ICICI-Videocon loan case: Kochhar contests bonus clawback, ESOP termination

Kochhar shot out a legal letter objecting to ICICI Bank's termination for cause

ICICI Bank former managing director (MD) and chief executive officer (CEO) Chanda Kochhar has sent a legal letter to the private lender, objecting to the way her resignation was treated as termination, refusing to give back the money she got as bonuses and stock options between April 2009 and March 2018, as directed by the bank, said two people privy to the development. 

On January 30, the board of ICICI Bank announced it would claw back all the perks given to her, following a report by a probe panel headed by former Supreme Court judge B N Srikrishna that indicted Kochhar for violating the bank’s code of conduct in the Videocon loan case. Kochhar was directed to return about Rs 10 crore in bonuses she had received as CEO, and to also give up close to 6 million shares of the bank she had as stock option. The letter was sent by Kochhar’s lawyer, seeking explanation over treating her separation as a ‘termination for cause’. 

The letter highlighted her long-serving tenure in the bank (close to 34 years), her hard work and how she conducted herself with integrity. The letter said that the bank’s termination decision had tarnished her reputation.

Sources say the letter sent across was hard-hitting and aggressive, and briefly touched upon the allegations made against her. Her legal team is awaiting the bank’s response to decide the subsequent course, said sources.

Further, Kochhar’s lawyer in the letter pointed out that none of the credit decisions at the bank was unilateral and followed committee-based collective decision-making. Kochhar was charged with quid pro quo while sanctioning loans to the Videocon group.

An email sent to ICICI Bank remained unanswered. Kochhar did not respond to text messages. 
 

The bank had in a statement said Kochhar ineffectively dealt with conflict of interest and due disclosure or recusal requirements, while deciding on loans given to the Videocon group, where her relatives had a close business interest. 

“Chanda Kochhar was in violation of the ICICI Bank code of conduct, its framework for dealing with conflict of interest and fiduciary duties, and in terms of applicable Indian laws, rules and regulations,” the bank statement said, citing the probe report. The Srikrishna Committee investigated her role since April 2009, when she was named CEO, till March 2018.

“From a legal standpoint, the bank should have sufficient ground to make deduction from guaranteed components in the case of C-suite executives,” said a lawyer aware about the case. However, each organisation can exercise control and flexibility when it comes to structuring the terms and conditions around incentives, bonuses, perks, stock options, and so on. But enforcing such a clawback provision in an employment contract is always open to legal challenges once invoked, he added. 

The Reserve Bank of India guidelines say banks and financial institutions should put in place appropriate modalities to incorporate the clawback mechanism in respect of variable pay. These guidelines are aimed at creating accountability among senior managements for their decisions. 

Until June 2018, the ICICI Bank board had given a clean chit to Kochhar with full backing and had said there was no question of favouritism, nepotism or conflict of interest on her part in granting loans to Videocon Industries or any other company. 

However, the stance changed soon after the regulatory and probe agencies initiated enquiry in the matter. In January, upon receiving the panel report, the bank had revoked her existing and future entitlements such as any unpaid amounts, unpaid bonuses or increments, unvested and vested and unexercised stock options, and medical benefits.

Kochhar had denied the allegations following the first whistle-blower complaint originally made in 2016. Subsequently, the bank board had shown full support for its MD. The matter was investigated by multiple authorities including the income-tax department and the Securities and Exchange Board of India for months. 

Currently, the Enforcement Directorate is probing the case under anti-money laundering laws and questioned Kochhar and her husband Deepak Kochhar last week.