DLF Limited: Special Pension Scheme for Retiring Directors


On July 08, 2013, the Board of Directors of DLF Limited announced a proposal to alter the Object Clause of its Memorandum of Association and introduce a specific and limited pension scheme aimed at extending retirement benefits to the Directors of the Company and sought shareholder approval for the same through a postal ballot dated August 19, 2013.

InGovern had highlighted several corporate governance concerns related to this proposal in its vote recommendation report and had recommended all shareholders to vote against the proposal. However, the special resolution was passed with requisite majority by the shareholders of the Company. Although 99.78% of the institutional investors who voted in the poll voted against the resolution, the proposal passed through primarily on account of the large promoter holding in the Company.

The outcome of the postal ballot date August 22, 2013, is given in the table below:

Promoter/ Public No of Shares Held No of Votes Polled No of Votes in Favor No of Votes Against % of Votes in Favor % of Votes Against
Promoter/ Promoter Group 1,334,803,120 1,334,803,120 1,334,803,120 – 100.00% 0.00%
Public – Institutional Holders 362,261,484 128,573,909 280,000 128,293,909 0.22% 99.78%
Public – Others 82,712,630 911,952 881,979 29,973 96.71% 3.29%
Total 1,779,777,324 1,464,288,981 1,335,965,099 128,323,882 91.24% 8.76%

Such instances reiterate the need for regulatory intervention from SEBI to protect minority investor rights specifically on resolutions which involve related party transactions.

The key corporate governance concerns related to this proposal are highlighted below:

Sole discretion of the Board in deciding the quantum and nature of the benefits:

The proposal that was put forth was an enabling resolution, which once passed by shareholders, allowed the Company to draw up the entire pension scheme at the sole discretion of the Board of Directors. The Board of Directors in consultation with the Remuneration Committee could formulate and determine the eligibility criteria as well as the quantum and nature of the benefits of the pension scheme. As a corporate governance best practice, the Board should have put forth the specifics of the scheme and any modifications thereafter for shareholder approval.

Absence of a truly independent remuneration committee to consider the Scheme

The remuneration committee of DLF Limited consists of 2 members: (1). Brig (Retd) NP Singh (2). Mr. B. Bhushan. Both of these directors are non-executive independent directors who have been on board for more than 20 years (non-independent as per InGovern classification). Hence, any decision taken by the remuneration committee related to the pension scheme will be a clear conflict of interest. As a corporate governance best practice, the remuneration committee should be reconstituted with truly independent directors.

Promoter Directors to be the sole beneficiaries of the Scheme:

The resolution requires eligible directors of the special pension scheme to have a minimum service tenure requirement of over 20 years. However, the new Companies Act requires all independent directors to have a maximum tenure of 10 years. With the introduction of the new Companies Act, none of the Independent Directors of the Company will be eligible for this special pension scheme going forward.

The board structure of DLF Limited as on March 31, 2013 is given below:

Director’s Name Designation Promoter or Not Tenure on the Board Eligible for Pension or not
Dr. K.P. Singh Executive Chairman  >20 yrs 
Mr. Rajiv Singh Executive Vice-Chairman  >20 yrs 
Mr. T.C. Goyal Managing Director  15 yrs 
Ms. Pia Singh Executive Director  10 yrs 
Mr. G.S. Talwar Non-Executive Director  7 yrs 
Dr. D.V. Kapur Independent Director  7 yrs 
Mr. K.N. Memani Independent Director  7 yrs 
Mr. B. Bhushan Independent Director  >20 yrs 
Brig. (Retd.) N.P. Singh Independent Director  >20 yrs 

In absence of a professional and truly independent board which meets such eligibility criteria; approval of this special scheme will in effect be purely for the benefit of the Promoter Directors of the Company going forward. Minority shareholders of the Company will be burdened with a pension scheme made purely for the benefit of promoter directors of the Company. Moreover, the quantum of the payouts will be at the sole discretion of the Board which primarily consists of members from the Promoter Group.

Such resolutions are gross violations of good corporate governance practices. SEBI should take note of such instances and make appropriate regulatory changes to protect minority investor rights specifically on resolutions which involve related party transactions. Some suggestions are given below:

  • SEBI should make it mandatory for promoters of the Company to abstain from voting on related party transaction resolutions which impacts minority shareholders.
  • Payouts on related party transactions and modifications to any pre approved related party schemes should be put for shareholder approval as a separate resolution instead of an enabling resolution.
  • SEBI should make it mandatory for companies to disclose all documents in public domain in electronic format for all related party transactions in which the promoter group is a beneficiary.

The article can be downloaded in pdf by clicking here: DLF – Special Pension Scheme


The media coverage of this article can also be read from this link: Times of India – 13 September 2013