Maharatna Steel Company - Corporate Governance , CSR Law Violation And Quality Of Independent Director.
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
Despite being "Maharatna" status steel company, with significant environmental footprint, the Board structure need improvement, with strong Independent Directors. The independent governance is missing here. The Annual Report speaks the major disclosure violation of the SEBI LODR covering material disclosure coal mine closure raising the loss of 10.85 MT of steel grade coal to India running into several 1000 crores of Rupees. This loss is needed to be reported with the disclosures on the Production Impact and Financial Impact Assessment of steel production. Both the disclosures are entirely missing. The report is almost silent on the endangered species protection under the CSR governance. This raises valid questions, whether Board and the Independent Directors sitting here adequately exercised oversight under the SEBI LODR, CSR and the sustainability obligations or not?
The Annual Report of 2024-2025 provides a poor Corporate Governance state of this company. This is a learning lesson for the Independent Directors, Company Secretary & CSR professionals to learn and improve. If SEBI LODR is rigorously practiced correctly, it improves the Corporate Governance in geometrical way.
Some nine important disclosures are missing. This covers eight disclosures under the SEBI LODR and one under the CSR Law. These disclosures are missing from the Annual Report. This again states that before publication of the Annual Report, the Independent Directors and Company Secretary should must get the Annual Report examined from an expert. This should also be regulated in the policy. Dependence alone on the Secretarial Audit is fatal as clearly seen here.
1. Violation Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015- Non Disclosure of Material Information.
Missing Disclosure On Impact On Production:
The Clause 30 (4) of Para B speaks disclosure of disruption of operations of any one or more units or division of the listed entity due to natural calamity, force majeure or events such as closure, strikes, lockouts etc. The basic requirement in this clause is the company must disclose the impact on production and the Financial Impact Assessment. The company has disclosed permanent closure of the Jitpur coal mine (effective April 2024 due to abnormal water seepage). This closure has resulted in the loss of 10.85 million tons of extractable coking coal reserves. This had a material impact on operations. Company failed here to disclose Impact on Production and Financial Impact Assessment. This is the "mother clause" for this event. Since a mine flooding/seepage is an "event" rather than a board decision, it falls under Para B, where impact on production is necessary. This is completely missing.
Missing Disclosure On Financial Impact Assessment
Further, under the Regulation 30(4) (Updated in July 2023)- The "Materiality" Clause mandates disclosure of any event whose value or expected impact exceeds the Quantitative Thresholds. The Quantitative Thresholds are:
a) 2% of Turnover (based on the last audited consolidated financial statements).
b) 2% of Net Worth.
c) 5% of the average Profit/Loss after tax (average of the last 3 years).
The replacement cost of 10.85 MT of coking coal (which is expensive and often imported) hits the above markers. The company is legally bound to provide a detailed financial impact assessment, not just a physical quantity.
Missing Disclosure On Risk Management:
Under Regulation 21 of the SEBI LODR - Risk Management Committee (RMC) is formed. This Committee failed to analyze the Risk associated with the loss of 10.85 million tons of extractable coking coal reserves. The Independent Directors were bound under Clause 4 of Regulation 21 to identify following actions. It appears the Independent Directors are not practicing the "ASK WHY", a good practice of Toyota Lean Management. The Independent Directors should "ASK WHY". See how this problem analyzed. Initially it may look water seepage issue. But the root cause is "Poor Governance". See how Toyota Lean Practice Management is reaching at the root cause.
a) Why the seepage occurred in the underground coal mine ?
Answer: Water came from the adjacent Coal Mine of different company.
b) Why water came from the adjacent coal mine ?
Answer: The adjacent Coal Mine company has closed the mine, so pump machine not working.
c) Why the adjacent Coal Mine closed ?
Answer: Under Advance risk mitigation safety plan, the mine was closed to avoid another Chasnalla accident. It has planned in advance coal procurement.
d) Why Advance risk mitigation safety measure and coal procurement plan not made here in advance ?
Answer: Governance Issue. Board failed to analyze it in advance. There is no contingency plan of coal procurement. Severe impact on plant operation is not denied.
Independent Directors shall note that this is not harm in torturing data supplied by the direct people involved in this operation. Just silent observation, may result in loss as seen above. This is not ordinary loss. But a loss of 10.85 MT. The value is running into several 1000 crores of Rupees.
Missing Disclosure On Management Discussion and Analysis (MD&A):
Under Regulation 34(2)(e) - Management Discussion and Analysis (MD&A) is discussed. Under Clause Regulation 34(2) (e) of Schedule V: A mandatory section is there on "Opportunities and Threats" and "Risks and Concerns." A loss of 10.85 MT is a structural "Threat" to raw material security. Reporting only the "loss" without discussing the "Risk Analysis" in the MD&A is a clear violation of this clause.
2. Violation SEBI LODR Regulation 17(1)(a):
The Board lacked the required number of Independent Directors and Non-Executive Directors (less than 50%) for nearly the entire year (April 8, 2024, to March 31, 2025). This is serious governance question. The company did not have a woman director on the Board until April 2025.This is another governance question
3. Violation Regulation 18 of the SEBI (LODR) Regulations, 2015
The Audit Committee was non-compliant from November 12, 2024, to March 31, 2025, due to an insufficient number of Independent Directors. Furthermore, the committee held meetings on February 11 and March 25, 2025, without a valid quorum. The Audit Committee Composition and meetings are disclosed. But, Audit Committee recommendations accepted/not accepted by the Board not clearly explained. This is clear Disclosure Gap, showing incomplete reporting of recommendation acceptance status.
4. Violation SEBI LODR Regulation 17(10) – Performance Evaluation of Board
The Requirement is the listed companies must disclose criteria of evaluation of Independent Directors, Board and Committees. The report mentions evaluation conducted. But, detailed evaluation parameters / methodology are not adequately disclosed. This is a Compliance Gap and shows following deficiencies:
a) Structural Failure for Evaluation
The law requires the entire Board (excluding the director being evaluated) to conduct the assessment. However, for the 2024-25 period there is violation of valid Board Composition. This was not in compliance with requirements for the entire financial year. There was a continuous shortfall of Independent Directors. The Board lacked the mandatory number of Independent Directors, so any "Performance Evaluation" disclosed in the report is technically and legally flawed. The Peer Review mechanism (where Independent Directors evaluate each other and the Board) could not function with the legally required independence and objectivity.
b) Committee Oversight Gaps:
Regulation 19 of SEBI LODR mandates that the Nomination and Remuneration Committee (NRC) must formulate the criteria for evaluation. The Annual Report flagged that the composition of the NRC was not in compliance during part of FY 2024-25.If the committee responsible for setting the evaluation criteria is itself improperly constituted, then the subsequent disclosure that evaluations were conducted based on NRC criteria constitutes a functional disclosure violation.
5. Violation SEBI LODR Regulation 25(3) Missing Separate Meeting of Independent Directors
Under Regulation 25(3), Independent Directors must meet at least once a year without the presence of non-independent directors to evaluate the Chairperson and the Board. This is observed that multiple board-level committee meetings were held without a valid quorum. The absence of a properly constituted group of Independent Directors suggests that the mandatory separate meeting for performance evaluation likely lacked the necessary independence to provide a critical assessment of the Chairperson.
5. Violation SEBI LODR Regulation 21 – Risk Management Committee
Right at the top one major risk is discussed. That is needless to repeat here. The Risk Committee must disclose here: a) Risk Management Committee composition b) Risk management framework and c) Major business risks. The deep observation is that Risk framework explained here but there is no detail of risk heat map disclosed. This is Incomplete disclosure of risk quantification and mitigation framework. This is completely missing the coal mine closure risk.
6. Violation SEBI LODR Regulation 22 – Vigil Mechanism / Whistleblower Policy
The law says Annual Report must disclose: a) Existence of whistleblower mechanism b) Access to Audit Committee Chair c) Number of complaints received and resolved. The Statistical disclosures of whistleblower complaints are not detailed extensively.
7. Violation SEBI LODR Regulation 23 – Related Party Transactions
Here company is bind to disclose : a) Material RPTs b) Policy on RPT c) Justification for transactions. Though RPT table is here, but narrative justification of material RPTs is minimal. Insufficient arm’s-length justification narrative is also very poor.
8. Violation SEBI LODR Regulation 34 – Business Responsibility & Sustainability Report (BRSR).
The requirement is the listed entities must provide complete BRSR disclosure. The BRSR Report is present here but the Environmental impact on endangered species not disclosed here. This is disclosure violation..
9. CSR Law Violation - Company Act Section 135 :
It appears the Independent Directors are not looking the CSR, in right way. The good practice of CSR Need Analysis is missing here. There is clear violation of the CSR Law as mandated under Section 135 of the Company Act. This Section should must be read with the Constitutional Obligation as provided under Article 51A(g). This is needed to be given effect as provided by the Hon'ble Supreme Court of India Judgement in M.K. Ranjitsinh v. Union of India. The business operation of the company is impacting endangered species. Hence CSR Fund is needed for the protection of the endangered species. If CSR Fund is not here for the protection of the endangered species. This is violation of the CSR Law Section 135. Some sites have been earmarked here. There may be other sites also. This is needed to be evaluated through the CSR Need Analysis. The Corporate Governance is the root cause which failed to monitor the CSR Need Analysis. See following "Why Map":
1. Why CSR Law Section 135 violated?
Answer: Business Operation is impacting endangered species at some identified sites. The CSR Fund was not given for the protection of the endangered species.
2. Why Business Operation impacting on the endangered species not identified?
Answer: No good practice of CSR Need Analysis.
3. Why good practice of CSR Need Analysis missing ?
Answer: Failure of Corporate Governance from the Board. Good Independent Directors are missing.
4. Why CSR Governance is missing at the Board ?
Answer: Board failure to look the CSR. There is No qualified Independent Directors at the Board This was not in compliance with requirements for the entire financial year. There was a continuous shortfall of Independent Directors. This scenario placed the CSR Operation at compliance risk.
CSR Fund Needed At Dantewada–Kanker region, Chhattisgarh and Saranda Forest, Jharkhand:
Similarly Iron Ore Mines in Saranda Forest, Jharkhand, clear threat on the two endangered species have been noted:
a) Asian Elephant
b) Clouded Leopard
Saranda at Jharkhand is one of the largest Sal forests in Asia, and mining activity in this area has historically raised concerns about: a) deforestation
b) wildlife displacement andc) disruption of elephant corridors.
CSR Fund For The Ash Pond Site At the Plant site at Jharkhand:
The Independent Directors have failed to assess here:
a) whether wildlife corridor protection measures exist or not ?
b) whether CSR fund is supporting elephant conservation or not ?
c) Whether adequate measures taken through CSR for not allowing birds entry into the ash-pond and nearby cooling pond?
Conclusion:
1. Quality and skill of Independent Directors having expertise in the SEBI LODR are missing.
2. The Independent Directors also missing important skill in regulating the CSR Corporate Governance. This is why CSR Governance and compliance of Section 135 is missing in this company.
3. On urgent basis good Independent Directors should must be provided to the Company for its survival.
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