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Independent directors had financial ties with RIL
BS Corporate Bureau in New Delhi | January 31, 2005 08:59 IST
Three independent directors on the Reliance Industries Ltd board -- DV Kapur, S Venkitaramanan and YP Trivedi -- or their relatives have had a pecuniary relationship with the company and its associate companies like Reliance Capital and Reliance Infocomm.
Kapur, a former bureaucrat who was co-opted into the RIL board in 2000-01, was appointed consultant from March 1, 2001, for a period of one year and was paid a lump sum professional fee of Rs 36 lakh (Rs 3.6 million).
The letter appointing him a consultant was signed by Reliance Capital Managing Director Anand Jain on February 15, 2001.
Mandira Agencies, a company based in New Delhi and believed to be controlled by Kapur's daughter, was appointed as consultant by Reliance Capital with effect from March 31, 2001, for a period of one year for a consideration of Rs 5.76 lakh (Rs 576,000).
Another company called Systems Advancements Consultants (P) Ltd, which bears the same address as Kapur's -- 405, Aradhana Apartments, RK Puram-13, New Delhi 110066 -- was also appointed consultant for the same period on similar terms and conditions. Both the letters were again signed by Jain.
According to Clause 49 of the listing agreement of RIL, an independent director means a non-executive director who, apart from his director's remuneration, does not have any material pecuniary relationship or transactions with the company, its promoters, its senior management or its holding company, its subsidiaries and associate companies.
It also says an independent director is one "who . . . for the last three years . . . is not a partner or executive of a consulting firm that has a material association with the entity."
If such a relationship exists, a director cannot be independent. As RIL has an executive chairman, Mukesh Ambani, the Companies Act requires that at least 50 per cent of the directors on its board should be independent.
Kapur, Venkitaramanan and Trivedi make up three of the six independent directors on the RIL board. TRU Pai, a fourth, died on January 26.
The penalty for not complying with the listing agreements is a fine of up to Rs 25 crore (Rs 250 million) and imprisonment of up to 10 years, according to the Securities Contract (Regulation) Act, 1956.
It is not known if Kapur disclosed this to the RIL board. It is also not clear what consultancy was provided by Kapur to the company.
When contacted, Kapur declined to comment on the issue. Kapur, it is worth noting, had proposed the resolution at the RIL board meeting on December 27, 2004, affirming full faith and confidence on the leadership of Mukesh Ambani as the company's chairman and managing director.
RIL had also appointed Chennai-based Profound Investment & Financial Consultancy Pvt Ltd, a firm controlled by a son-in-law of another independent director S Venkitaramanan, on a "consultancy basis" since 1998 for a fee of Rs 20 lakh (Rs 2 million).
Letters appointing the company were signed by RIL Executive Director Nikhil Meswani.
The consultancy service provided by this company includes "an entire overview of the Indian economy -- present and as envisaged in the future years -- as well as an analysis and developments in the infrastructure sector, including power as well as telecommunications."
The inputs were supposed to provide value addition to the company in preparing its comprehensive business strategy.
Two other Chennai-based companies controlled by another son-in-law of Venkitaramanan, Proficient Investment and Financial Consultancy P Ltd and Farvision Securities, were appointed retainers by RIL and Reliance Share & Stock Brokers Pvt Ltd on fees of Rs 75,000 and Rs 60,000, respectively.
Venkitaramanan, a former governor of the Reserve Bank of India who has served on the RIL board for over eight years, said he was not aware of these relationships.
All corporate governance issues were being looked into by a special committee of directors, he added.
Two sons of YP Trivedi were working in Mukesh Ambani's office for over two years from 2002 to 2004. Trivedi could not be reached for his comments.
Trivedi and Venkitaramanan have served as chairman and vice-chairman of the audit committee of the RIL board. An RIL spokesperson was not available for immediate comments.