HDFC Bank has decided to appoint external legal firms, both domestic and international, to review the circumstances surrounding Atanu Chakraborty's resignation.
Key Points
- HDFC Bank shares fell sharply after Atanu Chakraborty's resignation citing ethical concerns, triggering reputational and financial worries among investors.
- Legal experts are divided on whether shareholders can pursue action, with opinions split on fiduciary duty breach and liability thresholds.
- One view suggests potential class action suits and defamation claims if statements are proven negligent, harmful, and lacking substantiation.
Is there any legal recourse available to HDFC Bank and its shareholders for the reputational and financial losses allegedly caused by the resignation of former part-time chairman and independent director Atanu Chakraborty?
Legal experts remain divided on this question, with opinions split between 'yes' and 'no'.
In his resignation letter dated March 17, 2026 (received by the bank on March 18, 2026), Chakraborty stated: 'Certain happenings and practices within the bank, that I have observed over the last two years, are not in congruence with my personal values and ethics. This is the basis of my aforementioned decision.'
He also clarified that there were no other material reasons for stepping down.
Following the announcement, HDFC Bank's stock declined sharply, resulting in significant financial losses for shareholders and a dent in the bank's reputation.
Legal experts split on shareholder rights
According to D Varadarajan, a Supreme Court lawyer specialising in corporate and insurance law, shareholders may have legal recourse.
He argued that the former chairman's conduct caused harm to investors, who are already facing market volatility amid the ongoing Gulf War.
Varadarajan emphasised that the chairman, by virtue of his position, owed a fiduciary duty to stakeholders and should not have made unsubstantiated remarks.
He further stated that Chakraborty should have anticipated the potential damage caused by his statements.
In his view, shareholders could pursue a class action suit, while the bank itself could initiate defamation proceedings to recover both direct and collateral damages.
Varadarajan also questioned the timing of the allegations, asking why concerns observed over two years were raised only at the point of resignation.
He suggested that, if such issues persisted, the chairman might bear some responsibility for not addressing them earlier.
SEBI flags independent director responsibility
Echoing concerns about accountability, Tuhin Kanta Pandey, chairman of the Securities and Exchange Board of India, remarked that independent directors should act responsibly and avoid making insinuations.
However, a contrasting view was presented by Sonam Chandwani, managing partner at KS Legal and Associates, Mumbai.
She argued that shareholders are unlikely to have a sustainable cause of action.
"In my view, no sustainable cause of action arises for shareholders merely because the chairman's resignation citing 'ethical grounds' triggered a fall in share price," Chandwani said.
She explained that under tort law, claims such as defamation, negligent misstatement, or injurious falsehood would fail without a specific false statement, evidence of malice, and a clear causal link to the losses.
A vague and subjective statement, she noted, does not meet this threshold, and market-driven losses are typically treated as inherent investment risks.
Under the Companies Act, 2013, while directors have fiduciary duties to act in good faith, a bona fide resignation -- even if poorly worded -- does not constitute a breach unless it is proven to be reckless, misleading, or made in bad faith with demonstrable harm.
Even then, remedies would generally lie with the company rather than individual shareholders.
Chandwani also pointed out that legal remedies under Sections 241-242 (oppression and mismanagement) and Section 245 (class action) are unlikely to succeed without evidence of sustained fraudulent or prejudicial conduct affecting the company's affairs.
From a securities law perspective, she added, regulatory scrutiny by SEBI would arise only if the disclosure were materially misleading or manipulative -- something not evident in this case.
Therefore, a decline in share price following an ambiguous resignation does not, by itself, establish legal liability.
Meanwhile, HDFC Bank has decided to appoint external legal firms, both domestic and international, to review the circumstances surrounding Chakraborty's resignation.
Venkatachari Jagannathan can be reached at venkatacharijagannathan@gmail.com
Feature Presentation: Aslam Hunani/Rediff
