- Lavanya Goinka
“In business, ethics are crucial; your reputation is everything you have in life,” Sir Freddie Laker said. Chanda Kochhar is the 32nd most powerful woman in the world, according to Forbes. Isn’t it true that we’ve all heard the name at some point? Yes, perhaps? As a result, Chanda Kochhar is a shining example of women’s emancipation in the banking industry. She was the CEO of ICICI Bank, India’s fourth-largest private sector bank, where she made a significant contribution to the bank’s success. However, the same Chanda Kochhar has recently been in the news, accused of abusing her power and engaging in illicit activities. She was named as the only perpetrator in the ICICI Bank-Videocon case, which involved Rs. 3,250 crores in non-performing assets.
To get what transpired in the ICICI Bank-Videocon case and the role of ex-CEO Chanda Kochhar in it, it’s necessary to first grasp the fundamental facet of corporate governance that was breached. To put it another way, Corporate Governance (CG) is a framework that describes how a corporation or a bank should operate. It demonstrates the company’s desired direction and establishes the necessary rules and regulations. The notion of corporate governance arose as a result of the corporate entity’s shortcomings in serving the demands and expectations of creditors, consumers, and investors. When these expectations are not met, the corporation is said to have failed in its corporate governance.
The Companies Act, 2013, the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), the Institute of Company Secretaries of India (ICSI), and other legislations in India have institutionalised the principles of corporate governance through provisions in the Companies Act, 2013. The corporate governance system was also studied by various committees. The Companies Act of 2013 established a modern and well-defined formal framework for company governance. It improved compliance, transparency, and reporting through new compliance laws and regulations, but it lacked effectiveness.
The Tata-Mistry debacle, the PNB-Nirav Modi Scam, the Satyam affair, the UTI scam of 2001, the Dewan Housing Finance Limited (DHFL) fraud, YES Bank, Cafe Coffee Day, and Jet Airways, to name a few, all demonstrate the importance of corporate governance in the administration of enterprises. ICICI Bank was one of the most recent failures. The ICICI Bank debacle has called into question the bank’s existing corporate governance system. The ICICI Bank crisis stemmed from a dispute between Videocon Group and ICICI Bank over a loan. It happened as a result of board members’ shortcomings and the CEO’s failure to disclose her interest in the purchase.
What is the definition of corporate governance?
It is necessary to comprehend the phrase “corporate governance” in order to comprehend the failure of ICICI Bank Ltd’s corporate governance. “Corporate” refers to any existing legal business entity, and “Governance” refers to the collection of frameworks or regulations that must be followed to control it. It is essentially a system for managing and enhancing the success of enterprises in order to increase long-term value and preserve shareholders’ interests. In 1981, the Bank of Credit and Commerce International in the United Kingdom was the first incidence of corporate governance failure. When economic liberalisation and deregulation of firms and sectors began in India in the mid-1990s, the notion of corporate governance was born. The Confederation of Indian Industries Code (CII) launched the first effort in the Indian sector in 1996, paving the way for corporate governance in the country.
What is the need for corporate governance?
The primary concern of corporate governance in the banking industry is to ensure that all of the company’s shareholders’ interests and needs are protected. Corporate governance is necessary to protect their money and ensure that there is no criminal conduct in the bank. Managers, Boards of Directors, Shareholders, Regulators, and other related topics are discussed. The main concern of corporate governance is the effective composition of the Board of Directors (BoD), the separation of the BoD’s supervisory role from executive management, and the formation of Board Committees to oversee critical areas, as well as the implementation of value-based corporate culture and norms, ethics in the working process, transparency accounting, and so on. It is necessary to guarantee that best management practises are used to meet the requirements in an ethical manner. It is necessary to implement sustainable development and ensure that the stakeholders’ requirements, obligations, and social duties are met. Companies and banks choose and should choose corporate governance to increase their access to external funding, cut their interest and loan costs, and improve their overall performance.
What was the case of ICICI Bank Ltd?
The ICICI Bank is one of India’s largest private sector banks. Banks that are not owned by the government are known as private sector banks. In 2009, the bank’s Board of Directors established the Corporate Social Responsibility (CSR) programme. The committee’s goal was to assess the bank’s CSR programmes, however the bank received a lot of public attention a few years ago because of the CEO, Chanda Kochhar’s, unlawful use of power. Money laundering was labelled as a problem in this situation.
The case’s facts
The lawsuit began in 2008, with several intertwined facts. The following are the facts:
• In 2008, Mr Deepak Kochhar, the husband of ICICI Bank’s ex-CEO Chanda Kochhar, and Mr Venugopal Dhoot, the chairman of Videocon Group, formed a business called “NuPower Renewable Private Limited” (NRPL), in which they both held equal shares.
• Mr. Dhoot sold it to Mr. Kochhar in 2009. Mr Venugopal Dhoot and Mr Vasant Kakade were appointed as directors of “Supreme Energy” in the same year.
• When Chanda Kochhar became the bank’s CEO, she sanctioned six loans to Videocon Group: Rs. 175 crores and Rs. 300 crores in 2009; Rs. 240 crores in 2010.
• In 2012, a total of Rs. 1,730 crores was designated as non-performing assets (NPA), resulting in a significant loss for the bank.
• In 2010, “NuPower” needed money and received a loan of Rs. 64 crores from Mr Dhoot’s company, “Supreme Energy,” on the condition that Mr Dhoot receive some shares in “NuPower.”
• Mr Mahesh Chandra Punglia, a partner of “Supreme Energy,” transferred his interests to him in 2011.
• Mr Punglia sold all of his interests to a firm called “Pinnacle Energy,” which was owned by Mr Kochhar, for a pittance of $9 lakhs in 2012.
• The Videocon group received a loan of 3,250 crores from ICICI Bank in April 2012. There had been no conflicts up to this point, but the issue occurred in 2017.
M.K Singh, Chairman of ICICI Bank, stated that the bank was part of a 20-bank consortium that provided Mr Venugopal Dhoot, Chairman of the Videocon Group, with Rs. 40,000 crore in loans when he requested them. In 2016, stakeholder activist Arvind Gupta claimed that the CEO Chanda Kochhar’s direct family members and the Videocon company made a deal over a Rs. 3,250 crore loan from the former to the latter. He submitted a letter to the Prime Minister in 2016 before the CBI could investigate the situation, explaining the internal dealings in which a private sector bank lost money and stating that Ms Kochhar’s husband had a commercial engagement with the Videocon firm prior to the penalty.
When the issue gained public notice, M.K. Sharma, the chairman of the Board of Directors, conducted a two-year investigation but discovered nothing. The bank was accused of simply disbursing a portion of the Rs 3,250 crore. According to media reports, Ms Kochhar benefited financially from Videocon, and the bank granted Mr Dhoot Rs. 3,250 crore in exchange for Mr Kochhar receiving “Supreme Energy.” When another whistleblower filed a complaint against the bank’s top management in March 2018, the situation was ultimately brought to light. Between 2008 and 2016, he claimed, there was a delay in recognising the impairment of loan accounts.
Concerns voiced
After learning the facts of the case, questions about money laundering and bank mismanagement arose. Economists, media outlets, stakeholders, and shareholders have raised concerns about the bank’s corporate governance.
Even after learning of the conflict of interest in the case, the bank stood by its CEO for nearly two months, and when unrest grew, the board decided to launch an investigation. Why did the bank not inquire about this as well?
The second question is whether the probe was begun by an outsider, notwithstanding the fact that it was initiated by an outsider. It’s crucial to comprehend why an outsider was required to do the same, overshadowing the fact that it was an internal issue for which the bank should have acted sooner.
Despite the fact that the investigation into the matter was still ongoing, the CEO continued to work in the office. How much of this is even justified?
Mrs Kochhar requested early retirement when the Securities Exchange Board of India (SEBI) launched the investigation. As a result, a question arises. Why did she choose early retirement over quitting, and why did she take this action in the first place?
Other concerns included whether the bank had made proper disclosures regarding its involvement with the borrower. Furthermore, the bank conducted the review internally, and the result was never made public. What was the rationale for such a procedure and secrecy?
Actions Initiated
The CBI launched an investigation into Mr Kochhar’s and Mr Dhoot’s dealings. It also launched a probe on Deepak Kochhar’s younger brother, Rajiv Kochhar. In 2018, the Serious Fraud Investigation Office (SFIO) became involved in the case, requesting permission to conduct an investigation from the Ministry of Corporate Affairs (MCA). The SEBI also filed a court complaint alleging that they were not informed of the situation and wanted an explanation from the lender on its dealings with Videocon Group and NuPower Renewable, as well as a show-cause notice by July 5, 2018.
It suspected a breach of the listing agreement disclosures and ordered CEO Chanda Kochhar to reply to the charges. Kochhar then pleaded for an early retirement, which was accepted in October 2019. Under the applicable SEBI laws, the bank might incur a penalty of up to Rs. 25 crores, as well as a fine and other penalties. The amount of the penalty was determined based on the investor’s loss and the applicant’s benefit. The Enforcement Directorate (ED) has also filed a Rs. 12 crore recovery suit.
It was also discovered that the Videocon Group had transferred a flat to Chanda Kochhar’s family trust, with Mr Dhoot threatening to turn the assets over to the National Payments Corporation.
The bank named Justice B.N Srikrishna as the chairman of an independent commission to investigate the incident in 2018. In the same year, a Judicial Committee was established, led by Justice Srikrishna, who stated in 2019 that the code of conduct had been breached, as well as cheating and criminal conspiracy. Following this, the bank decided to revoke all of Mrs Kochhar’s perks. According to the ED, only Rs. 64 crores of the Rs. 300 crores sanctioned were released by the committee and were transferred by Videocon to NuPower.
Other loans sanctioned by the CEO in the cases of Bhushan Steel, Essar Steel, and Sterling Biotech were also investigated.
Mrs Kochhar did not remain silent on the issue and filed a lawsuit on the grounds that her contract was terminated despite the fact that she had previously handed her resignation letter, which was in violation of the approved procedure and statutory requirement. The bank subsequently responded by claiming that the firing was based on the CEO’s failure to disclose information. The petition was also dismissed by the Bombay High Court as unmaintainable. Another interesting aspect came into play when Mr Dhoot revealed that the CEO urged him to invest in NuPower and that he was granted 64 crores out of the total of 3000 crores.
