Misfeasance is performing a lawful act improperly. Malfeasance is performing an illegal act. Nonfeasance is failing to act when needed.
How a real-life situation is categorised under these may be a matter of nuance, including the subjectivity that exists in placing an act in a specific slot.
The crux of governance is the awareness of what is right and wrong, rather than only what is legal and illegal. There is more than a subtle difference between what is legal and what is right.
Not acting when required may generally not fall foul of any law, but would often be wrong or improper. (The ongoing debate about constitutional functionaries is not part of this discussion!) Thus, the shades are many, and the subtleties cannot be enumerated easily.
Now, to narrate a string of stories, surprisingly, all happened on a single day—15 April 2025!
The SEBI order documents instances where the promoters, the Jaggi brothers, have engaged in siphoning off money from a listed entity, Gensol Engineering Ltd.
SEBI should be credited for acting with rare alacrity in this instance, collating the money trail of how the company’s funds were sucked out by using intermediate entities and related parties.
Though the malfeasance of the brothers is palpable, only the legal process can confirm this, which may be after many years of battle in the courts, subject to the appeals and the counter appeals.
A substantial part of the money diverted has come out of funds borrowed from major banks and financial institutions. The company that had total borrowings of Rs78 crore as of 31 March 2022, in a matter of 24 months, raised it to Rs1,178 crore. Besides the borrowings, there were significant other liabilities.
The company categorises its operating segments as solar engineering-procurement-construction (EPC) contracts, leasing of automobiles (electric vehicles- EVs) and EV manufacturing.
There are fairly observable red flags in the accounts of the two recent years, FY22-23 and FY23-24. The profit margin of the solar EPC business is considerably higher for this industry.
In the said two years, the total assets ballooned from Rs218 crore to Rs2,027 crore, the top-line, Rs155 crore to Rs944 crore and the profit before tax (PBT), from Rs14 crore to Rs108 crore.
The net cash generated from the operations in FY23-24 is a negative of Rs100 crore against a PBT of Rs108 crore! The company manages to stay a zero-tax entity, though it recognises a deferred tax liability.
The extent of the related-party transactions, both financial and operational, is sufficient to keep any risk averse investor or lender many miles away.
The lenders fall into two categories: banks and non-banking finance companies (NBFCS), like HDFC Bank, ICICI Bank, Axis Bank, Bandhan Bank, Sundaram Finance and Tata Motor Finance. These have done, primarily, asset financing, and extended some working capital facility.
The other category includes the term lending institutions like Indian Renewable Energy Development Agency Ltd (IREDA) and Power Finance Corporation Ltd (PFC), who have lent the major portion. The SEBI order captures the following observation with regard to the manufacturing operations.
In both FY22-23 and FY23-24, the accounts show manufacturing as a segment. Did the auditor visit the plant for a physical verification of the assets?
How much diligence did the lenders do? Especially, IREDA and PFC, which are specialised institutions lending to renewable power players!
It appears that neither the lenders who gave away hundreds of crores, nor the auditor who swore true and fair, visited the plant to check if something was actually coming up!
Is it misfeasance, malfeasance or nonfeasance?
A good team of lawyers may help the brothers live in good comfort for most of the time, notwithstanding a brief possible interruption at Arthur Road or Tihar!
Overall, it is not a bad deal to siphon off money and plunder public funds in India as there is very little history of any court meaningfully punishing a high-profile offender who has cheated the public or the banks.
On the same day, 15th April, IndusInd Bank confirmed an accounting hole of Rs1,979 crore due to ‘identified discrepancies’ relating to the derivative deals!
Why is it only a discrepancy if it is IndusInd Bank, but an alleged criminal siphoning of funds for the endearing Jaggi brothers?
Does it make so much difference that no one in IndusInd’s top echelon actually put their hand in the till? Does the auditor need to report this as fraud under the law?
If the Jaggi brothers had not siphoned off the money in a hurry, but had thoughtfully purchased the Camellias villa, and even a Boeing BBJ Max 7, in the company’s account, and also claimed due depreciation, there may have been no whisper of a scandal or a SEBI investigation!
The Gensol balance sheet would have looked more formidable, and NBFCs may have queued up to fund the Boeing purchase!
The Jaggis would have featured in many glamour magazines, like once a liquor baron did, for leading a lavish lifestyle, but unlikely to be accused of malfeasance. Not even, misfeasance!
Mr Mukhopadhyay is part of the top tier of Tata Sons (P) Ltd, drawing a remuneration (in FY23-24) of Rs10.37 crore. His remuneration is indicated merely to highlight the importance of the position he holds, which, anyway, as a company secretary, he would be the conscience-keeper of the board!
His family members own Divinion Advisory Services P Ltd, a company that does asset and fund management. The Mint story indicated that the company was once listed as part of the Tata group, which, subsequently, stood corrected.
But the story goes on to record the close proximity with the Tata group for a company owned by the members of the family of Mr Mukhopadhyay.
The Tata code of conduct deems it a violation if a person “
is in a position to derive an improper benefit, personally or for any family member or for any person in a close personal relationship, by making or influencing decisions relating to any transaction.”
The reason to bring in the conflict of interest is owing to the board composition of Divinion, with S Mahalingam, ex-chief finanancial officer (CFO) of Tata Consultancy, and TP Ostwal, the auditor and adviser to Tata Sons, as two external directors.
Its chief executive officer (CEO) Hormuz Bulsara, is the former head of Tata Asset Management Company, and the CFO, a former director of Tata Pension Management company, Adil Burjor Busha.
No instance of any questionable transaction has been brought out in the Mint report. The readers’ judgement is invoked to ponder if, had Divinion been started by a complete stranger, would access to such high-profile Tata resources have been possible?
Somehow, 15th April is turning from just red to deep crimson!
The state of Andhra Pradesh, under the new chief minister who created Cyberabad at the turn of the millennium, is itching to repeat the earlier success in getting IT majors to set up there. The state is willing to subsidise businesses, though it is reeking in debt and hungry for extra Central funds.
An investment by TCS, with its size (latest market-cap of Rs12 trillion), would be the best endorsement to showcase the state as an attractive investment destination.
It is common for companies to evaluate their investment plan based on incentives and freebies that come as part of the industrial policy of different states in the country.
(Assuming TCS paid Re1. to meet the terms of the sale, where will Mr Naidu find the 1 paise to return the change? GPay is a preferred option!)
TCS’ investment would certainly provide employment to the youth in the state. At an average salary of anything north of Rs5 lakh, the lucky youngsters would fall within the top 5% of the country’s income-earners.
The shareholders, 99% of whom would be in the top 0.0001% of the nation’s wealthiest, would benefit too.
Should responsible corporate leaders advocate to the governments to fund infrastructure development and raise the levels of education for the poorer section that would benefit a larger group of citizens, and ultimately business that engage with the community, than short-term adrenaline-raising incentives?
TCS may have the best credentials to say this!
Using the usual metrics of corporate governance, that is, a check-the-box exercise, among the four stories, the Jaggi brothers would represent the true ‘animal spirits’ of the business community.
IndusInd, marginally less, but not how it is being viewed, as a pure error correction. In the other two, there is nothing outwardly amiss.
However, if the scale of measurement were changed to ‘ethics’, then there would be a problem in all the cases.
Isn’t the heading of this article quite perverse if not outright stupid? Isn’t the CEO a part of most of the corporate excesses? How can it be suggested, even as a joke, that the board should be subordinate to the CEO?
The question is fair and needs to be answered in all seriousness. There is no scope for levity here!
The serious crisis in the corporate sector is the lack of ethics and morality. Even the companies that pass off for good governance, while not indulging in a fraud like the Jaggi brothers, or batting for short-term benefits like an IndusInd, have, time and again, come short on some issue or the other.
The key ingredient missing is the ETHICS. This term has less plasticity because the touchstone is not interpreting the law or the regulations, where there is always scope for debate.
Ethics is black or white. It is a matter of feel and intuition, the first impression. If something sounds uncomfortable at first blush, it is bound to suffer from lack of ethics. Once the rationalisation process gets underway, then the touchstone is changed to law, precedent, what an enforcing agency will think, etc.
In being truly ethical, the present board structure has not delivered, whether promoter-dominated, or professionally overseen.
It is important to subordinate the corporate board to the scrutiny of a chief ethics officer who intervenes where the board’s decision is questionable on ethical consideration. Who this person is, and how she can be appointed, is for the more knowledgeable readers to come up with.
Auditors (statutory, secretarial, internal, cost, and whatnot) could have played that role but have, unfortunately, fared worse than the board itself.
The picture of an auditor roaming with an assault rifle in the corridors of a company under audit, pulling out skeletons hidden, is perhaps to be witnessed only when The Accountant 2 hits the screen on 25th April, but not anytime soon in real life!
(Ranganathan V is a CA and CS. He has over 44 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
