Though independent directors are equally liable for both financial and criminal liabilities, the Companies Act gives a lesser immunity to IDs as against the EDs, says a report
Mumbai: The law should clearly demarcate the line between independent directors (IDs) and executive directors (EDs) by defining their functional responsibilities along with liabilities, reports PTI quoting a research note.
Ernst & Young (E&Y) Fraud Investigation and Dispute Services (FIDS) in a report, 'Corporate governance: Changing regulatory scenario and the role of the independent directors', said "The need of the hour is for the legislature to draw a line between IDs and EDs by defining their functional responsibilities, and demarcating their liabilities."
According to the report, the Companies Act, 1956 does not make distinction between the accountability of independent directors and executive directors.
Though independent directors are equally liable for both financial and criminal liabilities, the Companies Act gives a lesser immunity to IDs as against the EDs, it said.
Commenting on the report, partner & national director, FIDS of Ernst & Young India, Arpinder Singh said, "The role of IDs in fraud prevention and detection has come under the direct scanner of regulators, members and other stakeholders due to the recent exposure of high-profile instances of fraud in India. In the last few months, we can clearly see IDs taking direct interest in reviewing the fraud risk management framework put in place by their organisations for mitigating the risk of fraud."
Singh also pointed out that with the rise in number of multinational companies, the trend is positive as they are devising fraud management mechanism along with proactive role of IDs.
The E&Y report also noted that the proposed Companies Bill, 2011, which has already received cabinet nod and is awaiting approval from the Parliament, would be able to deter corporate crime and related offences by detailing the liabilities of the board and senior management.
The Vedanta group is known to have violated laws of the land in pursuing its industrial and mining projects across India. While it does not give political donations in the UK and European Union, the Anil Agarwal-led group admitted that it has paid $8.3 million to Indian political parties since 2003
Anil Agarwal-promoted Vedanta Group, which does not give political donations either in the UK or European the Union without a board approval has, however, admitted of paying about $8.3 million to political parties in India since 2003-04. Under Section 3(1)(e) of the Foreign Contributions (Regulation) Act, 1976, “no foreign contribution shall be accepted by any political party or office bearer thereof”, and both Vedanta and those political parties that received donations may be prosecuted. While Vedanta has not provided any name, it may have given donations to all political parties that were in power since 2003.
According to a report in the Financial Express, Vedanta Resources has paid $5.69 million or about Rs28 crore just in the past three years. Quoting the company’s annual report, the newspaper said, Vedanta has paid $8.29 million to political parties since 2003-04, when it got listed on the London Stock Exchange. However, it did not make a single donation during 2006-09”.
“Reportedly, UK-based shareholder advisory group Pirc has advised Vedanta shareholders to withhold votes on its report and accounts at the annual general meeting on 28th August and protest against the practice,” the newspaper said.
Here is what Vedanta says about political donations in its annual report
“The irony of the disclosure should not be lost sight of. The company is not permitted to make such a dubious contribution in the UK and other European countries. However, the company has condescended to contribute to our own political parties for “supporting the political processes... and encourage and strengthen the democratic process!” said EAS Sarma, former Secretary to the Government of India (GoI). Mr Sarma has sent the extracts from Vedanta’s annual report to the Election Commission (EC).
Calling Vedanta’s action as “violation of the laws of the land”, Mr Sarma, requested the EC to consider imposing an outright ban on all such contributions, as is the case with the democracies of Europe.
“Vedanta is known to have violated the laws of the land in pursuing its industrial and mining projects in several states and several of its mining operations have involved serious infringements of the human rights of the local communities. The ruling parties at the Centre and in the states have often abetted Vedanta in committing such illegalities. If that is what the company has implied by saying that the donations are intended to “strengthen the democratic process”, it is certainly a matter that should worry every right thinking citizen in the country,” Mr Sarma said in a letter to VS Sampath, Chief Election Commissioner and HS Brahma and NA Zaidi, both ECs.
There is a public perception that several political parties in the country receive funds in significant amounts from private companies in return for illegal favours granted to them when they are in power. The investigations that are presently in progress on spectrum sale, allotment of captive coal blocks, irregularities in iron ore mining, may have a direct bearing on this.
According to the former secretary, donations to political parties should not amount to blatant corruption and bribery and an affront to the rule of law. Here are the three concerns raised by Mr Sarma in his letter...
1. The Vedanta group is a London-based foreign multinational company and its contributions attract the prohibition envisaged under Sections 3 & 4 of Foreign Contributions (Regulation) Act, 1976 (as amended from time to time). Under Section 3(1)(e), in particular, “no foreign contribution shall be accepted by any political party or office bearer thereof”. This stipulation applies to Vedanta and all other companies controlled by it. As such, both Vedanta and those political parties that have received the donations are liable to prosecution under this Act. ECI should quickly consult the ministry of home affairs on the legal aspects involved.
2. Sections 29B & 29C of the Representation of the People’s Act, 1951 requires that the concerned political parties should make a declaration to ECI on the donations received thus from private companies. ECI should ascertain whether the concerned parties have complied with this.
3. Section 293 A(4) of the Companies Act requires the companies making the donations to political parties to disclose the same with the details explicitly in their respective Profit & Loss Account statements. The ministry of corporate affairs should cause a verification of this and take necessary action in case there is any infringement.
“The concern cited at item (1) above assumes particular relevance in the context of the recent action taken by the ministry of home affairs to cancel the sanctions issued to several NGOs under FCRA on the questionable ground that that they have expressed dissent against dubious projects such as Kudankulam Nuclear Power Project in Tamil Nadu. It will be the height of irony if the government allows the foreign private companies to openly bribe the political parties on one side to facilitate the violation of the laws and the people’s human rights, and on the other side, the same government suppresses the voice of the people against the very same companies’ high-handedness!” Mr Sarma said.
Vedanta’s reputation received a severe blow when it ventured to mine aluminium ore in the Niyamgiri Hills of Odisha, and trampled on the rights of the Dongria Kondh tribe to whom the site is sacred. Several shareholders have sold their shares due to human rights concerns. This includes the Church of England, Joseph Rowntree Charitable Trust, the Marlborough Ethical Fund and Millfield House Foundation. The BP Pension Fund and PGGM (a pension fund from the Netherlands) have also divested their shares. The British and Norwegian governments have both condemned the project, and Martin Currie Investments has also disinvested following pressure from Survival.
For FY12, Vedanta reported a 12.9% growth in its core profits to $4.03 billion buoyed by earnings from recently acquired Cairn India and higher output in zinc, silver, and power. Core profits at $713 million from Cairn, which was acquired in December last year, accounted for most of the increase in group earnings before income, tax, depreciation and amortisation (EBITDA) of Vedanta. However, net profit attributable to the shareholders of the company dropped by over 92% to $59.8 million in FY12 from $770.8 million in the previous fiscal.
By December, Vedanta is expecting to complete group restructuring exercise, which seeks to bring all businesses, except Konkola Copper Mines in Zambia, under the fold of a new entity, Sesa Sterlite, it said.
The new entity will be created through merger of Sterlite Industries and some other subsidiaries including Vedanta Aluminium, Madras Aluminium into Sesa Goa.
Justice Ganguly speaks at the Conference of Lawyers for Social Justice and calls upon lawyers to contribute to the new freedom struggle waged by social movements
Justice (Retd) Ashok Kumar Ganguly, presently chairperson of the state human rights commission, West Bengal called upon the community of budding lawyers to join the “second freedom struggle”, by engaging with the mainstream of social movements in order to ensure that all the constitutional doctrines and judicial principles are protected and carried forward. Justice Ganguly was addressing a packed hall of hundreds of lawyers, activists, law students and farmers from over 14 states and various districts of Madhya Pradesh at the “Conference of Lawyers for Social Justice”, co-organized by the Indore Institute of Law and the National Alliance of People’s Movements on 25th and 26th August. More than 300 lawyers, activists and law students converged at Indore.
According to justice (Retd) Ganguly, the Constitution of India is essentially a human rights document. The Constitution alone can liberate this country, feed the hungry millions and clothe the masses.
Justice (Retd) Ganguly was joined by justice (Retd) PD Mulye, former judge, Indore High Court, who lamented that notwithstanding the ‘glorious’ legal regime in the country and bountiful judicial pronouncements, the implementation of these is very tardy, be it the case of the Bhopal gas victims or the Narmada project oustees.
Satish Chandra Bagadiya, senior advocate, Madhya Pradesh High Court, Indore welcomed the idea of the conference and saw this as an opportunity for two different streams i.e. judges, lawyers, social activists and the emerging group of lawyers to interact with each other. He stated that at a time when the legal profession itself is becoming ‘corporatized’ and ‘commercialized’, and most young lawyers are assessed by the firms they represent, fat packages they receive and fees they charge, this conference provides a real scope for reflection, both by the social movements and also by the legal fraternity.
Senior lawyers and activists also spoke to the participants on a range of issues, through two plenary sessions.