Shareholders in the dark over REL resignation drama

The mystery continues after the Reliance Energy board asked the six directors to stay back on November 30. When the six quit on November 25, there was panic among shareholders. REL shares were hammered, and it also affected RIL shares as well. In the last 30 days, REL shareholders alone have lost close to Rs 2,130 crore in market capitalisation.

This raises corporate governance issues. RIL has been maintaining that it was taken by ‘‘surprise’’ by the move. Four directors — Satish Seth, S.C. Gupta, J.P. Chalasani and Amitabh Jhunjhunwala — are RIL nominees. As per the law, these nominees can be withdrawn by the RIL board, which, however, claims ignorance and is keeping quiet on the matter.

It’s not known whether RIL officially asked the six directors why they were quitting. But Anil Ambani has sent a letter to RIL directors seeking a board meeting to discuss various issues, including the resignation. ‘‘There’s a clear corporate governance issue here… but the Companies Act and listing guidelines don’t say anything clearly about this kind of resignation,” said a corporate lawyer who requested anonymity.

When contacted, an REL spokesperson said the six directors have furnished “the reasons for their resignations to the REL board as duly recorded in the minutes’’. But he did not elaborate. ‘‘The board of REL at its November 30 meeting reiterated its confidence in the existing management team led by Anil D. Ambani including the six directors who resigned,’’ the REL official said.

The company did inform the stock exchanges as per the listing guidelines. But nothing more than that. If it was following good corporate governance practices, it should have explained to shareholders the reasons for their exit.

‘‘The board requested the six directors to re-consider their resignations and continue to function normally as before and in the circumstances decided to keep the reasons for their resignations confidential,’’ the REL official said, adding, “it’s baseless to suggest that the directors resigned as per the wishes of Anil Ambani, CMD.”

Clause 30 of the listing agreement of bourses says companies must inform the stock exchanges of any resignation of director. But it is a grey area whether the company should inform when the resignation is accepted by the board or when the directors have just wished to quit and the reasons.

“The company should inform once the board accepts the resignation. Before a board meeting, a resignation of a director is just a communication between the director and the company,’’ says noted chartered accountant Mukund M. Chitale.

But there’s no denying that when it comes to resignations, there are loopholes in the law. While companies are managed through a board of directors and the Companies Act, 1956, provides the procedure for appointment, nothing is mentioned in the Act about resignation by a director.

What will a director do then? “In the absence of any provision, you will have to look at the Articles of Association of the company and follow the procedure prescribed in it. If the articles say that the company should give explanation, then it should give,” legal sources say.

Similarly, a director who wants to resign is not sure whether his resignation will become effective immediately or only after its acceptance by the board or when the company files a return to that effect with the Registrar of Companies.

The role of Prof J. Ramachandran also comes into sharp focus, as the listing agreement and corporate governance norms of Sebi make it clear about the definition of an independent director. Yet the professor — for reasons best known to himself — decided to quit in association with five other directors when he was supposed to be ‘independent’. This paper made several calls to him in Bangalore soon after the resignation, but he did not respond.