Why are PSU’s not appointing/nominating independent directors? ~ Shareholder Awareness Program

Why are PSU’s not appointing/nominating independent directors?

Article published as on Sunday, 31^st December, at 11:00 p.m.

Powergrid

Exchange filing of 25^th August

In an exchange filing dated 25^th August, PSU Powergrid corporation has said it had received notice from the exchange dated 21^st August, 2023 for non-compliance with the provision. That is not having requisite number of independent directors (including women directors) on the board for the quarter ended 30^th June, 2023. And both BSE and NSE imposed a fine of ₹5,36,900 each for the non-compliance.

And here is the response given by the company to the exchange for the given notices.

In response to the aforesaid notices, POWERGRID vide letter dt. 22.08.2023 has requested NSE & BSE to grant waiver of the fine w.r.t. non-compliance of Regulation 17(1) of the SEBI (LODR), Regulations, 2015. POWERGRID, being a Government Company within the meaning of Section 2(45) of the Companies Act, 2013, the power to appoint functional/ Official Part-time Directors/ non-Official Part-time Directors (Independent Directors) vests with the President of India. The said non-compliance of Regulation 17(1) of the SEBI (LODR), Regulations, 2015 for the quarter ended 30th June, 2023 was not a lapse on the part of the Company. The matter has been regularly taken up with Administrative Ministry i.e. Ministry of Power for filling up the vacant posts of Independent Directors (including one woman Independent Director)

Exchange filing of 24^th November

Again an exchange filing was filled on 24^th November, wherein they received letter dated 21.11.2023 regarding non-compliance for the same issue. With a fine of 5,42,800 from NSE and BSE each.

Other Companies

Not only Powergrid but several other PSU’s like IOCL, ONGS, OIL, BPCL, HPCL, Engineers India, IRCTC and many other non-PSU’s like Spicejet and Adani green energy have also been fined for non-compliance relating to requirement of Woman and independent directors.

My understanding and Analysis

As per their reply, Powergrid being a Government company, the power the appoint directors (including independent directors) vests with the president of India.

This is true not only for the PSU, but all the companies, if we view President of India as a shareholder.

In every company, the directors are nominated for appointment, and shareholders can cast their vote to appoint them on the board.

Same in the case of PSU’s the Board of Director should have strived to nominate and find candidature for independent director (which obviously it hasn’t) and then let president (the shareholder) decide if the Director is to be appointed or not.

The law here has been mis-interpreted and not is not being followed in true spirit.

As the saying goes, laws are meant to be broken if not obviously then deceitfully.

However we really cannot blame only the current management, because they are the agents appointed by Government itself.

Based on the example of Power-grid since no new independent directors were appointed till 31^st December, and after the sad demise of existing independent director Korachara Nagappar We could expect another letter notice demanding a fine of ₹5,42,800 (at ₹5,900 for 92 days of non-compliance)