Ingovern red flags Finolex’s re-appointment of directors

A dispute between the promoters of Finolex Cables (FCL), one of India’s leading electric and telecommunications cable manufacturers, has resulted in a game of musical chairs involving the board members of the company. Proxy advisory firm Ingovern says that FCL has taken its shareholders for a ride when it comes to board level appointments as all the directors lack shareholder approvals.

According to Ingovern, FCL appointed some persons as additional directors on the board immediately after an annual general meeting (AGM), who were voted out by the shareholders in the next AGM that is held after a year.

Once rejected, the same persons were re-appointed as additional directors and independent directors (IDs) who are liable to retire by rotation till the next AGM. This has been going on for three years, Ingovern says.

Additional directors get confirmed only after shareholders approve their appointments. As per the latest annual report of Finolex, it has a total of six board of directors of which five are additional directors and one is the chairman of the company who does not offer himself for a shareholder vote. Hence, there is no director liable to retire in the coming AGM. This way, the entire Finolex board lacks shareholder approval. Even the three IDs on the board are additional directors waiting for shareholder approval.

The right of shareholder

“We note that the composition of Finolex Cables may be in violation of the Companies Act 2013 and SEBI Listing regulations for the past three years. The company cannot take away the right of the shareholder to decide on matters of reappointment of directors. It defeats the purpose of corporate governance norms. Finolex has not been able to get its directors’ appointment approved by shareholders,” Ingovern’s report said.

While prior approval of shareholders to appoint IDs is a must, Ingovern says the executive chairman’s re-appointment too requires shareholder approval and the articles of association of the company that does not mandate it are in contravention of Companies Act, which gives shareholders a chance to vote on appointment of non-IDs too.

Ingovern says that going by the Companies Act, Deepak Chhabria, Finolex chairman, is liable to retire by rotation as he is a director who is longest in office and all others are additional directors lacking shareholder nod.

Promoter dispute

Resolutions for reappointment of directors cannot pass the majority shareholder vote since Orbit Electricals (OEPL) holding 30.7 per cent stake in FCL and Finolex Industries (FIL) with 14.5 per cent stake voted against each of the re-appointments. Both these corporate shareholders are controlled by Prakash Chhabria, a key promoter of FCL who is locked in dispute with DK Chhabria, FCL chairman, Ingovern says. They are cousins.

“A contention has been raised that the votes cast by the aforesaid two companies were contrary to the mandate under their constitutional documents, contractual commitments and these are subject matter of challenge before the court and the matter is thus sub judice,” Ingovern said in its report.

Queries sent to key company executives did not elicit a response.

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