tag:blogger.com,1999:blog-3202774368551476669.post5792911648988092544..comments2023-09-15T16:21:31.980+05:30Comments on INDIAN CORPORATE LAW: Directors’ Actions: For Whose Benefit?Umakanth Varottilhttp://www.blogger.com/profile/12438677982004444359noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-3202774368551476669.post-82414658785573980722014-06-09T16:37:22.493+05:302014-06-09T16:37:22.493+05:30@Prof Bala. As you mention, there could be some le...@Prof Bala. As you mention, there could be some level of litigation on the interpretation of this provision. But, the interpretation you offer, especially in point 1. of your comment is an interesting one. The use of the comma may be determinative, in which case one might even argue that section 166 adopts a position similar to the ESV approach in the UK. Also, the use of the words "members" and "shareholders" separately in the same clause is somewhat unclear as to whether they mean separate things or if they are interchangeable.<br /><br />@Prakhar Bhardwaj. As regards nominee directors, although they are generally appointed to protect the interest of the investor or joint venture partner that nominated them, in law they still owe duties to the company. In other words, if there is a conflict between the interests of the nominator and those of the company, the company's interests must be preferred by the nominee director. This has also received some recognition by the Bombay High Court in Rolta India Ltd. v. Venire Industries Ltd., [2000] 100 Comp. Cas. 19.Umakanth Varottilhttps://www.blogger.com/profile/12438677982004444359noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-64841531106289787422014-06-09T14:56:41.947+05:302014-06-09T14:56:41.947+05:30I think the provision is quite interesting in its ...I think the provision is quite interesting in its formulation of the director's duty to serve the shareholder's "interest as a whole". This could be quite contentious in a JV context whereby directors are appointed to safeguard the interests of the different parties to a JV. One manifestation of this is the "Reserved list", which is a list of strategic items which require the assent of one of the directors. A good example of the same can be found in contract scrutinized in Rhodia SA v SEBI. The importance of these provisions to safeguard interests was an important concern that drove the Subkham ventures Tribunal to state that they did not amount to control. With its precedential value nullified, it will be interesting to see how this plays out!Prakhar Bhardwajhttps://www.blogger.com/profile/09362258905397606163noreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-32284955710533858842014-06-09T14:48:13.590+05:302014-06-09T14:48:13.590+05:30This provision is very interesting indeed. In addi...This provision is very interesting indeed. In addition to other observations, this provision will also play out interestingly in the Joint venture context. In most agreements, there is a "reserved items list" whereby consent of one of the directors is required to pass the resolution. These are usually placed to protect the the company's interest who has nominated the director. Good examples of these clauses can be found in the SAT decision of Rhodia SA v SEBI. Given this situation, aren't directors contractually obliged to act in the interest of the nominating company ? This is an interesting dichotomy. The subhkam ventures did well in recognizing that companies need to protect their interests in JVs, though it was obviously in a different context. I think we are set for some exciting times on this frontier !<br />Prakhar Bhardwajnoreply@blogger.comtag:blogger.com,1999:blog-3202774368551476669.post-66593418084415123972014-06-09T06:45:43.947+05:302014-06-09T06:45:43.947+05:30This provision seems destined to attract avoidable...This provision seems destined to attract avoidable litigation exacerbating the already overburdened judicial system. <br />I wish to offer two possible avenues of interpretation to overcome this problem:<br />1. In section 166 (2), there is a comma after "members as a whole" and before the enumeration of stakeholders. Would it not be reasonable to assume that this confirms the primacy of members over the rest in terms of directors' obligations?<br />2. The sequencing of stakeholders in this section is interesting. Employees are mentioned first followed by shareholders and others. Since statute drafting is serious business, it may be argued this sequencing cannot be just arbitrary or casual. Maybe the intention is to provide some guidance to the pecking order of claims of different stakeholders. The precedence of employees over shareholders is also not wholly surprising given the special status this group already enjoys in case of winding up. One may also look up the German case law for precedents since that country's governance code provides for co-determination in corporate affairs, and traditionally has substantial statutory representation for German (now European) workmen on heir supervisory boards.<br />Either way, we seem to be headed for some (academically) interesting times ahead!Prof Balahttps://www.blogger.com/profile/01627545461091471552noreply@blogger.com