This caught the attention of proxy advisory firms, who are questioning the overall role of independent directors and if they could have intervened to limit AGS’ cash crisis, which impacted cash dispensers of some of India’s top domestic banks.
AGS, India’s second-largest manager of ATMs, had a total board strength of eight directors before the latest resignations. It currently has three executive directors and one non-independent non-executive director.
“This raises two issues,” said Amit Tandon, founder and managing director at Institutional Investor Advisory Services (IiAS), a proxy advisory firm. “The first is for regulators. In the past, the corporate veil has been lifted and the personal assets of the directors have been frozen.”
Tandon said the gut reaction of independent directors in such situations may be to resign because there is still no regulatory clarity on whether their personal assets can be ring-fenced from those of the company.
A second equally important question, said Tandon, is if independent directors are performing the function expected of them.
“In this case (of AGS), independent directors leaving the company within 10 days of the company flagging problems raises questions of how the IDs (independent directors) define their role: are they merely ‘peacetime’ directors, or should they step in and help stabilise the company through turbulence,” Tandon said.
According to Shriram Subramanian, founder and managing director of InGovern Research Services Pvt. Ltd, a proxy advisory firm, AGS’ four independent directors may not have understood the company’s business, problems, and risk management practices.
“The directors have just warmed the seats at board meetings and exited at the first sign of trouble for the company,” said Subramanian. “If there is any fraud by the promoters, the independent directors would be the first to sense it.”
AGS, which went public in January 2022, has seen its share price crash over 60% this year: from ₹65.04 on 1 January to ₹25.84 on Thursday, 20 February.
Also read | Inside the AGS cash crunch that led to shut ATMs and loan defaults
‘Personal reasons, other preoccupations, and old age’
AGS’ independent directors have cited personal reasons, preoccupation with other engagements, and age-related issues for stepping down.
AGS Transact informed the exchanges about its cash crunch on 10 February. Four days later, on 14 February, independent director Jhuma Guha resigned citing a “preoccupation elsewhere”, while former Mumbai Police commissioner Sivanandhan Dhanushkodi stepped down from the board citing “personal reasons”.
On 18 February, another independent director Preeti Malhotra resigned citing “personal reasons and commitments”. Subrata Kumar Atindra Mitra resigned the next day, citing “advanced age, health and other priorities”.
Mitra was the first to be inducted on the board of AGS in July 2021, followed by Guha in August 2022, Sivanandhan in March 2023, and Malhotra in June 2023.
Subramanian of InGovern Research questioned if independent directors who resign from the board of one company citing personal or health reasons should be allowed to continue as directors on other boards. “If one doesn’t have time due to preoccupation with other things or is leaving the company because of old age, how can they continue on other boards?”
Mitra, 76, is a board member in eight listed and privately held companies, according to the Ministry of Corporate Affairs. Additionally, he is a designated partner at QSK Advisory Llp, a Mumbai-based partnership firm. He was reappointed as an independent director of IL&FS Transportation Networks in January last year.
Guha is a director in eight companies, while Malhotra is a director at KM Advisors & Consultant (OPC) Pvt. Ltd, a Delhi-based consulting firm. Sivanandhan serves as a director at 10 companies.
Emails sent to Mitra, Guha, Sivanandhan, Malhotra and AGS Transact seeking comments went unanswered.
Also read | How independent directors’ pay doubled in five years
Can’t afford to speak the absolute truth
Other proxy advisory firms were softer on the reasons for the resignations, saying it was not out of place for independent directors of a company to step down in such circumstances.
“They also are in the business of providing their services on boards of companies and therefore cannot afford to speak the absolute truth,” said J.N. Gupta, founder and managing director of Stakeholders Empowerment Services (SES), a proxy advisory and corporate governance company. “If they do, it could hurt their prospects of getting another board seat elsewhere.”
Gupta added that while the Securities and Exchange Board of India requires a director stepping down from the board of a company to state the reasons for it, the regulator cannot force people to disclose the specifics of their “personal reasons”.
Also read | Former Sebi chief M. Damodaran calls for more regulatory impact assessment, better corporate governance