The role of an independent director is an unenviable one, argues Nitin Mittal
To be, or not to be, that is the dilemma a number of independent directors are grappling with these days. In the Punjab National Bank scam involving Nirav Modi, three independent directors of one of the accused companies saw their assets, including bank accounts, frozen after a National Company Law Tribunal (NCLT) order.
They were also restrained from transferring or disposing funds and properties without NCLT approvals, until they received a temporary reprieve from the Supreme Court six months later. The future is still uncertain for the directors in question as investigations are ongoing. In another case, in the insolvency petition involving Jaiprakash Associates, the Supreme Court issued an order restraining the company’s independent directors from transferring personal assets. This was unprecedented and sent the independent directors scampering for legal advice on their exposure, even though they were not involved in operational decision-making of the company.
Last year, several independent directors, in prominent companies, such as Jet Airways, Yes Bank and DHFL, resigned before their terms ended. More recently, some independent directors were prosecuted for dishonouring cheques even though they were not involved in day-to-day management. All directors are made party to such cases to put pressure on the companies and their boards. Independent directors have always considered their obligations and responsibilities to be different from that of executive or non-executive directors and do not expect to be prosecuted for defaults by the company and its officers in ordinary course of business.
Their defence has been that they are only advising on strategy and are not privy to the day-to-day decisions of the company and, therefore, cannot be held accountable for defaults by the company incurred due to errors, omissions, negligence by other executive directors or officers.