MUMBAI, July 14: Financial institutions (FIs) are planning to challenge the Enforcement Directorate's (ED) move to charge-sheet their nominees on the board of ITC Limited for alleged FERA violations of $ 114 million. Apart from challenging the ED's move in court, FIs may also contemplate withdrawing their nominees in various companies in which they do not have much exposure. This has already been done by ICICI as part of its recent code on corporate governance.

While the FIs have not yet written to the Finance Ministry on the matter, it is believed that the Government is very perturbed by the ED's action -- sources said that the Cabinet Secretary may even call for a meeting on the subject. The crux of the FIs objection to the ED action is that they are not responsible for the day to day operations of a company and so cannot be held criminally liable for any wrongdoings. The Ministry of Finance is believed to agree with this view.

As IDBI chairman S.H. Khan and executive director P.V. Narasimham are out of Mumbai, however, the FIs have not formalised their plans as yet.

The ED has charge-sheeted three FI nominees P.V. Narasimham and K P Narasimhan (nominee of LIC) on the ITC board. The other FI nominees on the ITC board are Tapan Ganguly and Basudeb Sen of UTI. However, the contention of FI nominees is that as they are not in the day-to-day management of the company. ``FI directors attend only board meetings which are normally held 5 or 6 times a year. And directors discuss the issues and papers presented by the management of the company at the board meeting,'' said an FI source.

Said an executive director of ICICI, ``chargesheeting of FI nominees in the ITC case will definitely have some impact on the role of FI nominees in the board of various companies. As the decision came only yesterday, we are studying the options. At the moment we have not made changes in our norms regarding the role of FI nominees in the board.''

However, he added that the FI nominees ``cannot be omnipresent in the board meetings and it is the function of executive and the management to look after the day-to-day management of the company. Now people will be reluctant to enter the board of any company. What is the difference between FI nominees and other non-executive directors in the board. All of a sudden people have become sceptical about the FI nominees' role.''

Institutions hold major equity stakes in leading companies like Tata Steel, Telco, Reliance Industries, Larsen & Toubro, BSES, ACC, Hindustan Lever and various companies in the Tata and Birla groups. Another company which is facing FERA charges is Shaw Wallace and Company.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.