Independent Directors are Watchdogs or Silent Spectators? An Analysis of Corporate Governance and CSR Violations in an Indian Listed Company.
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
Independent Directors are expected to be strong watchdogs. They should not be silent spectators. But, they have mostly failed in controlling the disclosure related compliance violation.
Such disclosures kill the basic interest and rights of the shareholders. Day by day the compliance related challenges in the listed companies are growing. The violations invite clearly penal prosecution from the SEBI and MCA. In this section a listed company, disclosure analysis is seen here. This company is within the top 50. This has provided to the SEBI, defective disclosures, in the Annual Report of 2024-2025. Major compliance violations are listed below.
This analysis is must for the Independent Directors, Company Secretary, CSR practitioners and the Secretarial Compliance Auditor. The Secretarial Compliance Auditor has failed here clearly. He failed to detect the major lapses related to the disclosure compliance of the SEBI LODR. This is safe and better to conduct prior Corporate Governance Audit before the disclosure in the Annual Report. The listed company may match what they have reported and what they have missed. The Board of Directors should must take remedial measures. The Independent Directors should must awake. They are not show-piece in a display board.
1. Violation One of Regulation 34 – Annual Report Disclosures - BRSR (Reg. 34(2)(f), LODR) :
Employee termination issues fall mainly under SEBI BRSR "Principle 3 – Businesses should respect and promote the well-being of all employees". Specifically - This is needed to be reported under the "Essential Indicator Number 6": "Details of complaints relating to human rights violations"
In the Leadership Indicator side- Corrective actions are needed to be reported on illegal employee termination to minimize or reduce the adverse human rights impacts.
Any unfair labour practice including illegal termination is a labour rights violation and attracts clearly the human rights issue. The listed company should must disclose here if there is any notice on Unfair Labour Practice, conciliation order from the labour department / labour authorities including court order on the illegal termination dispute. This is a material disclosure. The listed company in question has not disclosed here the material information. One Material information that has not been disclosed is the 2024 summon notice issued by the Central Labour Commissioner to the listed company CEO in 2024 for illegal termination of more than 200 employees. The CEO is not appearing before the authority. This notice is unreported in the Annual Report. The Labour Ministry is clearly citing here that the listed company is involved in Unfair Labour Practice.
What the BRSR actually disclosing: a) Total number of employees b) Attrition rates aggregated c) Training, well-being initiatives d) POSH complaints (sexual harassment) e) General grievance mechanisms.
What is not disclosed: a) Unfair Labour Practice notice. b) Number of wrongful / illegal termination complaints/ Labour Department Notice / Conciliation Notice / c) Pending labour court cases on termination d) Orders of reinstatement / compensation e) Terminations held non-compliant with labour law and f) Management response to the adverse notice and findings
The BRSR requires here "Adverse Impact Reporting". This is not just the HR metrics. If even one of the following exists, compulsory disclosure is needed:
a) Unfair Labour Practice notice by the Labour department b) Conciliation Order c) Labour court award d) Industrial tribunal order e) Settlement due to unlawful termination f) Regulatory show-cause under labour laws.
Clearly there is a violation of Regulation 34 - Under SEBI BRSR (Reg. 34(2)(f), LODR).
2. Violation Two of Regulation 17 – Board of Directors
Board / committee evaluation process is disclosed without any outcomes of result, action points, or identified gaps. There is "no disclosure" whether any director was rated “below expectation” or not ? SEBI has viewed this type of partial disclosure as insufficient.
3. Violation Three of Regulation 23 – Related Party Transactions
The RPT disclosure exists but the commercial justification for the material RPTs is missing. There is no disclosure on why such transactions are in the interest of the minority shareholders? The Arm’s-length assertion is not independently reasoned in the disclosure. SEBI has penalized listed entities for asserting the arm’s length without explanation. There is clear material disclosure weakness here.
4. Violation Four of Regulation 24 & 24A – Subsidiary Governance & Secretarial Audit
The disclosure has Secretarial Audit Report, but the qualifications / observations are not followed by a detailed management response. There is no time-bound corrective action plan disclosed here. There is no "action -taken " report. This is incomplete compliance. The Secretarial Audit has failed to capture the Corporate Governance related violation as cited in the first case.
5. Violation Five- Regulation 30 read with Schedule III – Material Events Disclosure
The Annual Report does not clearly cross-reference the a) Material litigation developments b) Regulatory observations / supervisory concerns during the year c) Reliance on website disclosures without summarization in the Annual Report weakens the disclosure accessibility. SEBI position is very clear. It needs annual report in a consolidated disclosure document, not a pointer index. This is a lapse.
6. Violation Six - CSR Related Disclosure Violation under the Regulation 4 and Schedule II of the SEBI LODR Regulations, 2015:
In the CSR disclosure supplied in the annual report there is large scale gross violations. The CSR spend disclosed, but impact assessment detail is very minimal. There is no adverse impact or failure reporting (if any) on the CSR Programmes. The listed company has given CSR implementation narrative in promotional form. This is not evaluative. The judicial and SEBI action is very clear- CSR is no longer treated as a “good-news-only” section with "good photographs". Though "Good news" and "good photographs" are good but if major disclosures are hidden or not disclosed properly then the "Good news" and "good photographs" are treated as "camouflaged reporting".
Hence, the disclosure by this listed entity on CSR Programmes emphasize outputs and selectively reported outcomes while omitting material information on a) programme failures and b) corrective governance responses. Such disclosure thereby weakens the balanced disclosure requirement under the Regulation 4 and Schedule II of the SEBI LODR Regulations, 2015.
b) The CSR failure is not linked to the board oversight. What should be disclosed -Whether CSR Committee: a) reviewed failures b) altered strategy c) discontinued CSR partner or d) reallocated budgets due to poor impact. All these four points are missing.
What is disclosed: a) Committee existence b) Meetings held and c) Amounts approved. This weakens the Regulation 17 & Schedule II linkage on the CSR oversight.
Conclusion:
Clearly the Corporate Governance & CSR violations are needed to be addressed seriously by the listed entities. This is missing. This needs good people on the Board of Directors, who can challenge aggressively the Board and Management for necessary corrective action. This allows sustainable growth of business, reduces waste and enhances profit.
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