Even as proxy advisory firms have flagged corporate governance issues at Finolex Cables and also advised shareholders to vote out three directors at the annual general meeting slated for Tuesday, the company publicly accused Prakash Chhabria, the cousin of Deepak Kisandas Chhabria, of instigating shareholders and creating the controversy.
Proxy advisory firms Stakeholder Empowerment Services (SES) and Ingovern Research have accused the Pune-based Finolex Cables, headed by Deepak Chhabria, of taking its shareholders for a ride by violating many provisions of the Companies Act and Sebi norms and has advised shareholders to reject the reappointments of three directors, PR Barpande, Avinash Shridhar Khare and Firoza Fredoon Kapadia as additional directors who were on board from September 30, 2020.
Mahesh Viswanathan, the chief executive of Finolex Cables, described the allegations as false and being spread at the instance of Prakash Chhabria, the cousin of Finolex Cables chairman Deepak Chhabria and chairman of Finolex Industries.
While it is not appropriate to comment on matters that are sub-judice (since November 2016), it is apparent that Prakash Chhabria is instigating actions against the interests of Finolex Cablesby instigating Orbit and Finolex Industries to vote against re-appointment of our longstanding, respectable directors, two years ago and again against all directors last year," Viswanathan said in the statement.
On the ongoing civil litigation since November 2016 on the majority ownership in group holding firm Orbit Electricals, he said, "a question in issue in this litigation is regarding the purported gifting of majority of shares of Orbit by PP Chhabria to Prakash Chhabria, very shortly before his death but after having left several documents recording how his Orbit shares should be dealt with," Viswanathan further said.
He also recalled the two FIRs that the Pune police had registered against Prakash Chhabria and four others in February 2021 on a complaint filed by Deepak Chhabria accusing him of allegedly forging documents to take control of Finolex Cables and Finolex Plasson after the death of his father in 2016.
The complaint alleges that Prakash and the other accused prepared forged gift deeds, share transfer forms and share certificates to get control over the two companies.
"Finolex Cables is in compliance with the law, and requisite standards of corporate governance. We've responded to stock exchanges on these issues. These are rumours being spread at the instance of Prakash Chhabria," the statement concluded.
The nearly $3-billion Finolex Group established in 1958 comprises the holding firm Orbit Electricals, Finolex Cables of Deepak Chhabria and Finolex Industries of Prakash Chhabria.
Orbit holds 30.7 per cent in the Rs 7,500-crore Finolex Cables that manufactures electrical and telecom cables and 14.5 per cent is held by Finolex Industries and the rest is with the public and these three companies have four common directors--Deepak and Prakash Chhabrias, Sunil Pathak and Sanjay Asher.
The main points of contention are the reappointment of PR Barpande, Avinash Shridhar Khare and Firoza Fredoon Kapadia as additional directors.
The board had appointed them additional directors on September 30, 2020, and is now seeking shareholders nod to appoint them as independent directors for a five-year term under different resolutions, even though they are liable to retire by rotation under resolutions 3, 4 & 5 at the AGM. This makes them not liable to retire by rotation.
According to SES, these resolutions are superfluous for one and violative of Sebi norms apart from going against the spirits of the law.
Asking shareholders to vote down appointments of these directors, SES said, "We are of the view that resolutions 3, 4 & 5 are superfluous and does not serve any objective since the company has proposed to appoint these directors as independent directors under resolution 8, 9 & 10 and that if the superfluous resolutions 3, 4 & 5 passed would have the unintended consequence of allowing these directors to continue as directors even if their independence gets compromised. Law never intended that an independent director should continue to remain a director even if his/her independence is vitiated, unless expressly reappointed by shareholders."
It has also accused the company of not disclosing any reasons for the change in directorship of Shishir Lall from and independent director to a non-independent director, stating that such conversion/transfer has raised serious questions over the independent directors on the board.
"If both resolutions are treated as valid, there is inherent conflict in the two. For one an independent director cannot be appointed on retiring basis, it is against law. Secondly, according to the first resolution director is appointed on rotation basis, whereas in another resolution they are appointed on non-rotation basis. Which resolution will prevail?" asks SES.
And that if an independent director is already aware that he/she would continue as a director even after completion of the tenure as independent director, this will impact his/her independence immediately since the term is not specific, the report argues.
SES also notes that in the 2020 AGM too, Finolex had proposed a similar resolution to appoint Devender Kumar Vasal, Jayaram Rajasekara Reddy and Kavita Bhaskar Upadhyay as directors, who were liable to retire by rotation as well as independent directors in two separate resolutions. However, the shareholders voted out those resolutions.
A few days ago Ingovern had urged shareholders to vote against appointments of directors as articles of association of the company are in violation of the provisions of Section 152 (6) of Companies Act apart from violating Sebi's listing norms, thus defeating corporate governance.According to Ingovern, all directors, including chairman Deepak Chhabria, should be liable for retirement by rotation. But the company had appointed him as a permanent director for life.