January 6, 2009 1:07:02 am
The move by the Andhra Pradesh police to issue a look-out notice for top investment banker and chairman of JM Financial Nimesh Kampani for alleged defrauding of depositors by Hyderabad-based Nagarjuna Finance Ltd (NFL) has come under intense criticism of experts and the corporate sector. The move which they termed harassment and unfair would lead to a shortage of independent directors in the corporate sector which is already starved of quality directors. NFL,which had collected around Rs 100 crore from depositors,defaulted on repayment in the late 1990s.
JM Financial is one of the top investment banks in the country and Kampani is credited with several innovative fund-raising plans of top corporate houses like the Tatas and the Ambanis. He was also involved in several merger and takeover deals and IPOs by Indian corporates. Im personally very upset. Its a disturbing development. He was not directly involved in this companys affairs. Hes a professional… if independent directors are targeted in this manner,the country will witness a shortage of such directors, said Hemendra Kothari,chairman of DSP Merrill Lynch,who has known Kampani for the last four decades.
As per the current Sebi rules,50 per cent of the board of a company should be independent directors. Many companies are struggling to get good quality independent directors. Its unfortunate that Kampani has been targeted though he resigned from the company almost nine years ago, said MR Mayya,former executive director of the Bombay Stock Exchange.
The concept and role of independent directors in 80s and the 90s was not as it is today. In earlier times,a board used to have outside directors who would provide their expertise on matters concerning the company. Unlike today when an independent director is expected to be concerned with protection of interests of minority shareholders,an outside director in 80s and 90s was appointed to share his/her opinion on certain issues, said Prithvi Haldea,MD,Prime Database.
Even then when the role of members of a companys board in a malpractice is scrutinised,it should be restricted to the particular involvement of an individual and blame should not be put on all and sundry. Only if there is evidence of direct complicity of a director in a case should he be prosecuted, Haldea said. In Kampanis case,theres no evidence of direct complicity and JM Financial has said Kampani was neither responsible for the management of the affairs of NFL nor did he,at any time,attend to the management for its day-to-day activities. Kampani has served as a member of several important committees constituted by the BSE,NSE,Sebi,Ficci and the ICAI. He was also a member of the finance ministrys high-powered committee on making Mumbai an international financial centre.
The Kampani issue has also raised the question whether independent directors should be answerable for the frauds committed by the promoters and managements. If the rules need to be changed in the Companies Act,then the government should look into that aspect, Kothari said.
Haldea said,If an individual is unnecessary haggled over a malpractice in which his involvement is not even proved,it would set precedence for professionals against joining boards of companies. Only if there is evidence that an independent director deliberately overlooked a malpractice or siphoned off funds,should he be asked questions,he said.
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