In a major reprieve for sacked managing director & chief executive officer of SKS Microfinance, Suresh Gurumani, the Andhra Pradesh High Court on Friday ruled that he could continue as a director of the company.
The court admitted a petition against Gurumani’s firing filed by SKS shareholder S Lekha and set hearings for a later date. Justice G Bhavani Prasad said Gurumani could be removed only with the approval of shareholders and asked the company to reply within three weeks.
The court also said newly-appointed CEO M R Rao should not to take any major policy decisions concerning SKS Microfinance without prior approval of the board of directors, until further orders.
On October 4, SKS informed stock exchanges that its board had passed a resolution terminating the appointment of Gurumani as managing director and CEO, and “withdrawn all powers and authorities granted to him or otherwise enjoyed by him in the company as managing director and chief executive officer of the company, with immediate effect”.
Lekha contended that Gurumani's sacking was illegal and without jurisdiction. She said shareholders invested in the company as Gurumani, who has vast experience as a banker, was unanimously appointed at an SKS annual general meeting. Besides, she said, he had played a key role in the company going public.
Rao told Business Standard that the court had refused to stay the termination of Gurumani's services. It also noted that the complainant holds only 18 shares.
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SKS Chairman Vikram Akula and Chief Financial Officer S Dilli Raj were not immediately reachable for comment, despite several attempts.
SKS Executive Vice-President Atul Takle said the board had powers to terminate the services of a managing director that it had appointed.
However, a director on the company's board could be removed by shareholders at an annual or extraordinary general meeting. Until then, Gurumani would continue as non-executive director on the board.
On Thursday, Securities & Exchange Board of India had asked SKS to specify the reasons for Gurumani’s sacking. Takle said the company had furnished a reply to Sebi, but did not disclose the contents.
SKS Microfinance's shares have been under pressure ever since news of Gurumani's termination was announced on Monday. On Friday, SKS shares fell a further 5.6 per cent on the Bombay Stock Exchange to close at Rs 1,228.24.
Gurumani joined SKS as CEO in December 2008. In September 2009, SKS shareholders confirmed his appointment for a period of five years with effect from April 1, 2009. He received a consolidated salary of Rs 1.5 crore (raised this May to Rs 2 crore for 2010-11) and a performance bonus of Rs 15 lakh a year, with annual increments of up to 100 per cent. He was also paid a one-time bonus of Rs 1 crore in April 2009 and given Rs 4-crore life insurance cover.
Gurumani, a chartered accountant, was earlier director at Barclays. His appointment came after SKS raised Rs 366 crore ($75 million) from private equity investors in November 2008 in its fourth round of funding. Sandstone Capital, an India-focused hedge fund with $1 billion capital under management, led the deal. Other investors in the round included SVB India Capital and Kismet Capital.
Sebi unhappy with response
Markets regulator Sebi is unhappy with the response of SKS Microfinance to its letter seeking information on the sacking of former MD and CEO Suresh Gurumani and resignation of independent director Ashish Lakhanpal. Sebi had asked the company to disclose whether it was earlier aware of any events that could have resulted in Gurumani’s termination.
SKS has apparently told Sebi that a clash in the boardroom was the reason for Gurumani’s ouster. The regulator is unhappy with the response and has asked for additional details, sources familiar with the developments said. When contacted, an SKS spokesperson said, “We received the Sebi notification on Thursday. We have replied to it today.” However, he refused to provide details of the company’s response.