Stakeholders' body raises concerns over wilful defaulter on Sanofi's board

Logo of French multinational pharmaceutical company Sanofi is seen at the headquarters in Paris. (Photo: Reuters)
Proxy firm Stakeholders' Empowerment Services (SES) has raised concerns over the board composition of Sanofi India, where two former Kingfisher Airlines executives -- A K Ravi Nedungadi and Subash Gupte -- are serving as independent directors along with former RBI deputy governor Usha Thorat.

"SES reiterates that there is no legal violation as far as board members are concerned. However, shareholders would be interested to know the boardroom chemistry between an ex-regulator, Dr Usha Thorat, and an ex-director of a company (A K Ravi Nedungadi) who was declared a willful defaulter," the firm said in a note ahead of the pharma major's annual general meeting on Friday.

Kingfisher Airlines (KFA) has been declared as a willful defaulter by several banks after being grounded in October 2012 and its promoter Vijay Mallya is facing several proceedings including one to extradite him from UK. Nedungadi, who was a director of KFA till April 2014, had been associated with Mallya’s businesses since the 1990s. Gupte, a former Air India chairman, was the vice chairman of the airline before resigning in 2014. In September 2014, UBI had named all three as willful defaulters.

Thorat, served as Deputy Governor of the Reserve Bank of India between 2005 and 2010. She joined the Sanofi board in April last year.

Discussing the ethical dilemma of the persons involved in such an arrangement, the SES said: "If she is with decision of the banking sector, then she faces the dilemma of being part of a Board which has two willful defaulters as members. And if she is not supporting the decision, it amounts to an indirect message that these people are not willful defaulters and that would imply that the RBI and other commercial banks are on the wrong side and also that she does not support their point of view. 
This again poses an ethical dilemma for her as she is taking a stand, which is in contradiction to her stand as a former regulator. Can we take this to be the highest standard of objectivity or professional independence?"

Responding to an email seeking comments, a Sanofi spokesperson said, "Mr S R Gupte and Mr A K R Nedungadi have been elected as Independent Directors by the shareholders in accordance with the provisions of the Companies Act 2013 and the listing regulations prescribed by the Sebi."

"The fact that neither of the two have been declared willful defaulters by any court and the company has received declarations by them to the effect that they are not disqualified to act as Directors, clearly negates the questions that the SES report raises regarding their position in the Board of Sanofi India," the spokesperson added.

On the issue of Sanofi seeking the approval of related party transactions (RPT) up to a limit of Rs 2,000 crore for every financial year from its stakeholders, the SES said: “Such resolutions with perpetual approval provide unfettered power to the Board of Directors, even if the company's business scenario changes in future."
It suggested the company to take the approval of shareholders on a yearly or periodical basis keeping in mind dynamics of business.

The company spokesperson, however, pointed out that the Companies Act 2013 and Sebi’s 2015 regulations on Listing Obligations & Disclosure Requirements, do not require annual approvals for such transactions from shareholders.

"Therefore, with regard to routine business transactions of import and export of pharmaceutical products with the parent company, Sanofi India exercises diligence to be compliant with all applicable regulations and has the support of all its investors," she said.

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