Tata-Mistry Saga: Sebi finds no violations, mulls stricter norms

Amid the Tata-Mistry battle, Sebi feels that the board of a company can continue to seek expertise of a 'Chairman Emeritus' even after the person has left the company, though the regulator appears to be in favour of stricter norms for removal of independent directors.

Ever since the boardroom battle erupted at the conglomerate after removal of Cyrus Mistry as chairman in October last year and subsequent allegations by him, including about 'interference' by Ratan Tata, Sebi has been keeping a close watch on the developments related to the group.

The markets regulator has carried out a detailed scrutiny of any possible breach of securities laws, including about corporate governance and insider trading norms, a senior official said.

However, no serious breach of the existing provisions has been found so far and any violation that may come to light would be dealt with accordingly, the official added.

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At the same time, the regulator is of the view that the Tata-Mistry episode has shown that further tightening of rules may be required for removal of an independent director.

This stance, which will be shared with the Corporate Affairs Ministry, has emerged since the norms for re-appointment of independent directors are much stricter already.

Sources said that Sebi apprised its board in the last meeting about the developments regarding Tata-Mistry case, including the allegations of irregularities in removal of independent directors and on sharing of sensitive information with Chairman Emeritus.

It was felt that when a person is appointed Chairman Emeritus, the company's board can discuss with the person various issues relating to corporate performance, mergers and acquisitions, divestments and other important details to benefit from the person's experience.

According to Sebi, communication of unpublished price sensitive information can be done for "legitimate purposes, performance of duties or discharge of legal obligations".

Under Sebi (Prohibition of Insider Trading) Regulations, communication of unpublished price sensitive information (UPSI) is permitted if it is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

With respect to independent directors, the view is that special resolution should be passed for their removal as is the case for their re-appointment.

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A special resolution requires approval of at least 75% of shareholders while only 50% is needed in the case of an ordinary resolution.

Sources said a decision in this regard would be taken after discussions with the Corporate Affairs Ministry, which is implementing the Companies Act. 

Earlier, Sebi had sought details from various Tata group firms following receipt of letters from Mistry and ousted independent director Nusli Wadia, both of whom had allegations of violation of corporate governance norms.

Against the backdrop of Tata-Mistry board room battle, Sebi recently came out with a detailed guidance note for evaluation of boards of listed companies including the role of independent directors in order to provide more clarity for stakeholders.

Wadia, a prominent businessman who has been associated with Tatas for decades, wrote to Sebi flagging alleged instances that violated corporate governance and insider trading regulations with regard to some listed group firms.

He was removed as independent director from the boards of Tata Chemicals, Tata Steel and Tata Motors. Mistry too has quit the boards of various Tata firms.

In a petition before the National Company Law Tribunal (NCLT) last month, Mistry accused Ratan Tata of having influenced key decisions in the functioning of the conglomerate at a time when he did not have any managerial role, and having sought price-sensitive information from the group's companies.

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