Palak Shah

A proposal by Infrastructure Development Finance Company (IDFC) to seek shareholder approval for the appointment of Vinod Rai, the former comptroller and auditor general (CAG), as non-executive and non-independent director, has been red-flagged by some investors. Rai was the independent director (ID) of IDFC for two terms, and since he cannot get appointed for the third term as ID, the company is attempting to keep him on the board as non-independent director.

Rai resigned as IDFC’s ID before his second term could end. Simultaneously, he was reappointed by IDFC as non-independent director on the board on May 25, and now a shareholder approval is being sought to ratify the same. Rai’s second term as ID was to expire in July, but IDFC appointed him in the same position in May. Rai’s resignation letter has not been shared with the stock exchanges, which are the key source to disseminate information to the shareholders of the listed companies. However, IDFC has shared Rai’s resignation letter only with the Ministry of Company Affairs.

“Rai, aged 73 years, was India’s best-known CAG who never tolerated any governance lapses or issues as the auditor of government accounts. He is best known to have brought out the coal scam and the 2G scams. While he acted as an independent director for two terms on the board of IDFC, it would go against the spirit of the rules if he now turns as a non-independent director on the same board and acts as the management person. Also, shareholders will lose faith in him,” said a Mumbai-based proxy advisory firm.

Market regulator SEBI had come up with the concept of IDs so that they could become the voice of shareholders on the board of listed companies. IDs are expected to keep a strict vigil on corporate governance issues in a company board and are supposed to act independent of the board and company promoters, experts say.

Restructuring

IDFC and Rai did not respond to an email query. IDFC is undergoing restructuring, and it is likely that the company may merge with IDFC Bank by next year. Experts who have closely worked with IDFC believe that the company was seeking continuity on the board during restructuring and, hence, wanted to reappoint Rai.