Tata Steel may be staring at a possible ‘conflict of interest’ situation due to its proposal at the upcoming annual general meeting to appoint PwC India as its statutory auditor, and barely months after the accounting firms’ former boss Deepak Kapoor was appointed an independent director on its board.

Kapoor was associated with PwC India for four decades, having joined the accounting major as a trainee in 1978, and retiring as its chairman on December 31, 2016.

Tata Steel’s board cleared Kapoor’s appointment as independent director just three months after he retired from PwC. It has now proposed the appointment of PwC as its auditor. Both the proposals will be put to shareholder vote on Tuesday.

JN Gupta, Promoter, Shareholder Advisory Services (SES), said, “In our advisory note, we have asked shareholders to reject either of the appointment as there seems to be a conflict of interest if both proposals go through at once. Kapoor will disqualify as an independent director under section 149(6) of the Companies Act, if PwC is appointed as its auditor.”

The Companies Act states that an independent director is one who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

‘Not a good practice’

Gupta, who was also a former ED at SEBI, said both Kapoor and PwC’s appointments together “does not reflect good governance practice by the Tatas.” The “mere presence” of Kapoor on the board of Tata Steel “may have an adverse impact on the audit process and may give rise to ethical issues,” he added.

While there is no clear guidance for listed companies to avoid conflict of interest in the appointment of senior bureaucrats and retired officials of regulatory bodies and audit firms, there has been a long-standing debate about a mandatory cooling-off period before such appointments are made so as to avoid conflict. Opinion is divided on how long the cooling-off period should be; perhaps between one and three years.

Tata Steel did not respond to an email query. A source close to the company argued that it has been seven months since Kapoor retired from PwC, which was being brought in as an auditor only as Deloitte had completed five years in the position.

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