Delhi High Court Judgement Clears Path for Politically-connected Board Appointees
The Delhi High Court (DHC), recently, upheld the appointment of Sambit Patra as an independent director of the Oil & Natural Gas Corporation (ONGC), a public sector energy enterprise. Mr Patra, a surgeon by professional education and training, is a BJP spokesperson and is a regular on television and other media defending the government and the ruling party at the Centre. His appointment was effected on 29th September and was challenged in a public interest litigation (PIL) writ petition by the organisation known as Energy Watchdog.
Independent directors, under the law, act as conscience-keepers of the company’s board and are important actors in holding high standards of corporate governance in the company. When a ruling party appoints a person who has been its media face as an independent director of a public sector company, with sitting fees and other perks that are a part of such an appointment, it is inescapably opening itself up to charges of nepotism.
The legal challenge to Mr Patra’s appointment was laid under several grounds—chief among those were: a) that he lacked the experience and expertise necessary in the domain relevant to the company, in this case energy; b) that his close relationship with the ruling party and, by implication, the government which is a promoter in ONGC, disqualifies him from being an independent director; and c) that his appointment was effectively a distribution of State largesse to a person apparently close the ruling powers and, therefore, unreasonable, legally speaking.
The DHC upheld Mr Patra’s appointment on each of the grounds, holding that there is nothing wrong with the search committee having taken a view that he was a person of eminence in the field of management—given that he has been at the helm of a little-known NGO called ‘Swaraj,’ which supposedly works for the welfare of the poor and downtrodden in Delhi; and that his experience as a doctor and a surgeon since 2002 is not wholly irrelevant to the domain of energy and oil as is required under the Act (independent directors are expected to have relevant domain expertise under the Companies Act, 2013, and rules of the Securities and Exchange Board of India— SEBI). In the judgement’s words, “ONGC would also be concerned with the health of not only the large numbers of its employees but also would require to address health concerns of the public at large on account of the activities (including explorations for oil, etc) which are undertaken by it, i.e., the large social and environmental impact of its core businesses which only a scientifically trained person could best evaluate and understand.”
The DHC also went on to hold that Mr Patra’s connection with the ruling party had nothing to do with his connection with the government and that there is nothing that constrains him from effectively performing a checks-and-balances role against the decisions and actions of the promoter of ONGC, the Central government.
The DHCwent on to hold that a mere sitting fee and perks, even if it may amount to as much as Rs23lakh per annum, as was shown by the petitioners, cannot be said to be ‘State largess’, without recording any special reasons why it cannot be considered so.
It is a settled law that appointments can be questioned, legally speaking, only on eligibility and not suitability. However, the DHC, with great respect, has erred in construing the phrases ‘person of eminence in management’, and ‘relevant domain’ as merely the absence of their clear opposite. That approach is inappropriate in the case at hand because public monies are involved, irrespective of the quantum. The DHC missed a great opportunity to advance the interests of public accountability and has ended up giving cover for a brazenly nepotistic act, even if not an unprecedented one.