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PSU MARKET

Shortage of Ind Directors in PSUs

By Soma Chakraborty, New Delhi
08/12/2016   0 Comments

Two years ago, when the media was abuzz with reports of the Narendra Modi Government removing  Independent Directors appointed by the UPA-II Government on PSU Boards, many observers thought that it was a ploy of the new regime to push its blue-eyed boys in the public sector undertakings. However, nothing of the sort happened and nor did the Government, the observers say, show interest in filling up the posts of Independent Directors in the PSUs. The situation has now become so grave that the public sector units in India are facing a huge shortage of Independent Directors. A Bureaucracy Today report.
 
The role of Independent Directors on the Boards of public sector undertakings is highly significant in view of the Government’s interference in their functioning. Independent Directors act as a counter balance in the interest of a company. But ironically, official data reveals that almost all the PSUs, including the Navratnas and the Maharatnas which have excelled in their business despite being hamstrung by Government interference and influence in decision-making, are facing the critical shortage of Independent Directors who, if appointed, can help promote the efficient management and future of their companies. 
 
The absence of Independent Directors on the PSU Boards is, therefore, a gross violation of the provisions of the Companies Act. The legislation demands that the number of Independent Directors should be equal to the combined strength of the salaried whole-time Directors and Government nominees. The market regulator, SEBI, does not recognise Government Nominee Directors on the PSU Boards as Independent Directors.

PSUs' WAIT FOR INDEPENDENT DIRECTORS
The nation's biggest oil firm, Indian Oil Corporation (IOC), has four out of the seven positions of Independent Directors lying vacant. The three Independent Directors who are currently in this PSU are Subroto Bagchi, Sanjay Kapoor and Parindu Bhagat.
 
The company has seven functional Directors, including the Chairman and two Government Nominee Directors. As per SEBI guidelines, the PSU needs an equal number of Independent Directors. 
 
Interestingly, the State-run oil marketer on August 27, 2014, had removed four Independent Directors appointed by the previous UPA Government on its Board. Those removed were K Jairaj, former Additional Chief Secretary of Karnataka; former ICSI President Nesar Ahmad, former NHRC Director General Sunil Krishna and Sayan Chatterjee, former Secretary in the Central Government. 
 
All the four Directors were appointed in March 2014 for a term of three years. Their term was to be ratified by company shareholders but the IOC did not move a resolution to this effect at its Annual General Meeting.
 
Similarly, as per official data, the State-owned gas utility, GAIL India Ltd, a PSU under the administrative control of the Petroleum Ministry, has only three Independent Directors as of November 18, 2016 as against the required strength of six. They are SK Srivastava, Anupam Kulshreshtha and Sanjay Tandon.

In its annual report for 2015-16, the GAIL India states, “The Government of India is seized of the matter pertaining to appointment of the requisite number of Independent Directors, including woman director, on the board of the company. The Government of India is in process of selecting requisite number of Independent Directors, including woman director.”
 
The Coal India Limited is operating with five Independent Directors, two short of the requisite strength. The coal behemoth which has been operating without Independent Directors for years had appointed Loretta Mary Vas, Vinod Jain, Dr DC Panigrahi, Dr Khanindra Pathak and Dr Satish Balaram Agnihotri to the posts in 2015.
 
Interestingly, the CIL subsidiaries put together have only 16 Independent Directors, as against 44 whole-time Directors and Government Nominees. The Eastern Coalfields has only one Independent Director and four other top coal PSUs have only two Independent Directors each.
 
The Board of the Hindustan Petroleum Corporation Ltd (HPCL) has only one Independent Director as against five whole-time and two Government Directors.
 
The State-owned Oil and Natural Gas Corporation (ONGC) has only three Independent Directors as against the sanctioned strength of nine Directors. These Directors are Ajai Malhotra, KM Padmanabhan and Shireesh B Kedare.
 
The oil marketing major, Bharat Petroleum Corporation Limited (BPCL), has three Independent Directors as against the required strength of seven Directors.
 
SHIPPING CORPORATION'S LAXITY
Many CPSEs do not have enough Independent Directors in the Audit and Nomination, Remuneration and Corporate Social Responsibility (CSR) committees, an action which is against SEBI guidelines. 

A case in this point is the Shipping Corporation of India. The SCI could not constitute these three crucial committees for the entire financial year 2015-16 due to lack of Independent Directors.  
 
The SCI’s annual report for 2015-16 states, “The Audit Committee had become non-functional. As a result, no audit committee meetings were held in financial year 2015-2016. Similarly, CSR and Nomination and Remuneration committees were also not constituted and no meetings were conducted in the whole of last financial year.” 
 
According to Prime Database, an information services provider, at least 215 Independent Directors either resigned or were not re-appointed since 2013-14.
 
Soon after assuming office, the NDA Government removed most of the Independent Directors of PSUs, including the State-run oil firms, appointed by the previous UPA regime by not moving the mandatory resolutions to the shareholders for the confirmation of their appointment. As per specified guidelines, the appointments of Directors – both full-time and Independent – to a company board have to be ratified by the company shareholders either at the annual general meeting or at an extraordinary general meeting (EGM) or through postal ballot.
 
Sources tell Bureaucracy Today that with the Modi Government yet to fill up the vacant slots, the working of the PSUs is getting hampered. 
 
The process of appointing an Independent Director on the board of a PSU is quite lengthy. The Department of Personnel and Training (DoPT) and the Home Ministry are involved in the process along with the administrative Ministry that governs the concerned State-run firm. The administrative Ministry recommends the names of at least three persons for each post to the DoPT. A Search Committee headed by the DoPT Secretary finally selects the candidate. The panel also comprises the Department of Public Enterprises Secretary, the Secretary of the Ministry which governs the CPSE concerned and two non-official members.

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