Legal Aspects of Business Assignment

THE DUTIES OF DIRECTOR : CHANDA

KOCHHAR CONTROVERSY

Under guidance of
Prof. Rajinder Kaur

Submitted by Group 5
Asmita Paul 14A
Debarghya Roy 18A
Ishan Shome 24A
Keyur Doshi 26A
Pushan Banerjee 40A
Vibha Bhagwat 55A

Indian Institute of Foreign Trade

New Delhi
Batch of 2018-20
 The Duties of Director : Chanda Kochhar
Controversy
Introduction

1. According to the Institute of Directors, The Managing Director is the most

senior full-time official of the organization (with the exception of when
there is an official seat).
2. The job of overseeing executive and CEO are basically the equivalent (the
last title initially originates from the US).
3. The Managing Directoris answerable for the exhibition of the organization,
as directed by the board's general technique. This factsheet covers the
obligations of the job.

Main purpose of role

4. To direct and control the organization's tasks and to provide key direction
and guidance to the board to guarantee that the organization accomplishes
its crucial targets.

Main responsibilities

5. Direct and control the work and assets of the organization and guarantee
the enrolment and maintenance of the necessary numbers and kinds of all
around persuaded, prepared and created staff to guarantee that it
accomplishes its strategic targets.
6. Set up a corporate arrangement and yearly marketable strategy and screen
progress against these designs to guarantee that the organization
accomplishes its targets as cost-adequately and effectively as could
reasonably be expected.
7. Give vital exhortation and direction to the seat and individuals from the
board, to keep them mindful of improvements inside the business and
guarantee that the proper strategies are created to meet the organization's
crucial goals and to consent to all important statutory and different
guidelines.
8. Set up and keep up viable formal and casual connections with significant
clients, pertinent government offices and offices, nearby specialists, key
chiefs and different partners for the most part, to trade data and sees and to
guarantee that the organization is giving the fitting extent and nature of
administrations.
9. Create and keep up innovative work projects to guarantee that the
organization stays at the front line in the business, applies the most
financially savvy techniques and approaches, gives driving edge items and
benefits and holds its serious edge.
10. Get ready, gain acknowledgment, and screen the execution of the yearly
spending plan to guarantee that spending targets are met, that income
streams are augmented and that fixed expenses are limited.
11. Create and keep up a powerful showcasing and advertising methodology
to advance the items, administrations and picture of the organization in the
more extensive network.
12. Speak to the organization in dealings with clients, providers, government
divisions and other key contacts to verify for it the best agreement terms.
13. Create and keep up All out Quality Administration frameworks all through
the organization to guarantee that the most ideal items and administrations
are given to clients.
14. Create, advance and direct the execution of equivalent open doors
approaches in all parts of the organization's work.
15. Manage the arrangement of the yearly report and records of the
organization and guarantee their endorsement by the board.
 16. Create and direct the execution of approaches and strategies to guarantee
that the organization agrees to all wellbeing and security and other statutory
guidelines.

Knowledge, skills and experience required

1. A demonstrated record of achievement in senior level general or business

the executives, ideally in a related industry.
2. At any rate 10 years' senior level understanding of the executives of
individuals and assets.
3. Graduate degree of mind ideally with a higher degree in an administration
discipline or an expert capability.
4. A wide information on the business.
5. A comprehension of monetary administration and more extensive
administration standards and methods.
6. Political and presentational abilities with a valuation for the requests of
clashing interests and of meeting statutory prerequisites.
7. An extremely significant level of business mindfulness.
8. Authority aptitudes.
9. Great relational abilities.
10. Great hierarchical abilities.
11. Great expository and critical thinking abilities.
 Indian Regulations: A Brief

On paper, India has among the most stringent regulations in the world for
corporate governance.

Unfortunately, in practice, returns to the minority shareholders depend on the

benevolence of the promoter. If the promoter needs to return to the equity markets
and adequately weighs the shadow of the future, minority shareholders receive
informal protection. Independent directors represent the interests of minority
shareholders. But, as for example was observed in the Tata case, these directors
normally toe the promoter’s line. In exceptional circumstances when they do not,
even someone as powerful and connected as Nusli Wadia can be dismissed
because promoters’ ‘control’ the Annual General Meeting. Such events have a
chilling effect on the ‘independence’ of directors, as it reiterates to everyone the
power of promoters in India.

Chanda Kochhar case

Chanda Kochhar was the first woman to head an Indian bank, having fought out
one of the toughest succession battles in corporate India. For over a decade she
consistently ranked among the country's most powerful women and was pretty
much India Inc's poster woman. But in 2019, the CBI issued a look out circular
against her in a loan fraud case that hogged the headlines for over six months.
Here's a timeline of her fall from grace:
March 2016: Shareholder activist Arvind Gupta, who is also the founder and
trustee of Indian Investors Protection Council, writes to Prime Minister Narendra
Modi on March 15, 2016, red-flagging "the illicit banking and commercial
relationship between Videocon Group of Venugopal Dhoot and ICICI Bank's MD
& CEO Chanda Kochhar's family". When Gupta did not hear back from the
authorities, he eventually reproduced the letter on his blog in October 2016.

July 2016: The RBI conducts a detailed probe into the matter after the Prime
Minister's Office referred the allegations of Kochhar's husband, Deepak, reaping
windfall gains from his association with Dhoot, whose company was a large
debtor to ICICI Bank. But it finds no proof of any reciprocal benefits being
extended by ICICI Bank to the Videocon Group.

March 2018: While the country is still reeling under the Rs 13,000 crore PNB-
Nirav Modi scam, the mainstream media picks up Gupta's blog post, and this time
the matter makes major waves. But before the end of the month, ICICI Bank's
board reviews the bank's internal processes for credit approval and declares them
robust. It also expresses full faith and confidence in Kochhar, adding that there is
no question of any quid pro quo, nepotism or conflict of interest as is alleged in
the "rumours".

But on March 31, the Central Bureau of Investigation kicks-off a preliminary

enquiry against Deepak Kochhar to look into the allegations.

April 2018: Facing allegations of improper conduct Kochhar, who had headed
the country's third-largest lender since May 2009, backs out of the annual session
of FICCI Ladies Organisation, where she was to be felicitated by President Ram
Nath Kovind.

Doubts are fanned further when the CBI picks up Kochhar's brother-in-law Rajiv
Kochhar for questioning in the same month. The allegation here is that his
company, Avista Advisory, got the mandate to restructure foreign currency-
denominated debt deals worth over $1.7 billion of seven companies, all of which
had taken loans from ICICI Bank at the same time.

May 2018: The Securities and Exchange Board of India (Sebi) sends a notice to
Kochhar, seeking her response on the alleged non-compliance with disclosure
norms in dealings with the Videocon Group and Nupower Renewables, a
company co-founded by her husband.

In the face of the growing brouhaha, fanned by another anonymous

whistleblower's allegations against Kochhar, ICICI Bank's board institutes an
independent enquiry. However, the scepticism among corporate governance
experts and investors alike following the interim report giving the bank a clean
chit, eventually prompts the board to consider a second, more detailed probe.

June 2018: ICICI Bank appoints former judge of the Supreme Court BN
Srikrishna to head the external probe into the allegations of corporate misconduct
against Kochhar. She soon goes on indefinite leave till the investigation is
complete but at least initially the bank calls it her planned annual leave. Before
long Sandeep Bakhshi takes over the reins of the bank on an interim basis.

October 2018: In a sudden development Kochhar resigns from her position, even
before the Srikrishna panel submits its report. The 57-year-old's second term at
the bank's helm would have ended in March 2019 had all gone well. She also
exits the Board of Directors of ICICI Bank's subsidiaries.

January 2019: The CBI books Kochhar, her husband and Dhoot for alleged
cheating and corruption in sanctioning loans to the Videocon Group, which
caused a loss of Rs 1,730 crore to the bank. The agency alleged that ICICI Bank
sanctioned six high-value loans to various Videocon companies between June
2009 and October 2011, starting soon after Kochhar took over as CEO. In fact,
she was reportedly a part of the sanctioning committee which had approved a loan
of Rs 300 crores to Videocon International Electronics Ltd (VIEL) and Rs 750
crore to Videocon Industries Ltd (VIL).

The former amount was reportedly disbursed into the VIEL account on
September 7, and according to the CBI, the "very next day" Dhoot had transferred
Rs 64 crore from VIL to NuPower Renewables Limited, the company owned by
her husband Deepak Kochhar.

Days later, the Srikrishna panel submits its report, which finds Kochhar guilty of
violating various regulations. The lender then decides to stop all unpaid
retirement benefits and also recover bonuses worth Rs 9.82 crore paid to her since
2009. "I am utterly disappointed, hurt and shocked by the decision," Kochhar says
in a statement referring to the bank's decision to treat her resignation as a
"termination for cause" following the probe report.

February 2019: The Enforcement Directorate (ED) registers a criminal case of

money laundering against Kochhar and the others.

January 2020: The Enforcement Directorate (ED) seized the south Mumbai
residence of former ICICI Bank NSE -0.07 % managing director Chanda Kochhar
and her businessman husband Deepak Kochhar as well as assets of companies
owned by the latter. The provisional attachments, pegged at Rs 78 crore, have
been made in a case of alleged money laundering being investigated by the
agency, said people with knowledge of the matter.

The move under the Prevention of Money Laundering Act came almost a year
after a case was registered and followed a probe into transactions involving the
Videocon NSE -2.13 % Group which indicated that the latter paid Rs 64 crore as
gratification to the Kochhars in lieu of loans sanctioned by ICICI Bank, said the
people. Kochhar’s counsel Vijay Aggarwal rejected the allegations.

“This flat is owned by Deepak Kochhar since 1996 when Chanda Kochhar was
at a junior position in the bank and can’t be connected with any crime or money
laundering even remotely,” he said. “This attachment shall never stand judicial
scrutiny.”
The ED’s money laundering case is based on the first information report (FIR)
registered by the CBI against the couple, Videocon Group chairman Venugopal
Dhoot and six others. The CBI’s case pertains to six loans of Rs 1,875 crore
sanctioned to Videocon Group companies between June 2009 and October
2011when Chanda Kochhar headed ICICI Bank and was a key member of the
approvals committee.

She is being probed for receiving alleged “illegal gratification through her
husband Deepak Kochhar from Videocon MD VN Dhoot” as well as cheating
and abuse of her official position for “dishonestly sanctioning loans to the
Videocon Group”, according to the FIR.

“Both the income tax department and the panel headed by retired justice BN
Srikrishna (appointed by ICICI Bank to look into the allegations against Chanda
Kochhar) have investigated the purchase of Kochhar’s current residence. Their
reports concluded that the flat was bought from the Videocon Group in a complex
transaction in the mid-1990s,” he said. “The apartment was purchased through
Credential Finance, a financial services firm established by Deepak Kochhar and
his brother Rajiv Kochhar.

According to sources, between 2009 and 2016, the flat was owned by Quality
Appliances Pvt Ltd (now Quality Techno Advisors Pvt Ltd), a firm related to the
Videocon Group, until March 2016. It was transferred to Deepak Kochhar in 2016
through a trust at a nominal price.

Legal Position

“A provisional attachment cannot dispossess the owner as the procedure is to

confirm it in 180 days. The ED has to prove the purchase out of so-called proceeds
of crime and the owner has a right to be heard at all stages,” said advocate Sujay
Kantawala.

The latter is representing Chanda Kochhar in the Bombay High Court in her
petition against ICICI Bank for terminating her services and seeking to claw back
payments after accepting her request for early retirement. Deepak Kochhar has
previously denied all allegations.

“The flat at CCI Chambers was conveyed from Bilquis Jahan Begum to me and
my brother in February 1996,” he told ET in February 2019. “Since then, I have
been the owner and occupant till date. The conveyance deed and share certificate
reflect the same.” Dhoot had also denied being part of the deal in the same ET
report. “It (the flat) was owned by the Kochhar family from the beginning and we
never ever had any ownership or other interest in the said flat,” he had said.

Complex Web

A Ministry of Corporate Affairs report shared with the CBI and ED describes a
complex web of companies allegedly floated by Videocon and Deepak Kochhar
to facilitate payments.

“In September 2009, VIL (Videocon Industries Ltd) paid Rs 64 crore as advance
to Supreme,” according to the report. “In July 2011, it assigned this advance from
Supreme to its group company Indian Refrigerator Company Ltd (IRCL). In
August 2011, IRCL, in turn, assigned it to another company, Real Appliances Pvt
Ltd (RAPL), which later changed its name to Real Cleantech Pvt Ltd (RCPL).
The present status of RCPL is ‘struck off ’ in RoC records under Section 248
(which empowers the registrar to remove the name of the company from RoC)…
even though the amount is still payable by Supreme to VIL group.” The Videocon
Group had no serious intention of recovering the funds, the report said.

Conflict of Interest
The ICICI Bank Ltd. fiasco demonstrates the alternative scenario. Specifically,
agency costs, the challenge of managers potentially enriching themselves at the
cost of shareholders in the absence of a promoter. Lacking inside information, my
opinions are restricted to the corporate governance aspects based on what has
appeared in the press. Two conflict of interest issues seem particularly troubling.

First, the Videocon loan in face of the partnership between the promoter of
Videocon Group and the Deepak Kochhar, husband of the chief executive officer
of ICICI Bank. Regardless, of whether the loan, its terms or the extension were
preferential, it has conflict of interest written all over it. This should have been
immediately flagged to the board by Chanda Kochhar, the CEO. She should have
recused herself from not only the credit committee to approve the loan but the
entire loan assessment process. While we do not know what she actually did, the
official response that she was not the chairman of the committee is unsatisfactory.
Still, this is a problem primarily for her, not the board. The problem for the ICICI
board is that as soon as they learnt this, what did they do to protect the firm and
its shareholders? And why have their answers to queries after the story broke been
so evasive?

“We are still not clear if and when the CEO disclosed these conflicts to the
board as well as whether she recused herself from the loan process.”

Second, Avista, the company owned by Rajiv Kochhar, brother of the husband of
the CEO, was advising some borrowers. It is well known among insiders that such
companies are appointed because they have an ability to get things done via
privileged access. Perhaps this was the case. Once again, the corporate
governance issue is that the moment the board or any board member was aware
of this, what step were initiated to safeguard the corporate reputation of ICICI
Bank?

The Inept Board

Admittedly, we do not know when these two problems were first brought to the
board’s attention (though definitely known on March 15, 2016, via a letter by a
shareholder). What we do know is the reaction of the company when this issue
recently attracted attention in the press.

“To put it bluntly, the board’s response has been knee-jerk, evasive,
misleading, and contradictory, except for their unstinting support of the
CEO.”

The ICICI Bank statement reads: “The board also commends the entire
management team under the leadership of the MD & CEO for their hard work
and dedication. We would urge you not to be misled by these rumours which are
being spread to malign the bank and its top management.” Instead of releasing
this statement, they should have reassured the world that they were taking specific
steps to ensure that there had been no deleterious effects on the bank because of
the conflict of interest. And, then gone on to detail some of these measures, a
credible investigation with a timetable, and how they would ensure higher
standards of governance in future. On the Avista matter, to hide behind a
technicality that a brother of the husband does not fall within the definition of a
‘relative’, under the Companies Act is preposterous. A bank is in the business of
‘trust’ and meeting the spirit of the law. As soon as they became aware of it, any
independent director or the risk committee of the board worth these titles should
have immediately brought this up for discussion at a board meeting and had it
recorded in the minutes.

The fact is that the board has been aware of these allegations at least since March
2016.

On learning of these potential conflicts of interests, they should have rapidly

moved to protect the bank’s reputation and practices. Yet, their unsatisfactory
responses two years later seem to indicate they were caught unprepared at best.
Many of the statements “she made all the disclosures as per company’s act”, “it
was a consortium loan”, and “ICICI Bank has never appointed Avista” seem like
smoke and mirrors. At worst, and my experience leans me in this direction, the
board has been ‘captured’ by a powerful CEO. It is on this basis; the entire board
and the chairman should resign. Failing which, the foreign institutions should
move a resolution to have them removed. But if the press reports that the board
is now waiting for RBI direction are true, then they have already abdicated!

Symbolic Governance

The problem in India, and also much of the world, is that companies engage in
symbolic governance to meet external demands for increasing accountability.
But, this comes at the cost of real governance through decoupling. Decoupling is
when formal structures are adopted in response to external stakeholder demands,
while actual practices are tailored to the needs of internal stakeholders.

So, yes, they have independent directors, constitute various committees as

required by company law, engage in the annual evaluation of the CEO, announce
long-term incentive plans, and file all the needed related party reports. They
further this with the use of socially legitimate language. But, as research has
demonstrated, this helps entrench CEO dominance because it forestalls those
governance practices that are less easily decoupled.

In other words, the box-ticking exercises have a substitution effect and give
boards the license to avoid confronting the real hard issues related to corporate
governance.

Indians are amongst the most law-abiding citizens outside India because they fear
the consequences of breaking the law. The problem in India is that independent
directors have not had to pay for even the most egregious of corporate governance
violations. We do not need more laws and regulations; just punish some elites for
aberrant behaviour.
It is the shareholders and employees of ICICI Bank that will pay for the corporate
governance lapses. The rating agency Fitch has already warned of adverse
consequences and many analysts now see a cloud over the stock. Since ICICI
Bank has substantial holding by foreign investors, a class action suit in the United
States is a real possibility.

More distressingly, this incident only feeds negative narratives on India such as
crony capitalism, a large unaddressed non-performing assets problem at both
public and private sector banks, poor corporate governance, and the impunity that
elites enjoy.

What we need is a rule, along the lines of the one in China, that requires boards
to report any dissenting votes on board resolutions by board members.

This would help us know if independent directors have ever dissented on a

particular board. And, which board members have a 100 percent voting record
for all resolutions tabled across all the boards they serve. It is not a panacea to
solve corporate governance problems, but will help bring greater transparency.

But all laws and regulations would still be inadequate until there are real personal
consequences for members of failing boards and a culture change on what is
ethical behaviour. Nepotism is not seen as an issue and leaders are reified. When
elites are socially and economically highly inter-related, asking hard questions is
unacceptable. Even the Infosys board did not object when NR Narayana Murthy
inducted his son into the company. The star-studded board of TERI waited too
long to question RK Pachauri, the chairman, on the many rumours of sexual
harassment that were floating around. These are challenges not only for corporate
governance in India but also more broadly for society.