18th May 2005: ONGC may face delisting from stock exchanges as appointments of additional government directors on company board following a petroleum ministry directive appointing has violated its listing agreement.
Petroleum Ministry last month appointed V K Sibal, director general of hydrocarbons, on ONGC board, in addition to two officials from the ministry and one from department of economic affairs, taking the total number of government directors on ONGC board to four, informed sources said.
With seven functional directors, the numbers of executive directors have gone up to 11 in a board of 14 - a clear violation of Sebi's guideline that prescribes at least 50% of the board being made up of non-executive directors (independent directors).
"The present composition of the ONGC Board does not conform to the requirements of the Listing Agreement. SEBI does not recognise government directors as 'independent directors'," said a SEBI official.
While Sibal's appointment was being seen as a conflict of interest with his regulatory role, the Petroleum Ministry sited "precendence" of former DG, DGH, Avinash Chandra "being on ONGC board for 10 years." Officials, however, said the Ministry was setting a "wrong" precendent as Chandra was never on ONGC board but on the board of its subsidiary ONGC Videsh Ltd (OVL).
Sources said the nomination of a fourth government director also violated the policy of having a maximum of two government directors on a PSU board. The ONGC Board presently consist of 14 directors - seven executive directors (whole time), including Chairman and Managing Director, and seven non-executive directors (two officials from Petroleum Ministry and one from Finance Ministry), one nominee of Indian Oil Corp and three non-official part-time directors (Navaratna).
"According to the definition of independent directors, ex-officio government nominee directors and the nominee of IOC cannot be treated as independent directors. Only the three non-official part-time director’s quality the definition of independent directors," the SEBI official said.
Failure to comply with Clause 49 (Corporate Governance) of SEBI's Listing Agreement is punishable with imprisonment of upto 10 years or a fine of upto Rs 25 crore or both. Besides, stock exchanges can suspend the dealing/trading of securities.
Sources said ONGC Chairman and MD Subir Raha has already written twice in as many months to Petroleum Secretary S C Tripathi for "taking necessary steps to increase number of independent directors to have an optimum combination as required under Clause 49 and/or to reduce the number of Government nominee directors."