Khandelwal is said to have got the impression that the company's perception of governance issues is in wide variance to his own understanding of a transparent governance process.
His resignation comes at a time when several independent directors are resigning from India Inc’s corporate boards with the recent stormy exit being that of R Chandrashekhar from the board of Yes Bank.
In January 2018, the independent directors met and suggested an improvement in corporate governance standards at JM Financial ARC. The minutes of this meeting was circulated on April 26, the report said.
Khandelwal, in a letter to the company secretary, objected to "several resolutions brought to the board such as authorising executive functions to non-executive chairman".
In May, HN Sinor, another Independent Director, shared similar concerns in an email to the company Chairman VP Shetty. A month later, Shetty said the management was considering the issues raised by the independent directors.
After nothing happened for four months, Khandelwal requested Shetty to arrange a meeting with the Kampanis, the promoter family owning about 57 percent of the ARC. On October 24, Vishal Kampani, son of Nimesh Kampani and Group Managing Director at JM Financial, met the independent directors, where Sinor raised the concerns of independent directors.
A day after the meeting, on October 25, Sinor resigned with immediate effect. His resignation letter stated that he had completed 10 years on the board of the company and was stepping down "in true spirit of Companies Act guidelines", with immediate effect.
As per the company law, independent directors can serve for a maximum of two five-year terms. The law, however, does not count time served prior to 2014, when the law came into effect.
On October 27, Anil Khandelwal resigned from the board of JM Financial ARC, with immediate effect.
"In the absence of any positive intent and assurance to take concrete steps on the issues raised by the IDs, I am constrained to resign from the Board of the company (guided by my conscience) with immediate effect. This is by no way any reflection on the general working of the company, which is by any standards very satisfactory," Khandelwal’s resignation letter said.
While the resignations have raised eyebrows, the company said, in an emailed response to BloombergQuint, that there is no problem with current standards of governance.
"The recent resignation of an independent director from one of our group companies (JM Financial ARC), wherein he has mentioned a few areas of suggestions for 'a notch above governance' appear to be causing a misunderstanding about the subject. Do note there is no criticism of current standards of governance in any of the communication," JM Financial spokesperson said.
Most of the actionable points raised by the independent directors can only be implemented in the upcoming cycle of performance evaluation, the statement said. If this is the case, then the reason behind the resignation of two independent directors remain sketchy.
The independent directors had made the following suggestions:Observations made by the independent directors in the board evaluation process be reviewed dispassionately and proper feedback system should be evolved.
Most of these suggestions come under the company's law, therefore, it is unclear why the independent director would make these requests. The suggestions, however, point at three issues, according to the report.
1. Adi Patel’s remuneration
Adi Patel, who is the company's Sponsor Director and an ARC board member, received a remuneration 10 times that of what any director for the financial year 2017-18.
Sinor's mail regarding consulting the Nominations and Remuneration Committee to formulate a policy on director remuneration raises questions as the independent director is also a member of the remuneration committee who would have approved Patel’s commission.
Patel, who has been associated with the group for 24 years, joined the board in December 2017.2. Vishal Kampani at JM Financial ARC board meetings
One of the suggestions points at the company's practice to have group functional heads and the group Chief Executive Officer attend group company board meetings on an invitation. The independent directors also pointed to a Reserve Bank of India observation on the same at the ARC.3. Executive powers to a non-executive Chairman VP Shetty
Sinor said in the email that this is against good governance practices. Even Khandelwal’s resignation letter had a mention about it.The company, however, reportedly claimed that the Chairman had been given only procedural powers and consists of signing some agreements, documents, and cheques.JM Financial ARC, founded by veteran investment banker Nimesh Kampani, is India’s third-largest capitalised ARC, with a net worth of Rs 1,067 crore and assets under management of Rs 14,257 crore as per the September-end data on the company’s website.