[Samurai]

Originally Posted by Lalvaz

Secondly, the world over, non executive directors have a fiduciary responsibility of ensuring good governance. The non-executive directors are expected to oversee the performance of the executive directors and the management. They are typically held equally accountable to such regulatory provisions, such as tax laws as the executive directors.

Isn't that like responsibility without power?

Originally Posted by Lalvaz

Thirdly, since you have pronounced it as a flaw in the Company's Act, I'm curious as to what would you propose? Would you propose an amendment to the act, totally absolving all non executive directors for any acts of fraud and connivance? If thats the case, then who would ensure that non promoter shareholders interests are protected from dishonest promoters? And how would the non executive directors justify their remuneration? What would be their roles and responsibilities?

I work closely with lots of startups as a vendor. So I am very familiar with the chaos caused by young management (usually founders), who don't have any understanding of fiduciary responsibility towards stakeholders.

So what I am saying is, the first round of target for investigation should be executive directors and management. If it turns out that the non-executive directors voted for acts of violation, then round them up too. Don't punish folks who had no power to stop or knowledge of violation. If the company doesn't submit TDS or EPF payment to the government, is that something they would tell the board? Does the board get to vote on it? I don't think that will even come up in board meetings. Those are cashflow decisions made by management.

[Lalvaz]

Originally Posted by Samurai

Isn't that like responsibility without power?

No, I don't think its responsibility without power. Independent directors are empowered and are supposed to be distinguished personalities so they have a voice, and they do have the means and wherewithal to escalate acts of omission and commission by the promoters.

Originally Posted by Samurai

I work closely with lots of startups a vendor. So I am very familiar with the chaos caused by young management (usually founders), who don't have any understanding of fiduciary responsibility towards stakeholders.

So what I am saying is, the first round of target for investigation should be executive directors and management. If it turns out that the non-executive directors voted for acts of violation, then round them up too. Don't punish folks who had no power to stop or knowledge of violation. If the company doesn't submit TDS or EPF payment to the government, is that something they would tell the board? Does the board get to vote on it? I don't think that will even come up in board meetings. Those are cashflow decisions made by management.

I work closely with startups too, and have one of my own as well. But this discussion is not about us.

Now regarding your assertion that first round of investigation should be against the executive directors and management. Absolutely agree, and that's exactly how it happens. But when you term it as a "flaw" in the Companies Act, you are effectively saying that the law should be amended and that would mean that Non Executive directors should go scot free even if they're aware of wrongdoing or worse even if they've actually benefited from turning a blind eye. That in my opinion is not acceptable.

When wrong doing occurs, the management must be accountable, and if the Independent directors have failed in their fiduciary responsibility, they should be held accountable as well. To my mind, there is no "flaw" in holding them legally liable as per the Companies Act.

[Samurai]

Originally Posted by Lalvaz

Independent directors are empowered and are supposed to be distinguished personalities so they have a voice, and they do have the means and wherewithal to escalate acts of omission and commission by the promoters.

What happens if they are not aware of violations? Mundane violations beyond the visibility of the board. Byju's was famously not revealing information or listening to advice.

Originally Posted by Lalvaz

But when you term it as a "flaw" in the Companies Act, you are effectively saying that the law should be amended and that would mean that Non Executive directors should go scot free even if they're aware of wrongdoing or worse even if they've actually benefited from turning a blind eye. That in my opinion is not acceptable.

When wrong doing occurs, the management must be accountable, and if the Independent directors have failed in their fiduciary responsibility, they should be held accountable as well. To my mind, there is no "flaw" in holding them legally liable as per the Companies Act.

If one is complicit in the violation, one does not have be a director at all. The law seems to imply that one is complicit by simply by being a director. That is what I don't agree with.

Believe me, I have zero sympathy towards non-executive and independent directors of Byjus. When Byjus was doing highly unethical/evil things for many years, like immoral sales tactics or shutting down all critics (Dr Aniruddha Malpani, etc), they knew it well (along with the whole world) and kept their seat on the board. They didn't care as long as valuation stayed high. However, when it appeared that Byjus may have broken laws, they are jumping off the ship. If they were aware of it, and voted for it, they will be held accountable with or without this clause in the company act.

If we think of non-executive directors as watchdogs, they would do well if they are not considered guilty whenever there is a theft. Otherwise, it may even force them to join the coverup just to save themselves.

[Lalvaz]

Originally Posted by Samurai

What happens if they are not aware of violations? Mundane violations beyond the visibility of the board. Byju's was famously not revealing information or listening to advice.

Section 149(12)[11] of the Act provides that Independent directors shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.

Originally Posted by Samurai

The law seems to imply that one is complicit by simply by being a director. That is what I don't agree with.

I think you're making an incorrect assumption. Please explain the basis for your assumption.

Originally Posted by Samurai

If they were aware of it, and voted for it, they will be held accountable with or without this clause in the company act.

How can they be held accountable without the accountability clause? You do realize that one has to break the law first to be held accountable. If the law is amended to remove the "flaw", then which law would they be breaking? And how would they be accountable?

Originally Posted by Samurai

If we think of non-executive directors as watchdogs, they would do well if they are not considered guilty whenever there is a theft. Otherwise, it may even force them to join the coverup just to save themselves.

You want them to be considered as innocent even when there is theft? You wouldn't want them to face an investigation and let that investigation determine their complicity or otherwise?
I think we'll have to agree to disagree on this one.

Before I end this discussion, I would like to cite some cases wherein the role of the Independent directors came into the limelight.

1) PMC Bank
2) Yes Bank
3) ICICI Bank
4) Tata Saga
5) NSE

[Samurai]

Originally Posted by Lalvaz

Section 149(12)[11] of the Act provides that Independent directors shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.


I think you're making an incorrect assumption. Please explain the basis for your assumption.

Ok, we have come full circle now. Please read how this discussion started.

Read the moneycontrol article too.

[Lalvaz]

Originally Posted by Samurai

Ok, we have come full circle now. Please read how this discussion started.

Read the moneycontrol article too.

I had already read the moneycontrol article, and to quote from the same article, "the Bombay High Court stated that independent or non-executive directors are not liable for the actions of the company, specifically when such actions relate to the day-to-day functioning of the company, of which such independent directors are not a part of. The independent directors of the company had to file an application to excuse themselves from being prosecuted in a case where the company had dishonoured a cheque. Given they were independent directors, and were in no way involved in the day-to-day activities of the company, they were considered to be not liable."


The excerpt above shows that the judiciary is taking a balanced view and not holding independent directors accountable blindly. Which is how it should be. I fail to see how this translated into you calling the law flawed. I also don't see answers from you to the other questions posed by me.

1) If you remove the so called "flawed" clause, how will the independent directors be held legally liable?

2) Why would you demand that even in the event of wrongdoing by a company, these independent directors should be deemed innocent even without an investigation?

3) What is the basis for your assumption that the law assumes the independent directors are complicit? Are you unaware that Indian law and most country laws are famous for presuming that accused are innocent until proven guilty?

[Samurai]

Originally Posted by Lalvaz

1) If you remove the so called "flawed" clause, how will the independent directors be held legally liable?

When evidence finds them complicit, like any regular investigation. Why is this so hard to understand?

Originally Posted by Lalvaz

2) Why would you demand that even in the event of wrongdoing by a company, these independent directors should be deemed innocent even without an investigation?

Where did I demand that? Please show me. I said go after them when you find evidence of their involvement.

When law is worded in a certain way, it is very easy for interpret it in ways that is convenient to the law enforcement departments. If there is evidence of involvement, anyone can be held liable, not just independent directors. By wording the law as "Independent directors shall be held liable if...", what does that imply? Investigate them until they are proven innocent? And moneycontrol article says that is what they are doing. And how many years they are supposed suffer it?

Originally Posted by Lalvaz

3) What is the basis for your assumption that the law assumes the independent directors are complicit?

Are you sure you read the moneycontrol article? It clearly states the following:

Originally Posted by moneycontrol

They are all presumed guilty, and proceeded against as a matter of general course. Often times, we have come across directors who have resigned from the board being sent notices.

My whole point was about this. If you are unable to follow my thought, we can just stop this exchange.

[Lalvaz]

Originally Posted by Samurai

When evidence finds them complicit, like any regular investigation. Why is this so hard to understand?

They can be found complicit only after an investigation. So your earlier statement "If we think of non-executive directors as watchdogs, they would do well if they are not considered guilty whenever there is a theft." implies that there should be no investigation into the role of independent Directors since they're anyways considered not guilty.

Originally Posted by Samurai

Where did I demand that? Please show me. I said go after them when you find evidence of their involvement.

I've already quoted you above.

Originally Posted by Samurai

When law is worded in a certain way, it is very easy for interpret it in ways that is convenient to the law enforcement departments. If there is evidence of involvement, anyone can be held liable, not just independent directors. By wording the law as "Independent directors shall be held liable if...", what does that imply? Investigate them until they are proven innocent? And moneycontrol article says that is what they are doing. And how many years they are supposed suffer it?

The wording of the law is appropriate, and as I've pointed out earlier, ID's are held responsible for fiduciary responsibility in other countries too. Its not a "flawed" law. Regarding the number of years, That's just how our legal system works. It takes its own time, however the ID just has to prove his innocence. He does not get arrested by default, as you should be able to understand from the MC article you're quoting.

Originally Posted by Samurai

Are you sure you read the moneycontrol article? It clearly states the following:

Didn't I quote an entire para from the Moneycontrol article? What the law states is that the ID's are liable in case of wrongdoing. They are of course protected in case they have done their fiduciary duty and were uninformed about the wrongdoing. However they will have to follow the due process of law.

Originally Posted by Samurai

My whole point was about this. If you are unable to follow my thought, we can just stop this exchange.

Fine with me.

[Samurai]

Originally Posted by Lalvaz

So your earlier statement "If we think of non-executive directors as watchdogs, they would do well if they are not considered guilty whenever there is a theft." implies that there should be no investigation into the role of independent Directors since they're anyways considered not guilty.

No, it means treat them as not-guilty until some evidence points at them. Are you unaware that Indian law and most country laws are famous for presuming that accused are innocent until proven guilty?

Originally Posted by Lalvaz

Regarding the number of years, That's just how our legal system works. It takes its own time, however the ID just has to prove his innocence.

Oh, independent director has to prove his/her innocence? I thought the burden was proof was with the law enforcement. So this is the point of contention. Anyway, I don't agree with it.

[AltoLXI]

One more startup shuts down leaving employees high and dry.

Link

[RT13]

https://www.goodreturns.in/news/afte...GlkVL4zdtksnzg

More douchebaggery from the poster child of a douchey industry. They moved half a billion dollars to the name of a 23 year old kid in the US who was supposedly working out of an IHOP pancake joint in Miami! At this point one is starting to wonder exactly how much lower the bar can be (lowered). I mean, if I were the investors, I’d actually be insulted and embarrassed that I could be ripped off in such an unsophisticated, juvenile manner

[Samurai]

Originally Posted by RT13

They moved half a billion dollars to the name of a 23 year old kid in the US who was supposedly working out of an IHOP pancake joint in Miami!

Oh, I don't know. I have fond memories of Sunday brunches at IHOP from the 90s. After hearing this tenuous connection with IHOP, my impression of Byju's has gone up. Plus, the kid spent that money on some nice supercars too.

Originally Posted by RT13

I mean, if I were the investors, I’d actually be insulted and embarrassed that I could be ripped off in such an unsophisticated, juvenile manner

I suppose Byju's met the ESG requirements by BlackRock even while failing every ethical standard measured by common sense.

[RT13]

Originally Posted by Samurai

After hearing this tenuous connection with IHOP, my impression of Byju's has gone up. Plus, the kid spent that money on some nice supercars too.

Haha! Well I actually am proud of the kid if it really was him who picked up the cars. What’s a couple of million skimmed off half a bil. Byju’s, less so, for their lack of sophistication more than anything else.

Originally Posted by Samurai

I suppose Byju's met the ESG requirements by BlackRock even while failing every ethical standard measured by common sense.

Oh I’m not naive enough to imagine Blackrock as some beacon of ethics themselves. Investment bankers and PE managers are about as morally bankrupt as they come. It’s just a question of who doesn’t finish last in the sucker chain. I’m just amazed at the level of unbelievable stupidity not the lack of ethics. Greed clearly doesn’t just blind, it completely lobotomises ordinarily shrewd people.

[sandeepmohan]

Originally Posted by RT13

At this point one is starting to wonder exactly how much lower the bar can be (lowered).

Reminds me of the Theranos fiasco. Off course, these chaps operated with some finesse until the point where it came to present the actual test.

I am wondering if these investors read into the pitch at all or are their advisors so blind not to see a con job in the making.

[Red Liner]

Originally Posted by RT13

. I’m just amazed at the level of unbelievable stupidity not the lack of ethics. Greed clearly doesn’t just blind, it completely lobotomises ordinarily shrewd people.

Nothing but extreme FOMO. The fear of missing out.