Corporate Governance - CSR Violation And Duty of Independent Directors.

 Corporate Governance Practice Audit  

* Birendra K Jha                                                                                                                                                                       Independent Director, IICA ( Ministry of Corporate Affairs ); Corporate Governance  Practice Audit; CSR Social Impact - CSR Planning & Implementation;  Expert Company Law -SEBI Law - Social & Environmental Law   EMail: birendrajha03@yahoo.com

The Independent Directors are not produced in any academy. This is expertise and deep sense of ability to read the financial treatment with the law.  The Independent Directors have miserably failed to understand their duties  while sitting at the Board of Directors. They are just spectators. Here four common violations  are given which bypassed  the Secretarial Compliance as well as the Independent Directors. This is law, which they failed to understand. Out of the four, one addresses the CSR violation in the last. Here the Independent Directors have  failed in aligning   the CSR funding to eliminate the plastic waste. A dead waste produced by their business, to pack the FMCG products and  responsible for killing the endangered species, like the Olive Ridley Turtle and the Ganga dolphins.      

This listed company within top 100 is producing plastic as waste. The Independent Directors have failed to understand how to deal with the waste product. They have failed in other spectrum of the Corporate Governance. 

Here  four different  issues are elaborated on the Corporate Governance violations including  the CSR.  

As stated, the violations are directly landing from a big company. The dual check system, the Secretarial Compliance Audit and Independent Directors, both have failed here. These four violations are not reported in the Annual Report 2024-2025.  

The Board of Directors need good people on the Board. The dominance of promoter have often rendered poor quality of the "Independent Directors". This attitude ultimately ruins the whole company in long run. 

The knowledge of Corporate Governance is essential to perform the duty. If this knowledge is missing, then ultimately "Independent Judgement" never lands at the site. This is realty. The following four violations are common. This is not oversight of the Board of Directors. This is lapse:      

1. Violation of Regulation 30  and Regulation 4(2)(e) of the SEBI LODR Regulation 2015 - Change of Financial Year. 

a) This company has changed the Financial Year. There is no proper "Material Disclosure", why this change is done.  This is clear violation of Regulation 30 of the SEBI LODR Regulation 2015. Change in Financial Year qualifies as "Material Event". The company must disclose: 

a) The event b) The specific reason & c) Relevant background and impact. 

Any failure to disclose the above stated reason amounts to: 

a) Inadequate / incomplete disclosure of material information b) attracts non-compliance with: Regulation 30(1) and Schedule III (Part A) – Disclosure of material events.  

SEBI expects here “adequate, accurate and timely disclosure” — not mere announcement of the fact.

b) The Change of Financial Year. has also violated the Regulation 4(2)(e) – Principles of Corporate Governance. The Regulation 4 of the SEBI LODR mandates: a)  Transparency b) Timely disclosure and c) Equitable treatment of shareholders.  Any non-disclosure of "Material Event" is treated as: "Failure to maintain transparency in governance".

2. Violation on Interim Dividend and Special dividend 

The necessary disclosure with details on the "Interim Dividend" and "Special Dividend" are not seen in the Annual Report. This company declared an interim dividend for FY25 at a Board meeting, with record date set in 2025. For FY26, this company again announced an interim dividend including special dividend on strong earnings. Since, dividend is "Material Disclosure". The dividend decisions directly affect the shareholder returns, capital allocation, and retained earnings.  The Dividend declaration must be reported as "Material Event" with detailed disclosure, vide the Regulation 30 of the SEBI LODR under  Schedule III (Material Events).   Vide the Regulation 43 A, again this disclosure further needed to be aligned with the Dividend Distribution Policy.  

However, there is a big disclosure gap in the Annual Report (FY25), where interim dividend rationales, special dividend component, and  governance discussion of these significant payouts with financial impact are not disclosed. 

3. Historical Past Compliance Failure (Penalties & Non-Compliance)

This company  once appointed an independent director, with an overage  issue. At the time of appointment the Independent Director was 78. A Special Resolution approval was necessary. But the company retained this Independent Director without special resolution approval of the shareholder. This resulted into  exchange-imposed monetary penalties. Since this was historical compliance mistake. Hence disclosure was necessary here that any similar instance is not repeated. This is falling under Material Disclosure 

Why the case is "Material Disclosure"? Since this is   the Major "Past compliance defect". Hence SEBI Regulation under Schedule III – Corporate Governance Report — "Requires disclosure of compliance history, board evaluation, and corrective actions". Clearly there is an evident  gap. The Annual Report did not disclose past enforcement or resolution actions in a manner helpful to investors — particularly governance improvements since then. Under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, specifically Regulation 17(1A) needed to be addressed.  A listed entity cannot appoint or continue a non-executive director who has attained the age of 75 years without shareholder approval by way of a special resolution, and the explanatory statement must justify such appointment.

As a result, this company was flagged for non-compliance with the timeframe and approval requirement in Regulation 17(1C) of the SEBI Listing Regulations by the stock exchanges. Both the BSE and NSE imposed fines  on the company for this non-compliance — effectively a regulatory consequence tied to SEBI rules.

4. CSR Violation: 

The endangered species – Olive Ridley Turtles , mistake plastic as food. Ultimately plastic in belly, kills the turtle. This is one horrible side of the business which is producing plastic as waste. The CSR Law is very clear. Any business entity which is producing plastic, has only one CSR Programme – “Protect the endangered species from its business operation, i.e. the plastic wastes”.   

This violation is deep rooted. This  company produces globally around 7 lacs  metric tons of plastic, for  packing the consumer products. Ultimately, the raw plastic as pollution, has spoiled the Ocean and choked the rivers. 

In Indian context the social responsibility role of this company shall be tested in view of the Hon'ble Supreme Court of India ruling in case M.K. Ranjit Singh vs. Union of India. The Hon'ble Court has explained clearly the  CSR Law read with the social liability mentioned in the Indian Constitution. 

The Hon'ble Court has directed that if any  business entity  in its business  operation threatens the life of the endangered species, then this is the duty of the entity to protect the endangered species through the CSR. 

The plastic pollution generated by this listed entity (around 7 lacs  metric tons),  has threatened the existence of the endangered species. Because the single-use plastic or  multi-layer plastic (MLP) is very hard to recycle. These wastes leak into sea, rivers, wetlands, forests, and coastal areas. Some endangered species like the Olive Ridley turtle (India’s endangered marine species) and the Gangetic dolphins  ingest plastic, mistaking them for food. Ultimately plastic in the belly kills the endangered species. This is tested and verified in various scientific reportings.  

Hence, business generating plastic pollution has the chief responsibility in the CSR to protect the endangered species.  But what the Independent Directors did here, they allowed CSR fund in different Programmes, other than protecting the notified  Endangered Species.  

The CSR Programmes are in different area. As per Law entire fund  is needed to be addressed for the protection of the endangered species.  In view of the Hon'ble Supreme Court of India Law, the  CSR of this company is in violation. The CSR Law has not been addressed properly. 

Conclusion: 

The Corporate Governance violation needs to be addressed honestly. This is not mistake finding activity. This is learning from mistakes.