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Title : THE INDEPENDENT DIRECTOR: HAS
IT BEEN INDIANISED ENOUGH?
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Number of documents delivered: 1

2016 Thomson Reuters South Asia Private Limited

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NUJS Kolkata - The NUJS Law Review

2013

Article
THE INDEPENDENT DIRECTOR: HAS IT BEEN
INDIANISED ENOUGH?
Madhuryya Arindam 1

Subject: Corporate
Keywords: Board Of Directors; Cumulative Voting; Corporate;
Companies; Meeting; Stock; Consumer; Services; Companies Act,
1956; Mandate; Audit; Professional; Promoters; Shareholders; Election;
Vote; Composition; Listing; Minority Shareholders; Public Company;
Investors; Listing Agreement; Institutional; Proportional Representation;
Companies Act, 2006; Securities Exchange Act; Companies Act,
2013; Under Companies Act, 1956; Sarbanes-Oxley Act, 2002; UK
Companies Act, 2006; Companies Act 2006; Oxley Act, 2002;
Exchange Act; Oxley Act; '; Companies (Appointment of the Small
Shareholders' Director) Rules, 2001; Corporate Governance Rules, 4;
Proposed Rules
Legislation: Companies Act, 2013 s. 2(60)(vi), s. 151, s. 163, s.
149(6)(d), s. 149(6)(e), s. 149(6)(a)., s. 177(2), s. 149
Companies (Appointment of the Small Shareholders' Director) Rules,
2001
Companies Act, 1956 s. 5, s. 217(2AA, s. 255, s. 265, s. 263, s. 263(1),
s. 284(1), s. 31, s. 252, s. 284, s. 3)
Companies Act 2006
Oxley Act, 2002
Exchange Act
Oxley Act
'
UK Companies Act, 2006
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Companies Act, 2006

Under Companies Act, 1956
Sarbanes-Oxley Act, 2002
Securities Exchange Act
Corporate Governance Rules, 4
Proposed Rules

*232

I. INTRODUCTION
"Citizens never support a weak company and birds do not build nests on a
tree that does not bear fruits." - Salman Khurshid, 2 quoting Kautilya's
Arthashastra
A general lack of accountability and the consequent failure of institutional
structures is perhaps the greatest ill affecting Indian public life. This is a
trend with few exceptions, and India Inc. is certainly not one of them.
Over the last few decades, a fair bit of work has been done in both policy
and *232 regulatory circles to deal with this problem of trust deficit
afflicting Indian corporations. Unsurprisingly, as is usual for Indian
policymakers when faced with a tricky situation, they have looked at the
West (particularly the UK and the US) for inspiration. At least one of the
solutions that has been recommended and subsequently implemented
appears to have been transplanted almost wholesale from existing Anglo-
Saxon jurisprudence. 3 The independent director is technically part of the
board of directors but is divorced from the internal workings of the
management, and is expected to monitor the board with a sense of
detachment that the executive directors would not have.
From the Desirable Corporate Governance Code in 1998 4 to Chapter 11 of
the Companies Act, 2013, there has been a consistent and nearly
uncritical endorsement of the independent director - a concept conceived
in the US in the mid-20th Century, and popularised further by UK in the
1990s. 5 In this paper, I will dwell upon the office of the independent
director in the Indian regulatory framework, and assess its workability
particularly in view of the wide variances in the corporate cultures
between India on the one hand, and the Anglo-Saxon core of the US and
the UK on the other. Unlike American and British companies which are
characterised by a widely dispersed shareholding pattern, most large
Indian companies have concentrated shareholding structures with a
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powerful controlling shareholder. 6 This, in my opinion is a major

differentiating factor, and can almost render the concept a non-starter. In
light of that, the efficacy or otherwise of the institution will be examined
at two levels to assess whether the institution has the core fundamentals
required to address the corporate governance issues in the Indian context
- (1) Can a company director be 'truly independent'?; and (2) Can an
independent director be a solution to the majority-minority divide in
Indian share registers? Based on the *233 findings to these questions, I
will scout for solutions to this problem and in that pursuit examine
institutions in other comparable jurisdictions. 7
This paper will track the development of the idea of independent directors
in general, and in India in particular. Chapter II will explore the
motivations behind the origin and development of the institution in the US
and the UK, and explore how it has been adapted for India. Chapter III
will examine the theory underlying the institution, and discuss how the
definition of 'independence' has evolved over time and what are the
functions that the independent directors are expected to perform. It will
also examine the Indian regulatory and legislative landscape including a
detailed analysis of Clause 49 of the Listing Agreement and the new
Chapter 11 of the Companies Act, 2013. Chapter IV will look into the
inherent problems in the institution including the processes related to the
nomination, election and removal of independent directors. It will also
examine whether psychological factors can affect the performance of the
directors and suggest solutions based on these findings. Chapter V will
evaluate the performance of the independent directors against the stated
objectives particularly in light of the legal and cultural peculiarities of the
Indian corporate scene. In that chapter, I will also explore potential
alternatives and suggest ways in which the institution can be made more
effective.

II. WHY INDEPENDENT DIRECTORS?

In wake of the mega scandals that have rocked the corporate world
lately, there has been much soul searching in policy circles around the
world, and a level of consensus has been reached that large companies
must be made subject to increased non-management supervision.
However, there has been less agreement on the way in which this
supervision should be carried out in practice. 8 Amongst the many
institutions that have been mooted, the idea of having an independent
director has come to emerge as the forerunner. Perhaps the prime
attraction of this institution is that, at least at a theoretical plane, it has
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the illusion of infallibility - having an independent director who sits in the

same room as the senior managers when corporate decisions are being
made, but is untouched by management dynamics, appears more likely
than any other *234 institution to ensure accountability and to weed out
board room corruption. 9 Prodded on by this theoretical cogency, many
countries around the world have reacted warmly to the concept. 10 It must
however be admitted that it is by no means the only model of outsider
supervision of the board that has been mooted or indeed practised. For
instance, Germany has a two-tiered board with the task of supervising the
management being vested with a separate supervisory board. 11 Similarly
in Japan, the idea of the outside director is often confused with the
independent director whilst in reality there is no formal requirement for
independence at all. 12 China follows a curious supervisory structure
characterised by the co-existence of both the German style supervisory
board and the Anglo-Saxon independent director. 13
As for India, it is the independent director that has been almost
unquestioningly accepted as the right model for outside supervision. 14
Given its common law based legal system and a historical affinity to
Anglo-Saxon style institutions, the choice is perhaps not surprising. The
concept which was first introduced in the 1998 CII Report was
enthusiastically endorsed by the Kumar Mangalam Birla Committee Report
which asserted that the independent directors have "a key role in the
entire mosaic of corporate governance" in India. 15 This faith in the person
of the independent director has been reflected in *235 various
committee reports and regulations and has eventually made its way into
the statutory domain in the form of Chapter 11 of the Companies Act,
2013. 16 The reception to the idea of the independent director has been
so enthusiastic and consistent that it has come to be seen as the centre-
piece of Indian corporate governance.
However, more recently and especially in light of the abysmal governance
records of some large Indian companies, academics have started
debunking the institution and are seemingly coming to the conclusion that
the concept of the independent director might have been so neatly
customised to the Anglo-American context that it may not work in other
corporate systems. 17 The concept was developed in the US where the
primary corporate governance concern is the agency problem existing
between on one hand, the shareholders who in theory own the company;
and on the other, the class of professional managers. The agency problem
arises because although the managers run the operations nominally for
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the benefit of the shareholders, they in fact often have separate agendas
of their own. 18 The share registers of most public companies in the UK
and the US are characterised by the presence of large institutional
investors who own sizeable holdings in the company, but not enough to
be able to control its day-to-day operations. As these investors
cumulatively hold a majority of the company's share capital amongst
themselves, the companies do not have a controlling shareholder. Also
as the institutional investors view the investee company shares primarily
as financial investments, there are fewer incentives for the shareholders
to take part in the management. Given this skewed power dynamics,
these companies are essentially run at the level of board meetings with
the general meetings serving merely as a rubber stamp on key issues. If
the board meetings are left to be driven by the management, the
shareholders will not have much of a say in the running of the company
at all. As can be expected, the managers of such companies come to
accumulate significant clout and authority, and often pursue their own
agendas which are not necessarily aligned with those of the investors. It
was in the backdrop of this agency problem that the idea of having non-
management directors germinated, with the expectation that these
directors who are not beholden to the management will check managerial
excesses and protect the interests of the shareholders. This idea has gone
through various phases of evolution with consequent changes in *236
terminology. 19 However at its heart, the independent director by
whatever name called, remains an institution designed to protect the
interests of a dispersed body of investors from the excesses of a self-
serving management. Whether or not this mission is being successfully
accomplished is another question, and this paper will address that issue in
some detail later.
In contrast to the American and British companies, the share- holding
patterns of Indian companies are fundamentally different. Indian
companies have traditionally been and still are, largely dominated by
family promoters or controlling shareholders. 20 In that regard, most
Indian companies share similarities with companies in Continental
Europe and also in other emerging markets. 21 Several of the large Indian
listed companies had their origins in modest family owned private
companies or even sole proprietorships. As their operations grew, these
enterprises felt the need to tap more capital and outside expertise; this
road eventually leading to their shares being offered to the general public
and institutional investors. 22 However the promoter families have mostly
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retained a substantial shareholding, and often rather zealously (and even

publicly) consider the listed company as an extension of the family
heirloom. 23 Given their large stakes, these controlling shareholders can
easily control the board and the management; indeed several Indian
listed companies *237 have had a history of only having family
representatives in senior managerial positions. 24 Apart from family
controlled companies, several Indian listed companies have the state
as the major shareholder which poses a set of problems that English and
American companies do not often have to deal with. 25 Hence, it is
evident that the prime corporate governance concern in India is not
manager versus shareholder agency problem, but the protection of the
minority share- holders from the excesses of the majority. 26 In light of
this, it is worth asking the question as to whether the institution of the
independent director can serve its intended purpose in the Indian context
at all, given the many local variables the original model would have never
needed to contend with. Although there are some Indian companies
which have diffused shareholding patterns, most large companies have
a controlling shareholder. Any corporate governance regime would need
to build in the flexibility to accommodate such variations. However for the
purpose of this paper, I will work on the presumption that most Indian
companies have a large controlling shareholder, although I will bear in
mind the need for flexibility when suggesting remedies.

III. CONCEPTUALISING INDEPENDENT DIRECTORS

Although the concept of independent director has entered popular
business lexicon relatively recently, early variants of this concept have
been part of corporate jurisprudence for at least sixty years in one form
or another. 27 The genesis of the concept lay in the understanding that the
agency problems arising in diffused corporate systems can be best
resolved by separating the function of ratification and monitoring of
decisions by the board, from the *238 initiation and implementation of
these decisions. 28 Given this general presumption, one of the major
corporate governance problems that academics have had to think about is
the lack of clarity on the real ambit of the board's functions and the
principle of its separation from the management. 29
Till the middle of the 20th century, corporate boards around the world
typically consisted of the firm's senior management, some non-executive
directors who were usually well connected to the management and some
directors who were deemed formally independent even though they were
mostly selected by the members of the senior management through
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personal connections. 30 However specially as the monitoring function of

the board came to assume more importance, there was increasing
consensus that directors who were also responsible for the management
of the company would be unsuited for the monitoring role. 31 Professors
Leech and Mundheim in a paper written in 1973, were amongst the first
to suggest that the board should be primarily composed of independent
directors whose role would be to monitor the management in the interests
of the shareholders. However, this model was not universally ac- cepted
then, and was subject to severe criticism by academics who viewed it as
an incursion on the fundamental principle of free enterprise. 32 However
over the course of the succeeding decades, the eligibility criteria for
independent directors have become more clearly defined and are nearly
always circumscribed by strict legal tests. 33 The idea of an independent
director as we understand it today has come into existence as part of the
US corporate governance reforms of the 1970s. 34 One major problem that
has lingered since the inception and has *239 never really been resolved
is the issue as to how one decides that a director is truly independent,
considering that 'independence' is essentially a qualitative attribute
incapable of precise legal definition. 35 Whilst several definitions and
parameters have been attempted, the ground reality remains the same.
Quite often, independent directors are nominated by powerful figures in
the company (usually members of the senior management or a large
shareholder), and consequently they remain loyal to their backers. This
misplaced loyalty, it has been alleged, has led them to fail in their all-
important monitoring role. 36
The definitional problem acquires even more significance in countries like
India where apart from formal independence from the management,
independence must also be judged on the basis of the nominee's
independence from the controlling shareholders. An ideal definition of
independence should also consider social factors although none of the
definitions currently in vogue make any reference to them.
A. FUNCTIONS OF INDEPENDENT DIRECTORS
Perhaps even more pressing than the definitional issue is the fact that
there seems to be a lack of clarity on the role that the independent
director is called upon to perform - is his mandate the protection of
minority rights or is he supposed to ensure that the management acts in
compliance with the relevant legal and ethical standards? 37 This problem
has been articulated with remarkable brevity by Jeffrey N. Gordon when
he extorts, " 'Independent directors' - that is the answer, but what is the
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question?" 38

In order to understand what is expected of independent directors, one

must first understand what is expected of directors generally. The
company legislations of most jurisdictions do not give a precise list of
functions that the directors are expected to play. However as a matter of
fact, it is generally understood that amongst the commonly accepted roles
of the board are to select, advise, monitor and discipline the
management, apart from establishing the *240 objectives, strategies
and policies of the company. 39 Thus, the duties are both strategic as well
as operational, and include sweeping monitoring and disciplining
functions. 40 The management of the company is expected to be
conducted at the superintendence, control and direction of the board of
directors although the directors are seldom expected to get involved in
the day-to-day management of the company. 41 In light of that, it may not
be an overstatement to say that the director is the living face of the
inanimate legal person that is the incorporated company. 42 Given this
important role that the board plays, it is a no-brainer that all the
stakeholders of the company justifiably have a keen interest in the
composition and functioning of the board. Whilst a modern corporation
has several classes of stakeholders including employees, creditors,
consumers, the environment, and even its competitors, I believe that a
company's stockholders have a more immediate and better defined
interest in the company's functioning. 43 The reasons are not hard to find;
unlike other constituencies, stockholders have sunk financial investments
and yet have little protection outside the company's own internal
processes unless in exceptional circumstances. 44
*241
However, even in the US and of course also in other jurisdictions, there is
still considerable disagreement about the efficacy of having independent
directors as a means to effectively monitor the executive. 45 Indeed, there
is also some doubt as to what exactly is the principal function of the
independent directors in the first place. One of the most frequently
articulated objectives *242 is that they can ensure the company's
compliance with external regulation. 46 However, the basis behind viewing
the independent directors as competent enforcers of external regulation is
clearly flawed. Independent directors are not any more likely than
auditors to be able to investigate problems within companies in order to
report legal non-compliances. Also if this were to be the reason behind
having independent directors on boards, the prescribed qualities for
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selection would have to be more detailed, and should require qualities

more than mere formal independence. Actively looking out for financial
irregularities and legal non-compliances would call for a skill-set akin to
that of auditors, which is not the requirement for appointment as
independent directors. Even if one were to assume that the independent
directors had the technical skills required to effectively monitor the senior
management, it is difficult to comprehend the motivation they would have
for carrying out that role. Monitoring the executive would put considerable
pressure on time, and as most independent directors are likely to be busy
executives or professionals elsewhere, it is unlikely that they will be able
to devote sufficient time and resources to their monitoring function. 47 In
any event, the corporate laws of many jurisdictions including India impose
positive obligations on directors to ensure that the company is compliant
with legal and accounting policies, and there are individual sanctions on
the directors for the company's failure to comply. 48 So, there are enough
disincentives for the directors to not breach the law or to procure such
breaches on part of the company. In any event, the independent
directors, who usually function based on a lower level of information than
the executive, would not be able to actively prevent such breaches.
Another assumption used to justify the presence of independent directors
is that they are more likely to effectively monitor related party
transactions which although not barred by law, may nonetheless erode
shareholder *243 value if conducted without following proper valuation
practices. 49 In order to be effective, the independent directors would be
required to challenge the commercial merits of the transaction from a
detached standpoint. An optimum result of this adversarial stand-off
would be to have a transaction as though it was conducted on arms-
length basis. 50 I believe that this is indeed a role where the independent
directors may fare better than the executives, although there is a valid
criticism that monitoring related party transactions would require
assessment of independence on a case-by-case basis (which is the case in
most jurisdictions) rather than in an abstract sense of the term. 51
However admittedly, having a majority of independent directors on the
board is likely to lead to more effective monitoring of related party
transactions as the executive directors may become wary of proposing
transactions that may potentially be blocked by the independent directors.
Presumably, the independent directors by virtue of their economic
detachment and social distance from the executive are less likely to share
the camaraderie that would put them under peer pressure to approve
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such transactions. However I concede that this argument assumes that

the independent directors are socially distant from the executive
directors, which is often not the case. 52 Morck even argues that
independent directors often feel a sense of obligation towards the
executive directors who have appointed them, and seek to repay them
with loyalty often at the expense of the duties they are expected to
perform. 53 Hence, the independent directors are likely to fare better in
their role as monitors of related party transactions only if there are
subjective social criteria prescribed for their appointment, which is not the
case. 54
Another expectation from the independent directors is that they can bring
onboard their specialist knowledge and business connections and thus
make the board more efficient. 55 However as Clarke argues, this advisory
role in itself is not something that justifies appointing independent
directors as the company can always hire external consultants when it
requires such *244 expertise. 56 Also, if that were to be the main
function of independent directors, it would not have required
regulatory/statutory prescriptions because the quality of business advice
a company receives is not an area that regulators are expected to be
concerned with. Further, the jurisprudence surrounding the composition
of modern boards indicates that there is a distinct change in the profile of
board composition, and boards are now expected to give primacy to their
monitoring role over their advising role. 57 I believe that the key role of
the independent directors should indeed be to monitor the board from
within although in light of the findings of Khanna and Mathew discussed
above, I understand that this proposal may not be particularly popular
with many Indian independent directors. 58
B. THE DEFINITIONAL ISSUE
For an institution that derives its title from an abstract attribute
-'independence', there seems to be surprising lack of clarity on the
importance of the attribute attached to the word. In this part, I will look
at the various ways of defining independence in some key jurisdictions.
The first part of this sub- chapter will concentrate on the US as it is the
place of origin of the institution.
1. The American understanding of independence
As the practice of having independent directors in corporate boards
originated in the US, the institution was always designed to be an assault
on the manager-shareholder agency problem discussed earlier. It was felt
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that the only (or at least the primary) role of the independent directors
was to protect the shareholders from the excesses of the management. 59
Hence since the early days, the 'independence' requirement has always
centred on independence from the management. Academics and
policymakers have historically argued for boards composed of a majority
of outside directors who are independent of the management; indeed the
term used in the early years was 'non-management' rather than
'independent'. 60
*245
To the same end, there has been a growing consensus amongst
policymakers in the US for requiring audit committees to be composed
exclusively of independent directors, a trend which was soon replicated
around the world. 61 Defining the ambit of independence for this purpose
has also led to further work on the definition. In 1983, the New York
Stock Exchange ("NYSE") Audit Committee Listing Standards Committee
clarified that an individual with "customary commercial, industrial,
banking, or underwriting *246 relationships with the company" was
eligible to serve on audit committees unless the board formed the opinion
that such relationships "would interfere with the exercise of independent
judgment as a committee member". 62 Although this hinted at relaxing the
requirements for independence, subsequent developments proved
otherwise. In 1999, the Blue Ribbon Committee on Audit Committee
Effectiveness ('BRC') set out much stricter criteria for determining
independence and recommended the barring of individuals who were
linked to a firm which has had significant business relations with the
company during the preceding five years. 63 These BRC recommendations
were largely accepted by the NYSE Corporate Accountability and Listing
Standards Committee in 2002 when setting out its criteria for determining
'independence' of directors. Apart from the criteria prescribed by the BRC,
the NYSE also required that the board of directors must affirmatively and
publicly determine that the proposed independent director had no
material relationship with the listed company. 64
The final NYSE Corporate Governance Rules approved by the Security and
Exchange Commission ('SEC') on November 4, 2003, added more
specifications to the BRC recommendations. It lay down that no director
should be considered as 'independent' unless the board had affirmatively
determined that the director had no material relationship with the
company either directly or through an organisation that had a relationship
with the company. This determination of materiality is however required
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to be done on a subjective basis by the board, having regard both from

the company's standpoint as well as from the standpoint of the director,
and also from the standpoint of the other organisation to which the
proposed independent director was related. 65 The subjective parameters
that are considered include whether the director in question receives or
has received compensation from the company or its affiliated companies.
The approved NYSE independence test remains current, and is part of
303A.02 of the NYSE's Listed Company Manual. 66 It requires that no
person may be considered for appointment as independent director if he
has been an employee of the company within the previous three years, or
any member of his immediate family has been an executive within the
same period. There *247 is also a restriction on a person who either
himself or whose immediate family members have been associated with
the company's audit process. Further, employees of companies which
are significant suppliers of goods or services to the listed companies are
barred for a period of three years after the end of such employment.
303A.02(b)(iv) further says that a person cannot be considered
independent if he or an immediate family member is, or has within the
last three years, been employed as an executive officer of another
company where any of the listed company's present executive officers
serves or has served on the compensation committee. This requirement
suggests that the NYSE is willing to consider informal connections
amongst directors as well when deciding on the independence
requirement. However, none of the definitions expressly suggest that the
definition would consider social relations when deciding on the
independence requirement. I believe that for a definition to be complete,
consideration of social factors is essential. This will be addressed in a later
section when discussing the definition of independence for India.
2. The definition of independence in the United Kingdom
Similarly, on the other side of the Atlantic, the emphasis of corporate
governance policies has been on protecting the interests of the
shareholders from the management, and hence there has been an
emphasis on having boards with a majority of non-executive directors. 67
However, in interesting contrast to its North American cousins, the UK
regulators and policymakers do not set mandatory requirements, but rely
on companies to voluntarily follow the principles. 68 The tone was set by
the Cadbury Committee Report of 1992, which called for listed company
boards to have a judicious mix of executive and non-executive elements.
69
The class of non-executive directors whose prime contribution to the
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board was expected to be 'independence of judgment' was required to

include within their ranks, a majority of independent directors. 70
However, the criteria by which independence would be judged were left at
the discretion of the board. The only and rather broad prescription was
that the independent directors should be independent of the management
and they should have no business or other relationships that could
materially interfere with the exercise of independent judgment. 71
Following the American lead, the Cadbury Committee also recommended
that the audit committee should be comprised *248 entirely of non-
executive directors with a majority of independent directors. 72 This Report
was followed in 1996 by the Greenbury Committee Report on Directors'
Remuneration, which recommended that all listed companies should
have a remuneration committee, composed exclusively of non-executive
directors. The term 'non-executive director' appeared to have been used
as an interchangeable expression for 'independent director'. Again, the
definition is extremely broad with the only requirement that the members
should have no personal financial interest except as shareholders; no
conflicts of interests arising from cross-directorships, and no involvement
in the day-to-day running of the company. 73
Following recommendations by the Hempel Committee Report, the
recommendations of the Cadbury Committee Report and the Greenbury
Committee Report were consolidated into a single Combined Code on
Corporate Governance ('Combined Code') published by the Financial
Reporting Council in 2003. The Combined Code recommended that all
FTSE 350 boards should have a majority of independent non-executive
directors. 74 In addition to the exclusively non-executive audit 75 and
remuneration committees, 76 the Combined Code also required a
nomination committee with a majority of its members being drawn from
non-executive independent directors. 77 The Combined Code also for the
first time laid down a detailed set of criteria that the board is expected to
take into account when deciding on a particular director's independence.
Factors leading to presumptions against a director's independence are the
following: 78
(i) Being an employee of the company or group within the past five years;
(ii) Has, or has had a material business relationship with the company
either directly, or as a partner, shareholder, director or senior employee
of a body that has such a relationship with the company within the past
three years;
(iii) Has received or receives additional remuneration from the company
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apart from a director's fee; participates in the company's *249 share

option or a performance-related pay scheme; or is a member of the
company's pension scheme;
(iv) Has close family ties with any of the company's advisers, directors or
senior employees;
(v) Holds cross-directorships or has significant links with other directors
through involvement in other companies or bodies;
(vi) Represents a significant shareholder; or
(vii) Has served on the board for more than nine years from the date of
his first election.
Although the Combined Code has been replaced from 2012 by the UK
Corporate Governance Code, the above list of criteria has remained
untouched, which now appears to be the settled position in the UK. 79 I
believe that the prohibition in the UK codes against a person representing
a significant shareholder is useful and has perhaps been the inspiration
behind the prohibition against the 'promoter' in the Indian codes.
However as in the US, no restrictions based on social relationships have
been prescribed.
3. Customising the definition for India
Not unlike the UK and the US, Indian policymakers have also had to make
several attempts at setting out the connotations attached to the term
'independence'. Although the CII Report did recognise the importance of
having independent non-executive directors, it did not define the term. 80
The first real attempt at a definition was made by the Kumar Mangalam
Birla Committee, which defined independent directors as "directors who
apart from receiving directors' remuneration do not have any other
material pecuniary relationship or transactions with the company, its
promoters, its management or its subsidiaries which in the judgement of
the board may affect their independence of judgement". 81 It is evident
that the definition takes into account only pecuniary considerations, which
is an extremely narrow test. Although the Kumar Mangalam Birla
Committee Report also lays down a subjective element of the test insofar
as it is for the board to determine whether there is a relationship that is
detrimental to independence, the ambit of this discretion was very
narrow. It is arguable that if this test were to be made part of the
regulatory framework, the board would not have been allowed to look at
factors other than *250 those of a pecuniary nature. In an Indian
context, this is especially restrictive in view of the significance of familial
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and social relations in the business world. 82 Although it failed to address

this problem adequately in the definition; to its credit the committee had
recognised early the importance of the controlling shareholder/promoter
problem in Indian corporations, and had done well to include that in the
list of prohibited relations.
These committee recommendations soon became part of the regulatory
framework through their inclusion in clause 49 of the Listing Agreement
which deals with corporate governance issues of listed companies.
Clause 49 built upon the definition suggested by the Kumar Mangalam
Birla Committee Report by excluding from the list of eligible persons,
other individuals who were related to the promoter and members of the
senior management by familial ties. 83 It also excluded several other
individuals who had commercial interests in the company which may lead
to a presumption of loss of independence. 84 Individuals so excluded
include those who own two percent or more of voting shares, or who have
held an executive position in the company during the preceding three
financial years. It also excludes individuals who during the preceding
three years, have been a partner of its audit firm, or law firm or
consulting firm which have had material business with the company. 85 It
also excludes material suppliers, service providers, lessor/lessee and
customers from being considered independent. 86 However, it had still
failed to capture certain social relations that are likely to taint the
directors' independence. For example, even if the director does not have
any direct business relationship with the company, it is possible that some
of his relatives may have such ties which are likely to influence the way
he votes in board meetings thus compromising his independence.
This issue appears to have been dealt with in 149 of the new
Companies Act, 2013. I consider this to be a major step in corporate
governance jurisprudence generally as it attempts to bring the concept of
the independent director into the legislative domain. This Act prescribes
that every public listed company must have at least at least one-third of
its board as independent *251 directors, and is hence more lenient than
the test requirement under the Listing Agreement which requires two-
thirds of the board to be independent if the Chairman is an executive
director. There is still some ambiguity arising from these conflicting
requirements although I understand that either the Act or the Listing
Agreement will be amended shortly to deal with this ambiguity. On the
definition of 'independence', it contains a fairly exhaustive list of
exclusions. Apart from plugging some holes left open in the Listing
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Agreement, it lays down an overarching subjective requirement of

integrity, expertise and experience. 87 Another major proposed
improvement is that the test of independence has also been held to
require the consideration of the associations that the relatives of the
proposed independent director has with the listed company. 88 An
individual will not be considered independent if any of his relatives has
had pecuniary relations or transactions with the company or with entities
or individuals associated or affiliated with the company (subject to a de
minimis threshold) within the two preceding financial years. 89 Also, an
individual will be barred if any of his relatives holds or has held a key
managerial position, or is or has been an employee of the listed company
during the preceding three years. 90 The prohibition also applies if the
proposed independent director holds (together with his relatives) two
percent or more of the total votes in the listed company. Also, a person
will not be considered independent if he or any of his relatives is or has
been an employee, proprietor or partner of a firm of auditors, company
secretaries or cost auditors of the listed company within the three
preceding years. There is a similar restriction on employees, proprietors
or partners of law firms or consultancy firms which have material business
relationships with the listed company. 91 By considering other relatives as
part of the independence test, the Act does make a serious effort in
customising the test for the Indian context, and appears to be fairly
exhaustive.
However, there is a more fundamental problem that the institution suffers
from, and it is more than just a theoretical problem. Is it enough for the
definition of independence to merely consider objective factors or should
there be a subjective element to the test as well? It is this problem that
will form the crux of the succeeding chapter, and also in fact the focal
point of this paper.
*252

IV. HOW 'INDEPENDENT' ARE INDEPENDENT DIRECTORS?

Having considered the theoretical basis behind the institution, I have
come to the conclusion that it may technically be possible to come up with
an objectively satisfactory definition of 'independence' which is suited to
each specific jurisdiction. However, business is carried on at real-time and
objective perfection would serve no real purpose if an institution cannot
tackle the real issues that businesses face on the ground. This begs two
questions:
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(a) Can a company director ever be 'truly independent'? (b) Can the
independent director be the solution at all?
This chapter will seek answers to these two questions.
A. NOMINATION AND ELECTION PROCESS
In this part, I will critique the nomination and election process of
independent directors and examine how this can impact the likelihood or
otherwise of the independent director being an effective corporate
governance tool. I will focus on aspects of the nomination and election
process, which make the independent director less efficacious than it may
appear at first sight. As a general rule, the elections of directors take
place at every Annual General Meeting ('AGM'), and are voted for by the
body of shareholders. 92 In case of most large companies, the list of
incoming directors for the forthcoming year is nearly always accurately
ascertainable in advance. 93 Usually, the names are proposed by the
existing board and are included as part of the AGM agenda. The vote is
then a matter of mere formality, and not much debate takes place
especially as regards the independent directors. 94 Subject to certain
exceptions, the nominees proposed by the powers that be, are usually
elected. In case of companies with dispersed shareholdings, this means
that the independent directors are usually nominated by the senior
managers, and in case of companies with a concentrated shareholding
pattern, they usually represent the controlling shareholders. In either
case, these nominees proposed by the management or by the controlling
shareholder (as the case may be) are likely to get elected without much
opposition.
In case of companies with dispersed shareholdings, the different groups
of investors are usually not united enough to be able to jointly evaluate
*253 individual candidates and to reject persons backed by the
management unless there are some really compelling reasons. Because of
the dispersed nature of the shareholdings and disunity amongst the
various groups of shareholders, the members of the senior management
can easily co-opt the shareholders and stage-manage the election
process. This applies equally to non-executive directors as it does to the
executives. The Higgs Review of the Role and Effectiveness of Non-
Executive Directors ('Higgs Review') found that almost half of the non-
executive directors in the UK were recruited through personal contacts or
friendships, and that only four percent had a formal interview, and only
one percent had got the job through open public advertisement. 95 The
statistics are even worse for India with about 90% being recruited
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through the CEO/ Chairman's personal connections. 96 Needless to say,

these directors are more likely to be beholden to the senior management;
rather than safeguarding and furthering the interests of the shareholders
as they are supposed to. In fact, they often end up being closer to the
management both economically and socially. 97 Hence, whilst there may
be formal independence from the management, there is no independence
in the substantive sense of the term.
This statement is equally true for companies with concentrated
shareholding patterns, albeit vis--vis a different constituency. In these
companies, the numbers are unlikely to work out in favour of a person
nominated by the minority shareholders unless he also has the support of
the majority. 98 Quite often, the interests of the majority and minority
shareholders can be so diametrically different that it may not be possible
for the same director to represent both constituencies simultaneously.
Also the controlling shareholder by virtue of the sheer size of its holdings
will be able to exercise control over the management anyway, and does
not need the protection of the independent director. 99 However, because
of the skewed equations surrounding the nomination and election process,
any candidate is bound to need the blessings of the controlling
shareholder in order to enter office, then to stay on and to get *254 re-
elected. So even if companies have independent and committed
nomination committees, the nominees are unlikely to get elected unless
they are also supported by the majority. This defeats the integrity of the
entire process. The only way this issue can be resolved is by radically
altering the election process. One of the ways this can be done is by
mandatorily introducing the system of proportional representation in
board elections which will ensure that the nominees of the minority
shareholders will have a realistic chance of getting elected even without
the support of the majority. 100 The other alternative is to make the
election of independent directors a process exclusive to the non-
controlling shareholders. Both these suggestions will be expanded upon
later in this paper.
Given this problem of lack of substantive independence, it is unlikely that
the independent directors would be able to perform the function they are
expected to - which is to monitor the board and the management in the
interests of the constituencies that have less formal protections. As we
have seen, in practice, the independent directors are bound to rely on the
management (or the controlling shareholder) for their appointments
leading to both monetary and professional benefits. 101 Many independent
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directors are from professional backgrounds and would not be averse to

using their board connections to boost their careers. Other common
recruiting grounds for independent directors are universities and other
institutions of higher education and research. These professionals and
academicians, despite their statures in their respective fields may not
necessarily have the commercial knowledge to be able to effectively
oversee the workings of listed company boards. 102 Also the fact that their
remuneration as independent directors often constitutes a substantial
proportion of their income is likely to affect their independence. The other
category of independent directors are the ones who are themselves
executive directors of other companies and are likely to have sympathies
with the executive directors both at a social as well as philosophical level.
103
Neither of these categories is *255 equipped with the set of skills that
would be considered ideal for individuals who are expected to monitor a
powerful body of individuals on behalf of an often cornered and vulnerable
minority.
B. PSYCHOLOGICAL ANALYSIS
Apart from the problems associated with the nomination and election
process that may lead the independent directors to be somewhat
ineffectual monitors of corporate boards, I believe that there are also
certain psychological factors at play. Quite often, the persuasive
personality of the CEO or the representative of the controlling shareholder
prevails over an otherwise independent and competent board, resulting in
its failure to prevent seemingly obvious corporate frauds. 104
In 2004, Randall Morck authored a paper in which he compared the
loyalty indices of corporate directors with the subjects of the Milgram
experiment. The Milgram experiment is a psychology experiment which
assessed the ability of human participants to resist a legitimate authority
figure who had instructed them to perform certain actions that conflicted
with their own ethical standards. 105 Based on the results of the
experiment which concluded that *256 most people are willing to trade
their inner morals to demonstrate loyalty to people whom they perceive
as commanding legitimate authority, Morck concluded that the power
equations between the CEO and the directors were so lopsided that the
directors are unlikely to object to a wrongdoing even if they were aware
that the actions they were asked to sanction were not right and were
perhaps even illegal. Drawing parallels with the subjects of the Milgram
experiment, Morck asserts that the directors are often persuaded and
even intimidated by the presence of the senior management, and this
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affects their sense of judgment. This argument holds equally true for the
independent directors vis--vis the controlling shareholder in the Indian
context.
The results of the Milgram experiment can be used to justify the
institution of independent directors who are at least in theory not as
beholden to the company's management as the other directors. 106
However, the reality may be quite different. As stated earlier, most
independent directors are in fact dependent on the management (or the
controlling shareholder) for their tenures: this imbibes a sense of loyalty
that would not let them question the decisions of their backers. As many
independent directors are professionals, there is a good likelihood that
they might seek to leverage on their board connections to further their
professional interests elsewhere. Hence, they may be wary of developing
the reputation of being troublemakers. 107 This submissive mentality will
lead to a largely rubber stamping role, thus frustrating the larger
objective the institution is designed for. 108 Comparing the loyalty indices
of directors with the subjects of the Milgram experiment creates a rather
gloomy picture indeed.
However certain strands of the Milgram experiment can indeed be used to
bolster the authority and efficacy of the institution of independent
directors. One of the findings of the experiment was that individuals tend
to be more subservient towards authority figures if they were within each
other's physical presence. 109 This according to Morck, justifies the
commonly accepted requirement that audit committees should be
exclusively composed of independent *257 directors, although this is not
yet the requirement in India. 110 I agree with this logic, and believe that
the model can be extended further. However I do not go as far as
suggesting that company boards should be exclusively composed of
independent directors, as this would deny them of valuable inside
knowledge. 111 Another argument against having an entirely non-executive
board is the crucial role that independent directors can play in
management succession. For these reasons, it is important that the
independent directors should have the chance to have regular interactions
with the executives. 112
In light of this, there is definitely a case for a provision which requires
that all board resolutions should be passed at two stages - a vote by the
executive directors and a separate vote by the independent directors in a
separate meeting. In deference to the time tested principle of majority
rule in general, I however believe that the votes of these separate
18/08/2016 Delivery | Westlaw India Page 22

meetings should be added together to decide on the final outcome of the

meeting. In order for this to be effective, whilst the executive sessions
should be held in the presence of the independent directors, the reverse
should not be permitted. 113The Companies Act, 2013 already contains
a provision that mandates exclusive sessions for independent directors at
least once a year. 114 Whilst this may be the first step towards requiring an
exclusive session of the independent directors as part of every board
meeting, I believe this is a rather feeble first step. The provision as it
reads now is unlikely to serve any real purpose as the annual sessions
would be reduced to nothing more than a ceremonial event in the
company's calendar. Even if the independent directors were to take these
annual sessions seriously, they would be so far removed from the actual
event requiring consideration that these would not have much effect, if
any at all. 115 If on the other hand, each board resolution is preceded by a
separate meeting, it is more likely that the *258 independent directors
will take their responsibilities as monitors of the board more seriously.
In case of transactions which require more independent director input, the
board decision may even be made subject to ratification by the
independent directors. While it is difficult to lay down an exhaustive list of
such items, I believe that they should be defined by a mix of qualitative
and quantitative parameters generally, and should include all related
party transactions in particular. This is a practice that is already followed
in Italy where a related party transaction can only be executed if it
receives a favourable vote from the committee of independent directors.
This practice may be considered for other jurisdictions with concentrated
shareholding patterns like India. 116
Another finding from Milgram' experiments is that rational individuals are
less likely to be induced by malevolent commands if the individual is in
close proximity to the person likely to be affected by the command. 117
This finding can also be used to design corporate governance policies to
ensure that independent directors have closer and more regular
interaction with the shareholder community they represent. Usually in
case of large companies, the directors are in far closer proximity to the
management (and the controlling shareholder) than to the small
shareholders whom they encounter only once a year in the Annual
General Meeting. I understand that it may not be practicable to overturn
years of corporate law practice and have more than one statutory general
meeting in a year. However what may be practicable is to have more
regular sessions where the small shareholders can interact exclusively
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with the independent directors. I understand that implementing such a

requirement would result in additional administrative costs, and would
require independent directors to spend more time on the job than they
are currently required to do. However, this will ensure that the
independent directors remain connected to the constituency whose
interests they are mandated to safeguard.
Whilst I anticipate significant criticism if the above suggestions are ever
incorporated into the law, I believe that absent such safeguards, the
ability of the independent directors to perform any meaningful role is
severely prejudiced.
*259

V. INDEPENDENT DIRECTORS IN INDIA: THE WRONG

MEDICINE?
Despite its many flaws, and equivocal findings on the impact that
independent directors have on board performance and the quality of
monitoring, it has established itself as an unquestioned feature in the
corporate governance framework of several jurisdictions including India.
118
The experiences in other jurisdictions like the US and the UK were
clearly guiding factors when choosing it for implementation in India. As
observed earlier, the institution was created in the US as a solution to a
very specific problem, i.e., the agency problem between the management
and the shareholders. However in India, the prime corporate governance
problem is not the manager-shareholder agency problem but the
majority-minority problem. This is not an issue the original idea was
designed to tackle, although this fact has been largely overlooked by
Indian policymakers. From historical experience, it is evident that the
institution of the independent director has not managed to check the
excesses of controlling shareholder even if the promoter does not hold a
significant stake. By way of illustration, in the Satyam case, the Raju
family owned only about 5% of the company's shares but was still able to
keep a seemingly independent (and well qualified) board in the dark
about one of the greatest frauds in Indian corporate history. 119
From the discussion so far, it appears that the reason for the lack of
success of independent directors in India is not an issue of mere
individual failings but inherent problems in the institution itself. The
Indian independent director is conceptually so close to its Anglo-Saxon
ancestors that it is bound to struggle in a different ecosystem where the
rules of engagement are fundamentally different. I believe that these
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issues may be resolved if the institution is adequately customised to

tackle the majority-minority problem. This chapter shall look at ways in
which this customisation may be brought about.
A. CHANGING THE ELECTION SYSTEM
One of the reasons why the office of the independent director is unlikely
to be able to tackle the majority-minority problem that persists in *260
Indian corporate boards is the method of election for company boards.
263 of the Companies Act, 1956 states that each individual candidate
must be voted on individually. 120 Apart from that, the form of voting
practiced by most Indian companies is the 'first past the post' system,
which results in the election being won by the candidate who gets more
votes than anyone else. Evidently this system which is also known as
simple majority voting, disproportionately favours the majority
shareholders as they can vote for every board vacancy and can vote down
anyone whom they do not want to be included in the board. As a result,
the votes of the minority shareholders virtually count for nothing. 121
Hence, the board of an Indian public company including its independent
directors can be utterly controlled by the controlling shareholder.
Perhaps even more worryingly, the process of removal of directors is
equally dominated by the controlling shareholder. 122 There is merely a
requirement for a simple majority of votes, and there is no requirement to
prove a case against the director sought to be removed. Although this
mechanism is rarely used in practice, its mere existence sends a rather
stark signal that the system does not encourage dissent. 123 In any event,
any director who is not favoured by the controlling shareholder cannot
expect to be considered for renewal of term as the same process as is
applicable for appointment also applies for renewal. 124 Given this
framework, it is perhaps unsurprising that the institution of independent
directors has not been very effective in India. In light of this, the SEBI
Consultative Paper on Review of Corporate Governance Norms in India
('SEBI Consultative Paper') suggests introducing certain changes including
changes to the election method. 125
1. Case for Cumulative Voting
One potential remedy would be to introduce proportional representation
as the mandatory system for election of directors. Unlike the simple
majority voting system in which the shareholders can vote the number of
shares he owns for each candidate standing for election; under
cumulative voting, each shareholder gets a block of votes equal to the
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number of shares he owns multiplied by the number of directors to be

elected. The shareholder can then either *261 cast all his votes in favour
of one candidate or may distribute them among any number of
candidates. 126 This method of voting is usually preferred by minority
shareholders because it gives them the opportunity to elect some
members of the board if they can unite behind a few candidates. 127 Both
under 265 of the Companies Act, 1956 and 163 of the Companies
Act, 2013, director election by proportional representation is an option
that may be included in the company's articles. 128 If a company chooses
to implement it, it can potentially lead to a more equitable voting system
for directors, and the minority shareholders would have a better chance of
getting their nominees on board despite resistance from the majority.
However, very few companies if any have yet implemented this system
of voting. As implementing this system would reduce the influence that
the majority shareholders have over the company, they are
understandably unwilling to allow this into the company's constitution. 129
It would require alteration of the company's articles of association, which
would need a special resolution of the shareholders. This is virtually an
impossible proposition if there is a controlling shareholder in the
company. 130 Dalebout writes that expecting the majority to introduce
cumulative voting in order to protect the interests of the minority is like
hens pleading with the fox for protection. 131
Hence perhaps the only way proportional representation can be
implemented at the policy level is by making it a mandatory legal
requirement. 132 However, it would be an extremely bold step as very few
jurisdictions anywhere in the world have used this method as a
mandatory requirement. 133 In the 1950s, twenty-two US states had
adopted mandatory cumulative voting for board elections; however very
few currently prescribe it as a mandatory requirement and none of those
that do is a major commercial state. 134 Even in the states that had
historically prescribed mandatory cumulative voting were not successful in
implementing it, as the majority shareholders had found various *262
ways to dilute their impact, ultimately resulting in a near extinction of the
system. 135
One of the principal objections against the system is that it may lead to
minority shareholders infiltrating the board with troublemakers, which will
reduce the board's efficiency and effectiveness. 136 However this problem
is more likely to arise in companies where an organised minority seeks
to manipulate a disorganised majority. 137 This is not the case for most
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Indian companies, where most minority shareholders remain apathetic

allowing the majority to run the company as it wishes. I believe that if
cumulative voting is introduced, it may lead to more unity amongst
institutional investors, who would counter the high handedness of the
majority in order to safeguard the interests of an otherwise dispersed
minority. Institutions have strong financial interests in the company, and
hence they are unlikely to indulge in disruptive behaviour. 138 The
economic interests of the institutional investors are often aligned with
those of the retail investors. The prime goal for both constituencies is
improvement in the functioning and accountability of the boards with the
ultimate goal that this will lead to greater profits and consequently better
return on equity. 139 I understand that the criticisms against this system of
voting (and its eventual abandonment in the US) may lead to a
presumption against its being an acceptable voting format. However it
must be borne in mind that most of the criticism has come from American
academics who have studied its failings in the American context where
the corporate system is very different from that in India. Given the
fundamental differences in the shareholding patterns between the two
jurisdictions, I believe that the system of proportional representation may
lead to the otherwise apathetic body of small shareholders to rally around
the institutional investors and form an effective second bloc. This may
lead to better performance and desirable results.
Only recently, GlaxoSmithkline Consumer Healthcare Ltd. became the first
Indian listed company to adopt cumulative voting for director
appointment in the 2013 AGM. Proxy advisory firm, Institutional Investor
Advisory Services in their comment on the development reported that this
*263 system "....can be a powerful tool for minority shareholders" and
can lead to better governance if there is "....a greater willingness on the
part of institutional investors to work collaboratively on their voting
strategy". 140 Whilst I believe that proportional representation may well be
a potential solution to the majority-minority divide, more research is
needed before a firm recommendation can be made in its favour.
2. Alternatives to Cumulative Voting
Apart from introducing mandatory proportional representation, the
preferential treatment to the minority may also be extended in other
ways. One suggestion is to change the nomination process by requiring
that independent directors be nominated exclusively by the existing
independent directors. 141 This would remove the overarching and
overbearing influence of the management and the controlling
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shareholders from the nomination process although their influence will

still be felt at the election process. Implementing this system will require
that companies have strong nomination committees staffed exclusively
by independent directors. However if the existing independent directors
are not themselves independent in the substantive sense of the term,
there is a risk of a self-perpetuating process of one bad board bringing on
another equally ineffective board. It is also arguable that a stipulation
requiring independent directors to be nominated exclusively by the
existing independent directors, will make them removed from the
management and hence make them more akin to an external supervisor
rather than being an internal monitor as they are supposed to be. 142 In
any event even if this process were to be implemented, the actual
election would continue to be dominated by the majority shareholders and
they would vote down nominees that they do not want on the boards.
Another and perhaps more radical idea that has been mooted in academic
circles is a system of election where the independent directors are elected
by the minority shareholders alone without the presence of the controlling
shareholders. 143 I realise that setting the thresholds to determine who can
and cannot vote in these elections may require a fair amount of thinking
on the part of policymakers. The question that arises is whether this
'majority of the minority' election process should exclude from voting,
only the promoter and its group, or should the threshold be set lower and
anyone with more than a certain percentage of shareholdings should be
deemed ineligible. I do not *264 suggest a mere re-wording of 252 of
the Companies Act, 1956 or 151 of the Companies Act, 2013,
which allows public companies to appoint a small shareholders' director.
144
It is understood that this provision has not so far been effective not
least because of the apathetic conduct of the small shareholders, and the
logistical issues arising out of having a body of highly dispersed body of
retail investors. 145 In light of these, the best way to ensure better
minority protection is by giving more powers to the institutional investors.
In my opinion, the 'majority of the minority' elections should not use an
upper limit of shareholding to define the electorate as is currently set
under 252, but should rather only exclude the promoters and
shareholders related to the promoters. Such a stipulation will potentially
lead to more interest from the institutional investors who, given their
common interests with the retail investors, are more likely to protect the
small shareholders. Also in light of the broader monitoring role that the
independent directors are expected to play, restricting their membership
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only to representatives of the small shareholders (defined by strict

thresholds) may be counter-productive.
There is also a concern that the 'majority of the minority' elections may
lead to 'abuse by minority' as the directors elected through this process
may protect the interests of the minority with excessive zeal thus
prejudicing the legitimate interests of the majority. 146 To alleviate this
concern, I suggest that if this form of election were to be implemented,
the number of independent directors on the board should be capped to
reflect the percentage of non-controlling shareholders in the company.
Whilst working out the exact percentage will require further research
taking into consideration, the interests of both the majority and the
minority, it is essential to ensure that the few independent directors that
are on the board are genuinely independent. This will ensure that while a
section of the board represents the controlling shareholder, the other
section vigilantly offers resistance on behalf of the minority. Whist there is
an undeniable merit in clarifying the fact that the independent directors
are expected to protect the interests of the minority shareholders,
adequate steps need to be taken in order to not create fissures within the
board. 147 It has to be borne in mind that the key to the success of any
corporate board is its *265 collegiality and whilst the independent
directors should have clearly defined duties towards the minority
shareholders, they should not be required to act as auditors but as robust
sounding boards. 148
B. SPECIAL SAFEGUARDS FOR INDEPENDENT DIRECTORS
Apart from changes to the election procedure, there are other ways to
ensure that the independent directors are empowered enough to be able
to perform their duties well. It must be acknowledged in law that the
independent directors owe their duties to a special constituency, which in
the Indian context should be the minority shareholders. However, it must
be made clear that the position of the independent director is not one of
an adversary of the management and the controlling shareholder, but
that of a vigilant monitor. I believe that some of the special rules outlined
below may go some way in solving the problems discussed here.
1. Rethinking the removal procedure
As discussed earlier, one of the ways of strengthening the institution of
independent directors is to give them better security of tenure. This end
may be achieved by making the removal process more difficult. As the
law stands today, any director (including an independent director) can be
18/08/2016 Delivery | Westlaw India Page 29

removed by a simple majority of the body of shareholders subject only to

an opportunity for the director to be heard prior to his removal. 149 Whilst
removal of directors is not a common practice, its very existence and the
stigma attached to a potential removal can be a considerable deterrence
against directors taking a bold stance. I suggest that special protections
should be created as far as independent directors are concerned.
Following on from formally acknowledging that the independent directors
owe their duties to the minority shareholders in particular, their removal
may be made subject to a vote by the minority shareholders alone. An
alternative to this would be to create a rule stating that independent
directors will not be removed without a proper cause. It is also worth
considering whether the same protection that the Companies Act,
2013 gives to the statutory auditors should also be extended to the
independent directors so as to give them a better security of tenure,
allowing them the freedom to carry on their mandate without having to
worry about the consequences of attracting the displeasure of powerful
people in the company.
*266
2. Relaxing the liability regime
Another major issue has been the liability that an independent director
faces for problems arising in the company during his tenure. This prospect
of facing severe liability including potential criminal liability can make him
excessively cautious. 150 Although 5 of the Companies Act, 1956 said
that criminal liability will attach to non-executive directors only if no
whole-time or managing directors are available, it has been observed that
the authorities have often proceeded against independent directors as
well. 151 The position of the non-executive director has perhaps been made
even more precarious by 2(60)(vi) of the Companies Act, 2013,
which imposes personal liability on any director who is aware of a
contravention by having taken part in the board process. Whilst this due
diligence requirement is legally sound, it may not work out well in
practice. Umakanth Varottil illustrates this problem by describing the
plight of the independent directors of Nagarjuna Finance Limited after the
company had failed to repay depositors' money. 152 I agree that painting
all directors with the same brush is unfair as the independent directors
are often in possession of less information and are less acquainted with
the workings of the company. It is obvious that such hounding will
certainly serve as a disincentive for people with good credentials to take
up independent directorships. Khanna and Mathew have noted that the
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aftermath of the Satyam scandal led to at least 620 independent directors

resigning from boards in 2009. 153 Perhaps in light of this and other similar
cases, the government has taken some steps to better protect the
independent directors. On July 29, 2011, the Ministry of Corporate Affairs
issued Master Circular No. 1/2011, which states that the Registrar of
Companies should take extra care before proceeding against non-
executive directors. The circular clarifies that the non-executive directors
should not be held liable for any lapse by the company or its officers
which occurred without the non-executive director's knowledge, consent
or connivance, provided that he had acted diligently. Whilst the
Companies Act, 2013 does clarify that directors should be held liable
only for breaches that take place with their consent, it does not recognise
the light-touch approach towards non-executive directors that the circular
appears to have intended.
*267
3. Lead Independent Director/Non Executive Chairman
Another suggestion is the introduction of the concept of a non-executive
chairman or a lead independent director. This practice is mandated for
FTSE 350 companies by the UK Corporate Governance Code, and
requires that the offices of the Chairman and the Chief Executive Officer
be kept separate. 154 Further, the Chairman is required to be chosen from
amongst the independent directors on the board. 155 The position of the
lead independent director in American boards occupies a similar position,
although there is no requirement for the offices of the CEO and the
Chairman to vest in different persons. In India there is curiously no such
requirement although Clause 49 of the Listing Agreement recognises the
benefit of having a non-executive chairman and allows some relaxation on
that basis. 156 However, the Companies Act, 2013 does not include this
special relaxation, but rather sets the requirement for independent
directors at a uniformly low level of one-third of the board. Whilst some
Indian companies have started having non-executive chairmen or lead
independent directors, it has not become common practice yet. 157
However, the SEBI Consultative Paper suggests introducing the concept,
although it recognises that it may result in undesirable consequences of
creating a power base within the body of independent directors. 158 Whilst
this is a valid concern, I believe that the benefits to be derived from the
institution of a lead independent director would far outweigh its
drawbacks.
*268
18/08/2016 Delivery | Westlaw India Page 31

VI. CONCLUSION
In this paper, I have discussed how the institution of the independent
director as it exists, is ill suited to deal with the majority-minority problem
in Indian corporate boards. The reason perhaps is that the genesis of the
institution lay in a corporate setting that is fundamentally different from
that in India. This fact has been surprisingly under-theorised. However,
recently there has been more critical analysis of this issue. Despite its
many flaws, there is a general understanding that the institution has
become such an integral part of the corporate governance framework in
India that it would not be prudent to abolish it. I agree with Dr. Varottil
that independent directors, whilst not necessary in the Indian setting can
still serve an important purpose. 159
For this however, it is essential that there must be a formal
acknowledgement that the main role that the independent directors will
play is to act as the guardians of the minority shareholders against
excesses of the majority. To that end, certain fundamental legal
provisions must be changed so that the nomination and election
procedure gives primacy to the minority shareholders.
*269
Policymakers may also look for inspiration from other jurisdictions facing
a similar majority-minority problem. Some of these models have been
discussed earlier in the paper. Whether or not the institution can be ever
customised perfectly is yet unclear; however efforts in the right direction
will go a long way.
*270
ANNEXURE
BSE SENSEX COMPANIES - PROMOTER/PUBLIC RATIO 160

Company Promoter Public Chairman ManagingD State?

irector

Bajaj Auto 50.03 49.97 Rahul Rajiv Bajaj No

Limited Bajaj

Bharat 67.72 32.28 B.P. Rao B.P. Rao Yes

Heavy
Electricals
Ltd
18/08/2016 Delivery | Westlaw India Page 32

Bharti 65.23 34.77 Sunil Sunil No

Airtel Bharti Bharti
Limited Mittal Mittal

Cipla 37.20 62.80 Dr. Yusuf K Mr. No

Limited Hamied Subhanu
Saxena

Coal India 90.00 10.00 Shri S. Shri S. Yes

Limited Narsing Narsing
Rao Rao

Dr. 30.81 69.19 G V Prasad Satish No

Reddys Reddy
Laboratorie
s Limited

GAIL 58.03 41.97 B. C. B. C. Yes

(India) Ltd Tripathi Tripathi

HDFC Bank 27.41 72.59 C.M. Aditya Puri No

Limited Vasudev
(Independ
ent)

Hero 52.21 47.79 Dr. Pawan No

MotoCorp Brijmohan Munjal
Ltd. Lall Munjal

Hindalco 34.94 65.06 Kumar Debnaraya No

Industries Mangalam n
Ltd. Birla Bhattachar
ya

Hindustan 52.48 47.52 Mr. Harish Nitin No

Unilever Manwani Paranjpe
Ltd. (Non
Executive)

HDFC - 100 Deepak Renu Sud No

Parekh Karnad
(Non
Executive)
18/08/2016 Delivery | Westlaw India Page 33

ICICI Bank - 100 K. V. Chanda No

Ltd. Kamath Kochhar
(Non
Executive)

Infosys 18.34 81.66 N R S. D. No

Ltd. Narayana Shibulal
Murthy

ITC - 100 Y. C. Y. C. No
Limited Deveshwar Deveshwar

Jindal Steel 59.13 40.87 Naveen Ravi Uppal No

And Power Jindal
Ltd.

*271

Larsen and - 100 A. M. Naik K. No

Toubro Venkatara
Ltd. manan

Mahindra 26.75 73.25 Anand Anand No

and Mahindra Mahindra
Mahindra
Ltd.

Maruti 56.21 43.79 R. C. Kenichi No

Suzuki Bhargava Ayukawa
India Ltd.

NTPC 75.00 25.00 Arup Roy Arup Roy Yes

Limited Choudhury Choudhury

Oil and 69.23 30.77 Sudhir Sudhir Yes

Natural Vasudeva Vasudeva
Gas
Corporatio
n

Reliance 46.97 53.03 Mukesh D. Mukesh D. No

18/08/2016 Delivery | Westlaw India Page 34

Industries Ambani Ambani

Ltd.

State Bank 64.05 35.95 Pratip - Yes

of India Chaudhuri

Sterlite 61.75 38.25 Anil Mahendra No

Industries Agarwal Singh
(India) Ltd. Mehta

Sun 63.68 36.32 Israel Dilip S. No

Pharmaceu Makov Shanghvi
tical (Non-
Industries Executive)
Ltd.

Tata 73.96 26.04 Cyrus Natarajan No

Consultanc Mistry Chandrase
y Services karan
Ltd.

Tata 42.54 57.46 Cyrus Karl Slym No

Motors Ltd. Mistry

Tata Power 33.55 66.45 Cyrus Anil No

Company Mistry Sardana
Ltd.

Tata Steel 32.21 67.79 Cyrus Hemant M. No

Ltd. Mistry Nerurkar

Wipro Ltd. 74.98 25.02 Azim H. T K Kurien No

Premji

6(2) NUJS L. Rev. 232 (2013)

1. B.A, LL.B. (Hons.), West Bengal National University of Juridical Sciences, Kolkata,
India; LPC, BPP Law School, London; Advocate, India and Solicitor of England and
Wales, and a corporate associate at Trilegal, Mumbai. The views and opinions
expressed in this paper are contributed by me in my personal capacity and they do
not reflect the views or opinions of the firm.

2. Indian Minister of State for Corporate Affairs, Foreword to the Corporate

18/08/2016 Delivery | Westlaw India Page 35

Governance Voluntary Guidelines 2009.

3. It has been the stated intention of Indian corporate governance committee

members that Indian corporate governance norms should be homegrown,
although I doubt it has indeed been the case especially as far as the provisions
relating to independent directors are concerned. See generally, CII Report, infra
note 3, 1("....one cannot design a code of corporate governance for Indian
companies by mechanically importing one form or another"). See also, Kumar
Mangalam Birla Committee Report, infra note 14, 2.6 (".... to prepare a Code to
suit the Indian corporate environment, as corporate governance frameworks are
not exportable").

4. Published by the Confederation of Indian Industry (CII) in 1998 following

recommendations from a National Task Force under the Chairmanship of Mr. Rahul
Bajaj, available at http://
www.nfcgindia.org/desirable_corporate_governance_cii.pdf (Last visited on 2
August 2013).

5. The CII Report, as well as the SEBI Committee Report on Corporate Governance
under the Chairmanship of Shri Kumar Mangalam Birla, 1999 have acknowledged
inspiration from previous policies implemented in the UK and the US. Also as will
be discussed later in this paper, India has adopted corporate governance practices
that are unmistakably based on either UK or US precedents. Also see Varottil,
infra, note 16, 282 (The Cadbury Committee Report has led the development of
corporate governance norms in various countries such as Canada, Hong Kong,
South Africa, Australia, France, Japan, Malaysia, and India, just to name a few).

6. Shaun Matthew, Hostile Takeovers in India: New Prospects, Challenges and

Regulatory Opportunities, 3 COLUM. BUS. L. REV. 800, 833 (2007) ("....the
average BSE 100 company has a promoter who owns over 48% of the company).
See, Annexure to this paper showing the recent shareholding patterns of BSE
SENSEX 30 companies (Only five out of the thirty companies on the BSE
SENSEX 30 have promoter shareholding of less than 25%).

7. Most large Indian companies are characterised by the presence of a large

controlling share- holder with the rest of the shares being dispersed amongst a
wide body of small shareholders. The controlling shareholder is either a business
family or the state. This shareholding pattern is seen in many other jurisdictions
including most countries in Continental Europe and the People's Republic of China
(to name a few examples).

8. For example in most common law countries including the US, UK and India, the
institution of the independent director has been accepted; whilst in civil law
countries like Germany and Japan, the law prescribes a supervisory board with a
18/08/2016 Delivery | Westlaw India Page 36

mandate to monitor the management in the interest of its shareholders. China

follows a hybrid model that includes both a supervisory board as well as an
independent director.

9. Maria Gutierrez Urtiaga and Maribel Saez, Deconstructing Independent Directors, 4

(ECGI Law Working Paper No. 186/2012, January 2012).

10. Jay Dahya and John J. McConnell, Board Composition, Corporate Performance, and
the Cadbury Committee Recommendation, 2005, available at
http://ssrn.com/abstract=687429 (Last visited on 2 August 2013) (Dahya and
McConnell describes how during the 1990s, companies in several countries
experienced the 'outside director euphoria' with at least twenty-six countries
prescribing some form of outside representation in their respective corporate
governance codes. It was believed that boards with more outside directors will
lead to better board decisions and consequently better corporate performance).

11. German Corporate Governance Code, 5.1 says that the task of the Supervisory
Board is to advise and supervise the Management Board in the management of the
enterprise, and to be involved in decisions that are of fundamental importance to
the enterprise. Whilst separate from the Management Board, 3 says that the
Supervisory Board is expected to cooperate with the Management Board for the
benefit of the enterprise. Also, 5.4 stipulates that the Supervisory Board should
have an adequate number of independent members. An English translation of the
German Corporate Governance Code is available at http://www.corporate-
governance-code.de/eng/kodex/5.html (Last visited on 28 July 2013).

12. See, Clarke, infra note 18, 4. The term 'outside director' which is part of the
Japanese regulation, is translated from the Japanese expression shagai
torishimariyaku, appearing in Sh[Commercial Code], Japan, Art. 188(2) (7.2)
(2002). Shagai torishimariyaku in Japanese literally translates to 'director from
outside the company'.

13. See generally, S.H. Goo and Fidy Xiangxing Hong, The Curious Model of Internal
Monitoring Mechanisms of Listed Corporations in China: The Sinonisation Process,
EUROPEAN BUSINESS ORGANIZATION LAW REVIEW (2012) 469, 471 (Goo and
Hong however assert that both these institutions are going through a process of
Sinonisation in order to fit into the local business).

14. CII Report, supra note 3, 2 (The CII Report had rejected the German model of
two-tier boards as part of Recommendation 1 without citing any particular
reason).

15. Report of the Committee appointed by the SEBI on Corporate Governance under
the Chairmanship of Shri Kumar Mangalam Birla, 1999, 6.5, available at
18/08/2016 Delivery | Westlaw India Page 37

http://web.sebi.gov.in/ commreport/corpgov.html (Last visited on 2 August

2013).

16. Companies Act, 2013, 149 states that every listed public company shall have
at least one- third of its board as independent directors. Further, it has been laid
down that the central government may prescribe that other public companies
should also have a certain percentage of its directors as independent directors.
The Companies Act, 2013 also lays down a detailed list of criteria to determine
independence, and also a code of conduct that independent directors are expected
to follow.

17. Umakanth Varottil, Evolution and Effectiveness of Independent Directors in Indian

Corporate Governance, (2010) 6 HASTINGS BUS. L.J. 281, 294. Also see, Urtiaga
and Saez, supra note 8, 4-5.

18. Stephen M. Bainbridge, Independent Directors and the ALI Corporate Governance
Project, 61 GEO. WASH. L. REV. 1034. (1993). Also see Id.,Urtiaga and Saez, 4.

19. Donald C. Clarke, Setting the Record Straight: Three Concepts of the Independent
Director, 4 (The George Washington University Law School Public Law and Legal
Theory, Working Paper No. 199) (Clarke cites different terms being 'non-
interested', 'independent', 'outside', 'non-executive', 'non-employee' and
'disinterested' which though literally connote different qualities, have been
commonly used as if referring to the same thing. Please note that all these
expressions originated in either the US or the UK; the only exception being the
term 'outside director' literally translated from the Japanese expression shagai
torishimariyaku, appearing in Sh[Commercial Code], Japan, Art. 188(2)(7.2)
(2002). Shagai torishimariyaku in Japanese literally translates to 'director from
outside the company').

20. Paul L Davies, The Board of Directors: Composition, Structure, Duties and Powers,
Company Law Reform in OECD Countries: A Comparative Outlook of Current
Trends, December 7-8 2000, 3 (The expression 'controlling shareholder' is used in
the same sense as Davies: "the 'non-controlling' shareholders may collectively
hold more voting shares than the 'controlling' shareholders. However, if the non-
controlling shares are widely dispersed, effective control of the company will lie in
the hands of the block-holder, even if that block consists of less than 50% of the
voting shares. In this paper the terms 'non-controlling' and 'minority' shareholders
are used interchangeably, with some preference for the latter term..."). See,
Annexure for a detailed shareholding pattern of some of India's largest listed
companies.

21. Urtiaga and Saez, supra note 8, 4-5.

18/08/2016 Delivery | Westlaw India Page 38

22. For example, Reliance Industries Limited had its origins in a small textile company
prior to its listing in 1977. Subsequently, the Reliance Group has grown to become
one of India's largest private sector enterprises with annual revenues in excess of
US$ 66 billion. Whilst this story might be slightly exceptional, it is by no means
the only story of a small privately held company eventually becoming a large
public listed company. See, Reliance Industries Limited, Major Milestones,
available at http://www.ril.com/html/aboutus/major_milestones.html (Last visited
on 28 July 2013).

23. See, Annexure for detailed shareholding pattern of BSE SENSEX 30 companies
(For example, as of June 30, 2013, the promoters hold 46.97% of Reliance
Industries Limited. For Wipro Limited, the promoters hold 74.98% as of June 30,
2013, whilst for Bharti Airtel Limited, the figure is 65.23%).

24. See, Annexure (For example, Mr. Mukesh Ambani (Reliance Industries Limited);
Mr. Kumar Mangalam Birla (Aditya Birla Group); Mr. Naveen Jindal (Jindal Steel
and Power Limited); Mr. Anand Mahindra (Mahindra and Mahindra) etc. are all
representatives of the promoter family and also simultaneously occupy senior
executive positions. However, some chairman of promoter controlled public
companies are making statements that the next generation of senior
management will not be drawn from the promoters' family). See, My Son Will
Never Become CEO of Wipro, Azim Premji Says, TIMES OF INDIA January 23,
2013, available at http:// articles.timesofindia.indiatimes.com/2013-01-
23/strategy/36504457_1_rishad-azim-premji- ceo-tk-kurien (Last visited on 28
July 2013).

25. In case of Coal India Limited, the state owns 90% (as of March 31, 2013).
Similarly as on March 31, 2013, the state owned 69.23% of Oil and Natural Gas
Corporation Limited. The trend is similar for most listed public sector companies.
(See, Annexure for detailed breakdown).

26. Varottil, supra note 16, 290 (India suffers predominantly from the majority-
minority problem, and not the manager-shareholder agency problem).

27. Jeffrey N. Gordon, The Rise of Independent Directors in the United States, 1950-
2005: Of Shareholder Value and Stock Market Prices, 59 STAN. L. REV. 1465,
1477 (Based on research on American companies, Gordon asserts that the term
'independent director' entered the corporate governance lexicon in the 1970s.
Prior to that, the board was divided into inside (management) and outside (non-
management) directors. During the 1990s which were dominated by hostile bids,
the concept of independent director got a further boost. More recently, mega
corporate scandals such as Enron, WorldCom etc. (in the West), and Satyam (in
India) have led to increased debate aimed at strengthening the position of
independent directors).
18/08/2016 Delivery | Westlaw India Page 39

28. Eugene F. Fama and Michael C. Jensen, Separation of Ownership and Control,
JOURNAL OF LAW AND ECONOMICS, Vol. 26, No. 2 (Corporations and Private
Property: A Conference Sponsored by the Hoover Institution, June, 1983), 322
(Fama and Jensen refer to this separation as the separation between decision
control and decision management).

29. Davies, supra note 19, 6 (Davies talks about the ambiguous position of the board
in large companies. His understanding is that in the nineteenth century, the
board was often conceptualised as the body which supervises the management on
behalf of the shareholders. If however, the accountability of the board to the
shareholders is weak, the board will be controlled by the management, and will fail
to serve the function it was meant to. In that scenario, the board would become
an expression of unaccountability of the management rather than an instrument
for the control of management by shareholders).

30. Statement of the Business Roundtable, The Role and Composition of the Board of
Directors of the Large Publicly Owned Corporation, 33 Bus. Law. 2083, 2092,
1977-1978 (This trend was noticed in India as well). See, Kumar Mangalam Birla
Committee Report, supra note 14, 6.3 ("Till recently, it has been the practice of
most of the companies in India to fill the board with representatives of the
promoters of the company, and independent directors if chosen were also
handpicked thereby ceasing to be independent").

31. Noyes E. Leech and Robert H. Mundheim, The Outside Director of the Publicly Held
Corporation, 31 BUS. LAW. 1799, 1803 (1976).

32. Id. But see, Committee on Corporate Law Departments, Report of the Committee
on Corporate Law Departments on Corporate Director's Guidebook, 32 BUS. LAW.
1841, 1842 (1977).

33. Gordon, supra note 26, 1468.

34. Id., 1477; Also see Proposed Rules Relating to Shareholder Communications,
Shareholder Participation in the Corporate Electoral Process and Corporate
Governance Generally, Exchange Act Release No. 14,970, 15 SEC Docket 291
(July 18, 1978) (cited in id).

35. Opening Statement of Harold M. Williams, Chairman, Securities and Exchange

Commission at the Commission's Consideration of Rulemaking Proposals
Concerning Shareholder Communications, Shareholder Participation in the
Corporate Electoral Process and Corporate Governance Generally, Announced in
Securities Exchange Act Release No.14970, 6, November 15, 1978, available at
http://www.sec.gov/news/speech/1978/111578williams.pdf (Last visited on 2
18/08/2016 Delivery | Westlaw India Page 40

August 2013).

36. Randall Morck, Behavioral Finance in Corporate Governance- Independent

Directors and Non-Executive Chairs, 3 (Harvard Institute of Economic Research
Discussion Paper Number 2037, May 2004) ("Corporate officers and directors, who
should have known better, placed loyalty to a dynamic Chief Executive Officer
above duty to shareholders and obedience to the law").

37. Urtiaga and Saez, supra note 8, 5.

38. Gordon, supra note 26, 1468.

39. Leech and Mundheim, supra note 30, 1800. Also see, Statement of the Business
Roundtable, supra note 29, 2097- 2103.

40. Renee B. Adams and Benjamin E. Hermalin et al, The Role of Boards of Directors
in Corporate Governance: A Conceptual Framework and Survey, JOURNAL OF
ECONOMIC LITERATURE 2010, 48:1, 58, 64. Also see, Stephen M. Bainbridge,
Why a Board? Group Decision Making in Corporate Governance, 55 VAND. L. REV.
1, 8 (2002).

41. American Bar Association, Subcommittee on Functions and Responsibilities of

Directors, Committee on Corporate Laws, Corporate Director's Guidebook, 32 BUS.
LAW. 5, 31, 1976-1977. Also see, Melvin Aron Eisenberg, Legal Models of
Management Structure in the Modern Corporation: Officers, Directors, and
Accountants, 63 CAL. L. REV. 375, 377 (1975); also see, Leech and Mundheim,
supra note 30, 1800 - 02.

42. The fact that the directors are the human manifestation of the company is
evidenced by the fact that personal liability for offences by the company is mostly
attached to the directors. See, infra note 52 (Dealing with the concept of 'officer
who is in default' under 5 of the Companies Act, 1956).

43. See generally, Victor Brudney, The Independent Director - Heavenly City or
Potemkin Village?, 95 HARV. L. REV. 598, 599 - 606, 643 (1982) (Brudney says
that the role of the independent directors is to align the long term interests of the
stockholders with those of the other constituencies. However, he admits that the
primary duty of the independent directors is towards the stockholders. He
expresses this sentiment, "....that cakes and ale are to be shared with strangers
only after the stockholders are well fed on beef and beer"). Also see, Corporate
Director's Guidebook 1976, supra note 40, 19- 20 ("The fundamental responsibility
of the individual corporate director is to represent the interests of the shareholders
as a group as the owners of the enterprise.... [T]he law does not hold the business
18/08/2016 Delivery | Westlaw India Page 41

corporation or the individual corporate director directly responsible to other

constituencies, such as employees, customers or the community, except to the
extent expressly provided by public law").

44. Clarke, supra note 18, 10 (The other stakeholders have legal protections outside
the company's mechanism. For example, the interests of the work force are
protected by labour laws. Likewise, there are insolvency laws, consumer protection
laws, environmental protection laws etc. to protect the interests of the other
stakeholders. Except for a petition against oppression and mismanagement, there
are not many legal remedies available to the minority shareholders. Even in case
of winding up of the company, the shareholders rank at the bottom of the list of
creditors to be paid out of the company's liquidated assets).

45. Clarke, supra note 18, 2. C.f. New York Stock Exchange, Final NYSE Corporate
Governance Rules, 4 (The NYSE commentary on the desirability of having a
majority of independent directors in company boards arises from the stated
presumption that it will increase the quality of board oversight and lessen the
possibility of damaging conflicts of interest). Also see, Vikramaditya Khanna and
Shaun J. Mathew, The Role of Independent Directors in Controlled Firms in India:
Preliminary Interview Evidence, NAT'L. L. SCH. OF INDIA REV. 22, 39 (2010)
(Several interviewees contacted by Khanna and Mathew reported that imposing
substantial monitoring obligations on independent directors would be contrary to
the realities of modern board service).

46. Id., Clarke, 5. Also see, Leech and Mundheim, supra note 30 (Leech and
Mundheim say that the SEC has often relied on outside directors to promote its
own regulatory objectives).

47. Stephen M. Bainbridge, A Critique of the NYSE's Director Independence Listing

Standards (University of California, Los Angeles School of Law Research Paper
Series, Paper No. 02- 15). C.f., Fama and Jensen, supra note 27, 315 (Fama and
Jensen hypothesise that outside directors, particularly if they are trying to build a
reputation as experts in their field, have the incentives to monitor the board
effectively). Also see, Corporate Director's Guidebook 1976, supra note 40, 33
(Although by virtue of being divorced from the management, independent
directors are expected to spend less time on company matters than management
directors, they should nonetheless spend sufficient time in order to be able to
perform their job well).

48. Under Companies Act, 1956, 5, all executive and shadow directors of the
company come within the definition of 'officer who is in default' for purposes of
liability under the Companies Act, 1956. Whilst even independent directors can
technically come within the ambit of the expression, they are unlikely to be
implicated in light of Master Circular No. 1/2011 dated July 29, 2011 of the
Ministry of Corporate Affairs. The circular specifies that the Registrar of
18/08/2016 Delivery | Westlaw India Page 42

Companies should take extra care before proceeding against non-executive

directors particularly for breaches that happened without that director's
knowledge. Apart from that, there are positive obligations on the company to
ensure that the company is compliant with the legal and accounting requirements.
See, e.g., Companies Act,1956, 217(2AA). There is a similar provision under
English law as well, see UK Companies Act, 2006, 393.

49. Principle IV.D.6, Organisation for Economic Co-operation and Development, OECD
Principles of Corporate Governance (2004): One of the functions of the board of
directors is to monitor and manage potential conflicts of interest of management,
board members and shareholders, including misuse of corporate assets and abuse
in related party transactions.

50. Brudney, supra note 42, 610.

51. Clarke, supra note 18, 5-6.

52. See, Byoung-Hyoung Hwang and Seoyoung Kim, It Pays to Have Friends, 93 J.
FIN. ECON (2009) 138 (Hwang and Kim assess the impact of close social
relationships on the performance of independent directors, and conclude that
directors who are socially related to the CEO are likely to be less effective as
monitors). Also see, Brudney, supra note 42, 612. Also see, Urtiaga and Saez,
supra note 8.

53. Morck, supra note 35, 18.

54. Brudney, supra note 42, 613. Also see, Julian Velasco, Structural Bias and the
Need for Substantive Review, 82 WASH. U. L.Q. 821, 859 (2004) (In the context
of the US courts' reluctance to take into account social relationships when deciding
on cases involving the business judgement rule, Velasco says, ".... the influence of
friendship should not be underestimated. To pretend that financial interests are
inherently stronger than the bonds of friendship is both substantively indefensible
and morally insulting").

55. Statement of the Business Roundtable, supra note 29, 2107.

56. Clarke, supra note 18, 6.

57. Gordon, supra note 26, 1469.

58. Khanna and Mathew, supra note 49.

18/08/2016 Delivery | Westlaw India Page 43

59. Clarke, supra note 18, 10.

60. See generally, Leech and Mundheim, supra note 30. Also see, Lynne L. Dallas,
Developments in U.S. Boards of Directors and the Multiple Roles of Corporate
Boards, 18 (University of San Diego School of Law Public Law and Legal Theory
Research Paper No. 48 and Law and Economics Research Paper No. 1) (Citing
MELVIN ARON EISENBERG, THE STRUCTURE OF THE CORPORATION 139-85
(1976)). Also see, Marshall L. Small, The 1970s: The Committee on Corporate
Laws Joins the Corporate Governance Debate, 74 LAW and CONTEMP. PROBS.
129, 132-134 (Winter 2011) (Small discusses the work of the Subcommittee on
Functions and Responsibilities of Directors constituted by the American Bar
Association which recommended that non-management directors constitute a
majority of the full board of directors, and were to have a primary role in selecting
the CEO and other key officers, apart from having responsibilities in relation to
compensation of key management, oversight of the company audit system, and
nomination of directors etc. Although these recommendations were initially met
with hostile criticism from the corporate sector, they were mostly approved by the
Statement of the Business Roundtable). Also see, New York Stock Exchange, supra
note 49.

61. IM-5605-4 of the NASDAQ Equity Rules state that companies listed at NASDAQ
have a minimum of three members and be comprised only of independent
directors, available at http://nasdaq.cchwallstreet.com/
NASDAQTools/PlatformViewer.asp?selectednode=chp _1_1_4_3_8_3andmanual=
%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F (Last visited on 30 July 2013).
Also see, NYSE's Listed Company (Audit Committee Additional Requirements),
303A.07, which require all audit committee members to be independent. The
same position is replicated under Sarbanes-Oxley Act of 2002, 301. The position
is similar in the UK. See, UK Corporate Governance Code, C.3.1, which state
that audit committees should comprise exclusively of independent directors. But
see, Clause 49 of the Indian Listing Agreement which does not require audit
committees to be exclusively independent although there is a requirement that
two-thirds of its membership should be independent. The composition is proposed
to be tightened under Companies Act, 2013, 177(2), which requires that a
majority of the members of the audit committees should be independent.

62. Gordon, supra note 26, 1479 - 80 (Citing NYSE, Inc., Listed Company Manual
303 and supp. (1983) embodying Proposed Rule Change by Self-Regulatory
Organizations, 42 Fed. Reg. 8737 (February 11, 1977), and Order Approving
Proposed Rule Change, 42 Fed. Reg. 14, 793 (March 16, 1977)). (This relaxation
is significant considering that the 1977 NYSE audit committee listing standard
required staffing by "directors independent of management").

63. See, L. Murphy Smith, Audit Committee Effectiveness: Did the Blue Ribbon
Committee Recommendations Make a Difference?, INT. J. ACCOUNTING,
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AUDITING AND PERFORMANCE EVALUATION, Vol. 3, No. 2, 2006, 240, 251.

64. NYSE Corporate Accountability and Listing Standards Committee,

Recommendations to the NYSE Board of Directors, 6 - 8, available at
http://www.nyse.com/pdfs/corp_govreport.pdf (Last visited on August 3, 2013).

65. NYSE, Final NYSE Corporate Governance Rules, 4.

66. NYSE's Listed Company Manual (Independence Tests), 303A.02 effective from
July 1, 2013, available at
http://nysemanual.nyse.com/LCMTools/PlatformViewer.asp?
selectednode=chp_1_4_3andmanual=%2Flcm%2Fsections%2Flcm-sections%2F
(Last visited on August 3, 2013).

67. Preface, Financial Reporting Council, The Corporate Governance Code (September
2012), 7.

68. Id., 4 (The London Stock Exchange requires that any listed company that does not
comply with the UK Corporate Governance Code issue a statement indicating that
the company is not in compliance and explaining the reasons for such non-
compliance. The Financial Reporting Council states that the 'comply or explain'
approach is the trademark of corporate governance in the UK. It has been in
operation since the commencement of the Code and is the foundation of the
Code's flexibility. Also, the UK Corporate Governance Code only applies to FTSE
350 companies, i.e., the 350 largest listed companies in the UK classified by
market capitalisation).

69. Cadbury Committee Report, supra note 48, 4.1.

70. Id. 4.12.

71. Id.

72. Id. 4.35.

73. Report of the Study Group chaired by Sir Richard Greenbury on Directors'
Remuneration Committee, 4.8 and 4.9.

74. Financial Reporting Council, The Combined Code on Corporate Governance (July
2003), A3.2 (The Combined Code recommends a minimum of two independent
non-executive directors for listed companies below the FTSE 350).
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75. Id., C3.1.

76. Id. B2.1.

77. Id. A4.1.

78. Id., A3.1.

79. Financial Reporting Council, supra note 75, B1.1 ( B1.2 of the UK Corporate
Governance Code has also retained the requirement of having boards with
majority of independent non- executive directors for FTSE 350 companies).

80. See generally, CII Report, supra note 3, Recommendation 2.

81. Kumar Mangalam Birla Committee Report, supra note 14, 6.5.

82. See supra text accompanying note 23. Also see, Mr. Nawshir Mirza, Independent
Director, Presentation on the Role of the Board in Related Party Transactions,
available at http://www. nfcgindia.org/se_1.pdf (Last visited onAugust 4, 2013)
("... I could indirectly be influenced by this emotional connection, as it were,
between me and my business partner and indeed between me and my wife, my
brother-in-law and all the other vast army of relatives that all of us, Indians
always have").

83. C.f., Kumar Mangalam Birla Committee Report, supra note 14, 6.5 (The Kumar
Mangalam Birla Committee Report does not specifically state that persons related
to the promoters or the members of the senior management will be considered
tainted. By including that in the list of exclusions, clause 49 of the Listing
Agreement marks a major improvement over the Kumar Mangalam Birla
Committee Report recommendations).

84. Clause 49(A)(iii)(f ), Listing Agreement.

85. Id., Clause 49(A)(iii)(d).

86. Id., Clause 49(I)(A)(iii); C.f. infra note 95(Companies Act, 2013, 149).

87. Companies Act, 2013, 149(6)(a).

88. Id., 149(6)(d).

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89. Id.

90. Id., 149(6)(e).

91. See, Companies Act, 2013, 149(6)(d)-(e) (Being an employee, proprietor or

partner of a law or consultancy firm will be considered to be a tainting factor if
such firm derives ten percent or more of the gross turnover from business with the
listed company).

92. See for example, Companies Act, 1956, 255.

93. This general statement does not always hold true in jurisdictions with companies
having more dispersed shareholdings, where there have been reports of
shareholders joining forces to vote down directors. This has led to the coinage of
the expression 'shareholder spring'.

94. Bainbridge, supra note 17, 1060.

95. DEREK HIGGS, REVIEW OF THE ROLE AND EFFECTIVENESS OF NON-EXECUTIVE

DIRECTORS, January 2003, 10.5. Also see, Eisenberg, supra note 40, 382(Many
of the outside directors are tied to the CEO by social or professional ties, and one
of the likely considerations in the selection process is "....whether the candidate
can be counted on not to rock the boat").

96. Varottil, supra note 16, 323 (Quoting AT Kearney, AZB and Partners and Hunt
Partners, India Board Report - 2007: Findings, Action Plans and Innovative
Strategies (2007)).

97. It is a rather strange paradox because technically, the management serves the
company at the pleasure of the directors, although it does not play out quite as
well in practice. In the absence of a truly independent nomination committee, the
management plays an important role in the nomination of potential directors.

98. Most companies follow the 'first past the post' method of election in general
meetings. Under that system, it is but obvious that the candidates having the
support of the large shareholders are most likely to get elected. This leads to a
circuitous chain resulting in the creation of self- perpetuating boards, which is
essentially a representative body of the controlling shareholder. This can
potentially lead to the controlling shareholders enjoying virtually untrammeled
powers in the company.

99. Particularly in the Indian context, a person who is related to a major shareholder
18/08/2016 Delivery | Westlaw India Page 47

is not eligible to be considered for independent directorship.

100. Companies Act, 1956, 265 already allows a company to adopt in its articles, a
provision that the election of its directors will be conducted by the method of
proportional representation. A similar provision is also contained in Companies
Act, 2013, 163. However, I have noted that very few companies have actually
adopted this practice in their articles.

101. Leech and Mundheim, supra note 30, 1830 (Leech and Mundheim caution against
paying very high fees to independent directors. Their understanding is that if an
independent director is materially dependent on the compensation derived from
the company, his independence is likely to be compromised. This means that the
compensation for independent directors must strike the subtle balance between
not being too low so as not to be able to attract the right talent and not to be too
high as would compromise the director's independence. Also see, Varottil, supra
note 16, 327 (Varottil concludes on the basis of interviews that increased
compensation is unlikely to affect a director's independence particularly if he is a
director on multiple boards).

102. S.H. Goo and Fidy Xiangxing Hong, supra note 12, 497. Also see, Varottil, supra
note 16, 327. C.f., Brudney, supra note 42, 643 (Independent directors who are
from non-traditional backgrounds may give to its management, a different and
holistic perspective of its business).

103. Bainbridge, supra note 17, 1059. Also see, Velasco, supra note 58, 824 (Velasco
uses the term 'structural bias' to mean the prejudice that directors tend to have in
favor of each other and also the management. By referring to US judgements, he
says that the structural bias can arise as a result of 'common cultural bond' and
'natural empathy and collegiality', the 'economic or psychological dependency....',
and the 'process of director selection and socialization, which incumbent
management dominates'. Velasco believes that structural bias can often lead
directors to protect the interests of each other and the management rather than to
act in the interests of shareholders).

104. For example, at the time of the fraud in 2008-09, the board of directors of Satyam
Computer Services Limited comprised of a majority of independent directors, who
were all extremely highly regarded in their respective fields. The company was
fully compliant with the requirements prescribed by Clause 49, Listing Agreement
and the Sarbanes-Oxley Act, 2002 in relation to its NYSE listing. There are reports
that the independent directors were suspicious about some of the transactions,
and had even objected. However, the objections were not strong enough, and
eventually the objectionable transactions were cleared unanimously. See Varottil,
supra note 16, 323-340 for a discussion on the role of the independent directors
during the Satyam fraud.C.f., Id., Velasco, 860 - 863 ("....even disinterested
directors will tend to favor other directors because of psychological forces such as
18/08/2016 Delivery | Westlaw India Page 48

ingroup bias.") (Velasco does not address the issue of the psychological factors
arising from the CEO's dominant position; rather his understanding is that the
directors tend to support each other because of the psychological factors arising
from cultural and social closeness).

105. See generally, Morck, supra, note 35(The Milgram experiment on obedience to
authority figures is a series of psychology experiments conducted by Stanley
Milgram, then an Assistant Professor of Psychology at Yale University, which
assessed the willingness of human participants to obey a legitimate authority
figure who had instructed them to perform certain actions which conflicted with
their own ethical standards. The purpose of the experiments was to see how far a
subject would proceed before refusing to comply with the experimenter's
instructions. The experiment involved three characters - two actors (one playing
the character of a 'psychology professor/experimenter' and another playing the
role of the 'learner'); and the real subject of the experiment who was asked to
play the role of a 'teacher'. As part of the experiment, the 'teacher' was made to
believe that the 'learner' was the real subject of an experiment on the effect of
punishment on learning and memory. The 'experimenter' then asked the 'teacher'
to ask a question to the 'learner', and administer an electric shock every time the
'learner' gave an incorrect answer. The subjects were also made aware that the
voltage of electric shocks they would administer might be lethal, but were asked
to do so as part of the experiment. The study showed that a vast majority of the
subjects complied with the instructions despite the knowledge that what they were
doing was morally wrong). See generally, STANLEY MILGRAM, OBEDIENCE TO
AUTHORITY, 1974.

106. See, Id., Morck (One of the findings of Milgram's experiment is that if there are
more than one legitimate authority figures, the subject's loyalty is undermined and
they revive their internal moral reasoning. This can also be used as a justification
for having lead independent directors and non-executive chairs as mandated by
the UK Corporate Governance Code (alternative authority figures) to offer
alternatives to the other directors).

107. Id., Morck, 20. C.f., Davies, supra note 19 (Some independent directors believe
that being competent monitors on behalf of the shareholders will help them
develop good reputations, which will have positive effect on their careers).

108. Bainbridge, supra note 17, 1061.

109. MILGRAM, supra note 113, 64.

110. Supra note 69 for discussion on audit committee independence requirements in

the UK, the US and India.
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111. Bainbridge, supra note 17, 1056 (Management directors, by virtue of having spent
a considerable period of time with the company, usually have a better
understanding of the firm's internal workings and culture, and are more likely to
be able to visualise a board decision in the broad perspective).

112. Corporate Director's Guidebook 1976, supra note 40, 35.

113. Whilst I understand that this suggestion may be considered slightly radical, there
has been a general understanding that having exclusive sessions of independent
directors are more likely to make them effective as monitors, and would also give
them a better chance to exchange evaluations. See generally, Leech and
Mundheim, supra note 30, 1826.

114. Companies Act, 2013, Schedule IV, VII. Also see, Dallas, supra note 64, 2
(Dallas asserts that boards are increasingly following the practice of having
independent directors to meet in separate sessions).

115. See generally, NYSE's Listed Company Manual (Executive Sessions), 303A.03 (as
amended on November 25, 2009), available at
http://nysemanual.nyse.com/LCMTools/PlatformViewer. asp?
selectednode=chp_1_4_3andmanual=%2Flcm%2Fsections%2Flcm-sections%2F
(Last visited on 3 August 2013) (The NYSE mandates regular sessions of non-
management directors without the presence of the executive directors. However,
the manual does not prescribe the number or frequency of these sessions. Also,
these sessions are not exclusively for the independent directors who are required
to have an exclusive session once every year).

116. COMMISSIONE NAZIONALE PER LE SOCIET E LA BORSA (CONSOB), Regulations

Containing Provisions Relating to Transactions with Related Parties (adopted vide
Resolution no. 17221 of March 12, 2010, later amended by Resolution no. 17389
of June 23, 2010): Boards of listed companies are allowed to carry out a related
party transaction exceeding a certain value only if a committee comprised entirely
of independent directors gives a favourable report. Absent such a favourable
report, the related party transaction must be put to vote in a general meeting.
Also see, Italian Corporate Governance Code, Art.7.

117. Morck, supra note 35,11.

118. Id. Urtiaga and Saez, supra note 8, 6 (Urtiaga and Saez assert that academic
literature has failed to show a direct link between independent directors and firm
performance). C.f, Dahya and McConnell, supra note 9, 3, 21 (Dahya and
McConnell find that compliance with the Cadbury recommendations was followed
by a statistically and economically significant improvement in operating
performance. Such compliance also showed better stock prices).
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119. Sudhakar V. Balachandran, The Satyam Scandal, FORBES January 7, 2009,

available at http:// www.forbes.com/2009/01/07/satyam-raju-governance-oped-
cx_sb_0107balachandran.html (Last visited on July 30, 2013) (In January 2009,
the Chairman of the erstwhile Satyam Computer Services Limited confessed to
having manipulated the company's financial statements by overstating the
company's revenues and profits and reporting fictitious cash holdings of
approximately USD 1.04 billion).

120. Companies Act, 1956, 263(1): At a general meeting of a public company or of a

private company which is a subsidiary of a public company, a motion shall not be
made for the appointment of two or more persons as directors of the company by
a single resolution, unless a resolution that it shall be so made has first been
agreed to by the meeting without any vote being given against it.

121. Varottil, supra note 16, 315.

122. Companies Act, 1956, 284(1): A company may, by ordinary resolution, remove
a director (not being a director appointed by the Central Government in pursuance
of section 408) before the expiry of his period of office.

123. Varottil, supra note 16, 315.

124. See supra text accompanying notes 129-130.

125. SEBI Consultative Paper on Review of Corporate Governance Norms in India,

2013.

126. Richard S. Dalebout, Cumulative Voting for Corporation Directors: Majority

Shareholders in the Role of a Fox Guarding a Hen House,1989 BYU Law Rev. 1199,
1200.

127. Id.

128. Companies Act, 1956, 265:Notwithstanding anything contained in this Act, the
articles of a company may provide for the appointment of not less than two-thirds
of the total number of the directors of a public company or of a private company
which is a subsidiary of a public company, according to the principle of
proportional representation, whether by the single transferable vote or by a
system of cumulative voting or otherwise, the appointments being made once in
every three years and interim casual vacancies being filled in accordance with the
provisions, mutatis mutandis, of section 262. The provision under 163 of the
Companies Act, 2013 is nearly identical.
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129. Dalebout, supra note 134. Also see, Varottil, supra note 16, 317.

130. Companies Act, 1956, 31.

131. Dalebout, supra note 134, 1201.

132. But see, SEBI Consultative Paper, supra note 133, 11.2 (The SEBI Consultative
Paper does not recommend that the cumulative method of elections be made
mandatory).

133. Jeffrey N. Gordon, Institutions as Relational Investors: A New Look at Cumulative

Voting, 94 COLUM. L. REV. 124, 165. Also see Davies, supra note 19, 13.

134. Id.,Gordon.

135. Dalebout, supra note 134, 1206 (The ways in which companies nullified the
effects of mandatory cumulative voting included reducing the total number of
directors in the company; dividing the directors and/or shareholders into different
classes; using unequal voting rights for different classes of shareholders; and also
included the rather drastic measure of removal of minority directors without
cause).

136. Gordon, supra note 141, 167-169.

137. Id., 170.

138. Id., 171, 173.

139. Id., 171. Also see, Varottil, supra note 16, 342 (Varottil writes: "In the U.S.,
hedge funds and other institutional shareholders effectively monitor and
sometimes agitate against inefficient boards and managements and also help
shape general corporate governance norms. They are ably aided by proxy
consultants such as RiskMetrics to build coalitions of institutional investors to
adopt an 'activist' role in companies").

140. Institutional Investor Advisory Services, Breaking the Boardroom Barrier -

Cumulative Voting: GSK Consumer Healthcare, available at
http://www.moneycontrol.com/news_html_ f iles/news_at tach ment /2013/
Instit utional_Eye_Cu mulative%20Voting _GSK%20(1%20 April%202013).pdf
(Last visited on 3 September 2013).
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141. Brudney, supra note 42, 621.

142. Id.

143. Varottil, supra note 16, 360.

144. Companies Act,1956, 252 states that a public company having a paid-up capital
of five crore rupees or more; and having more than a thousand small shareholders
(defined as holding shares of nominal value of twenty thousand rupees), may have
a director elected by such small shareholders. The procedure for the appointment
has been prescribed under the Companies (Appointment of the SMALL
SHAREHOLDERS DIRECTOR) RULES, 2001

145. Tania Kishore Jaleel, As a Small Shareholder, Your Path to a Company's Board is
Blocked, BUSINESS STANDARD (Mumbai) August 21, 2012 (Jaleel quotes Mumbai
based corporate lawyers to assert that contrary to popular belief, the company has
sole discretion on whether to appoint a small shareholders' director. Also there are
logistical issues involved, as not enough small shareholders may choose to vote).

146. SEBI Consultative Paper, supra note 133, 11.1.

147. Leech and Mundheim, supra note 30, 1805, 1830 (Whilst the independent
directors should be primarily responsible for safeguarding the interests of a
particular section of stakeholders, the law should not encourage a scenario where
a part of the board views itself as the adversary of the management and/or the
controlling shareholders. If this comes to pass, I fear that one agency problem will
give rise to another).

148. Khanna and Mathew, supra note 49, 37 (Based on interviews, Khanna and Mathew
find that all the interviewed independent directors viewed their primary role as
being strategic advisers to the promoters).

149. Companies Act 1956, 284 (3)(The position is nearly identical in the UK under
169 (2), UK Companies Act 2006).

150. Bernard S. Black and Brian R. Cheffins et al, Outside Director Liability, 58 STAN. L.
REV. 1055, 1059. Also see, Khanna and Mathew, supra note 49, 37.

151. Master Circular No. 1/2011 dated July 29, 2011 of the Ministry of Corporate
Affairs, 3-4.
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152. Varottil, supra note 16, 343-344. Also see, Rajesh Chakrabarti and Krishnamurthy
V. Subramanian et al, Independent Directors and Firm Value: Evidence from an
Emerging Market, available at http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=1631710 (Last visited on August 1, 2013) (Chakrabarti and
Subramanian quote Prithvi Haldea, "....many (independent directors) are worried
that their life's reputation can be ruined overnight and they in fact not only
become persona non-grata, but also invite media ridicule and government
prosecution. Is the fee they earn enough for them to expose themselves to such
risks, is a question many are asking?")

153. Khanna and Mathew, supra note 49, 36.

154. UK Corporate Governance Code, supra note 75, A.2.1: The roles of chairman
and chief executive should not be exercised by the same individual.

155. UK Corporate Governance Code, supra note 75, A.3.1: The chairman should on
appointment meet the independence criteria set out in B.1.1 below. A chief
executive should not go on to be chairman of the same company.

156. Clause 49 of the Listing Agreement says that if the chairman of the board is an
executive, at least half of the board must be independent directors; whilst if the
chairman is non-executive, the proportion of independent directors required is
reduced to a third of the size of the board.

157. Out of the thirty companies in the BSE SENSEX, only five companies have a
non-executive chairman. In eleven out of the thirty companies (including all six
state owned companies), the offices of the Chairman and the Managing Director
were vested in the same person. See, Annexure for details.

158. SEBI Consultative Paper, supra note 133, 11.11.

159. Varottil, supra note 16, 349.

160. Shareholding patterns as on June 30, 2013, available at

http://www.bseindia.com/corporates/ Sharehold_Searchnew.aspx?expandable=0
(Last visited on 15 August 2013).

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