chip. You are aware of the concerns expressed by civil society about the efficacy of EVMs and the scope that exists for their manipulation (https://thewire.in/government/take-expert-opinion-on-evms-safety-implement-safeguards-e-a-s-sarma-to-election-commission). Therefore, it is all the more essential that both your Ministries and the SEBI make sure that the statutory requirements on Independent Directors are fully and strictly complied with in the case of BEL.
How is it then that neither of your two Departments has made sure that BEL’s Board has the prescribed number of Independent Directors, whose appointment is compliant with SEBI’s regulations?
How is it that neither of the two Departments has cared to scrutinise the background of the persons who are playing the role of Independent Directors?
Have not the two Departments, through their inaction, indirectly become parties to the BEL being managed under the oversight of persons representing the ruling political party, which effectively tilts the level-playing ground against other political parties?
There is a serious public interest implication in this case and both the Ministry of Corporate Affairs and the DPE have either deliberately or otherwise allowed the administrative Ministry to violate the SEBI regulations to the detriment of the public interest. In my view, both the Departments have allowed the illegality to continue to the advantage of the ruling political party at the Centre.Even at this belated hour, I suggest that you take urgent measures to correct the situation by ensuring that BEL’s Board has the requisite number of genuinely appointed Independent Directors.
I am marking a copy of this letter to the Chairman of SEBI to take note of what I have pointed out and act in line with its own regulations in this specific case as well as in other cases of listed CPSEs.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam
