What has happened?
- The Reserve Bank of India (RBI) on Monday superseded the board of directors of Reliance Capital Ltd (RCL), belonging to the Anil Ambani group,
- In view of the defaults by RCL in meeting the various payment obligations to its creditors and serious governance concerns which the board has not been able to address effectively.
Importance of Board of directors
- A board of directors is essentially a panel of people who are elected to represent shareholders.
- The board of directors are can be called the brain of the company.
- They are responsible for taking all the big decisions and making policy changes.
- These decisions are taken in special meetings members of the board hold together, called ‘Board Meetings’.
- Section 149 of the Companies Act states that every company’s board of directors must necessarily have a minimum of three directors if it is a public company, two directors if it is a private company andone director in a one person company.
- The maximum number of members a company can assign as directors is fifteen.
- However, the company can pass a special resolution in a general meeting to allow for assigning more than fifteen members to the board of directors.
- The maximum number of companies that an individual can become a director of, is 20 companies.
- At least, one woman director must be appointed by the company.
- All listed companies must have at least one-third proportion of their board of directors as independent directors.
But why RBI did this?
- The country has been grappling with a shadow-lending crisis since 2018 after Infrastructure Leasing and Financial Services Ltd collapsed, triggering a credit squeeze.
- On 4 October, bondholders of Reliance Capital urged RBI to consider referring the company for insolvency resolution,
- Citing challenges faced in the asset monetization process and non-cooperation from the company.
- RCL owes Rs 21,781.01 crore, including interest, as on October 31 to lenders.
- It has also defaulted on repayment of inter-corporate deposits taken from various parties aggregating to Rs 562 crore and interest Rs 120 crore for which maximum days of default ranges to 567 days.
- RCL made a loss of Rs 10,971 crore on a revenue of Rs 563 crore during the fiscal ended March 2021.
- The company reported continuous delay in servicing of debt obligations on account of stretched liquidity.
RBI appoints administrator
- The central bank has appointed Nageswar Rao Y, former Executive Director, Bank of Maharashtra, as the Administrator of the company under Section 45-IE (2) of the RBI Act.
- “The Reserve Bank will shortly initiate the process of resolution of the company under the Insolvency and Bankruptcy Rules, 2019,” it said.
- The RBI will also apply to the National Company Law Tribunal, Mumbai for appointing the Administrator as the Insolvency Resolution professional.
- The RBI has constituted a three-member Advisory Committee to assist the administrator in discharge of his duties, a central bank’s release said.
- The members of the Advisory Committee are — Sanjeev Nautiyal, former DMD, State Bank of India; Srinivasan Varadarajan, former DMD, Axis Bank; and Praveen P Kadle, former MD and CEO, Tata Capital Limited.
- Reliance Capital is the third shadow lender to be seized by the RBI, after Dewan Housing Finance Corp. Ltd and Srei Infrastructure Finance Ltd.
- The unraveling of Reliance Capital Ltd. shows why the Reserve Bank of India remains reluctant to allow big business groups into mom-and-pop banking,
- Despite facing huge pressure to allow a wave of corporate capital into the industry and reignite credit growth.
What Reliance says?
- The Reliance Capital welcomed the RBI move to resolve debt “in accordance with IBC” and said it will cooperate fully with the RBI-appointed administrator for expeditious resolution of debt.
Q) The minimum number of members that required while registering a public company?