Pecuniary Relationships of Independent Directors

This study lists out cases where Companies have a pecuniary relationship with their Independent Directors, mostly through the latter’s legal/consulting firms. This pecuniary relationship extends beyond payment of sitting fees and commission, to payment of fees for rendering professional advice which is outside the gamut of responsibilities of an Independent Director.

Highlights of the Report

  • The Companies Act, 2013 & Clause 49 have set monetary limits (Rs. 50 Lakh, 10% of revenue of the legal firm, etc.) for such relationships between Companies and their IDs, breaching which IDs can no more be classified as ‘independent’.
  • Howard M. Schilit and Jeremy Perler, in their book “Financial Shenanigans: How to detect accounting gimmicks & fraud in financial reports”, highlight such pecuniary relationships as a red flag that provides a breeding ground for shenanigans by companies.
  • In S&P BSE 200 Index, 21 Companies had such a pecuniary relationship with their IDs. These 21 Companies had pecuniary relationships with 25 IDs. Out of these 25 IDs, 15 were members of which 4 were Chairmen of the Audit Committee.
  • The 21 Companies include 6 Companies of Nifty-50 Index and 4 Companies of Nifty Next 50 Index.
  • The study also lists out 34 Companies which are outside the S&P BSE 200 Index.
  • While most of the pecuniary relationships are through the IDs legal/ consulting firms, there are also cases where the IDs have a direct lawyer-client relationship with Promoter of the Companies.
  • InGovern recommends that shareholders vote AGAINST the appointment/re-appointment of such IDs.
  • InGovern recommends that regulators view such pecuniary relationships as related party transactions (RPTs) and the fee paid should be disclosed as per RPT norms. The MCA/SEBI should change the regulations to classify such IDs as non-independent directors.
  • InGovern recommends that if Companies feel necessary to continue such relationship with ID’s legal/consulting firms while retaining the IDs on Board, they should reclassify the IDs as non-independent directors.


The full report can be downloaded here: ID Pecuniary Relationships