Stakeholder Empowerment Services (SES), a Mumbai based Corporate Governance research and advisory firm or a proxy advisory firm, has raised major governing issues and recommended Finolex Cables Ltd. (FCL) shareholders to vote against many important proposed resolutions at the company’s AGM on September 29, 2021.
Finolex is seeking approval from shareholders for the appointment of Padmanabh R. Barpande, Avinash S. Khare, and Firoza F. Kapadia for the role of directors who will retire by rotation as well as independent directors, according to SES, adding that the resolutions are contradictory to one another as the companies law states that independent directors do not have to retire by rotation.
These resolutions, according to SES, makes the independence of the directors whose nominations are sought doubtful.
If Barpande, Khare, and Kapadia are approved as directors, it will mean that they will continue to serve as directors even after their term as independent directors ends, according to SES.
“If the independent director is already aware that he/she would continue as a director even after the completion of tenure as an independent director, this would impact independence right now itself since the term is not specific,” the SES report said.
Finolex has proposed a resolution to nominate Devender Kumar Vasal, Jayaram Rajasekara Reddy, and Kavita Bhaskar Upadhyay as directors eligible to retire by rotation as well as independent directors in two distinct motions at the 2020 Annual General Meeting, according to the proxy advice company. The shareholders did not approve the resolutions.
The resolutions might have been proposed owing to the conflict between the promoters over control of the flagship company of $3 billion Finolex Group.
“It was due to two major corporate shareholders, namely: Orbit Electricals Pvt. Ltd holding 30.7% and Finolex Industries Ltd holding 14.5%, aggregating to 45.2% of the paid-up share capital of the company who voted against each of the resolutions for their respective reappointments. Both the aforesaid major corporate shareholders are under the management control of Mr Prakash Chhabria, one of the promoters of the company against whom Mr D.K. Chhabria, another promoter who is in management control of the company, is in dispute, which explains the reasons for such negative votes being cast by those companies,” Finolex Cables said in its 2021 annual report.
“A contention has been raised that the votes cast by the aforesaid two companies were contrary to the mandate under their constitutional documents/contractual commitments, and these are the subject matter of challenge before the court(s) and the matter is thus sub judice,” the annual report added.
Concerns have also been expressed by proxy advisory companies over Shishir Lall’s shift of position from independent director to non-executive non-independent director.
“The company has not disclosed the reason or process through which the status of Mr Shishir Lall has changed from ID to non-independent director (NID) liable to retire by rotation. This kind of conversion/transfer from ID to NID raised serious questions over the independent directors on the board,” SES said.
The composition of Finolex Cables’ board of directors, according to InGovern’s research, may have breached the Companies Act, 2013, and the Securities and Exchange Board of India’s listing requirements during the last year or perhaps three years.