FIs may move CBI against nominees

Complaint under Prevention of Corruption Act under consideration in L&T Esops row.

In a bid to put pressure on defiant nominee-directors to return Larsen & Toubro shares, financial institutions (FIs) are considering moving the Central Investigation Bureau (CBI) under the Prevention of Corruption Act, 1988.

"Our first priority is to restrain our nominee-director from dealing with these shares. Hence, we are moving the Mumbai High Court which would hear the LIC petition tomorrow," said a top General Insurance Corporation official. "As a follow-up action, we are keeping all our options open."

Sources said both GIC and LIC have received legal advice which recommends that they can complain to the anti-corruption cell of the CBI under the Section 7 PCA, 1988 which deals with "a public servant taking gratification other than legal remuneration in respect of an official act." There would be follow-up action once the HC restrains the directors from dealing with the shares, FI sources said.

As the directors on the board of L&T were representing government-owned companies, they can be termed as "public servant" thus suitable action can be taken against them, said a Mumbai lawyer.

The GIC nominee on the board of L&T, B P Deshmukh, said the PCA 1988 does not apply to him as he had retired from the services of GIC a long time ago. "I am, however, ready to abide by the high court's orders tomorrow."

Deshmukh also defended the allotment of 30,000 shares as stock options to him. "We have not received these shares under the ESOPs arbitrarily. The entire deal was transparent and fair and there was no cheating. The scheme was put up in front of the shareholders in the annual general meetings and was cleared by all shareholders, including the FIs," said he.

The FIs are also miffed with the L&T management as they failed to keep the FIs, which hold the biggest chunk of shares in the construction major, about its nominees exercising the options in their own names. "If the L&T management had kept us informed about the exercise of options, we would have issued a cheque. It was only when we asked for information from the L&T's managing director, A M Naik on March 29 that we came to know that our nominees have already exercised the stock options," said the GIC official.

Deshmukh's shares worth Rs 4.5 crore were transferred to his demat account on February 9 and March 23 this year, the official said.

The shares were transferred to the individual account in spite of a June 2006 circular from the FIs which had instructed all directors not to exercise the options and return the shares to the companies.

A L&T official spokesperson declined to comment but insiders said as per the law they had kept the nominee directors informed. "It was the duty of nominee directors to inform the institutions. For us, the nominee directors are the representatives of the LIC and GIC," said a L&T official.

The GIC and LIC nominee directors B P Deshmukh and Kranti Sinha received stock options worth Rs 4.5 crore and Rs 3.5 crore, respectively, from L&T under its 2003 stock option scheme.

Both directors exercised the options leading to a face off between the nominee directors and the FIs. LIC had moved the courts against Sinha dealing with the shares on Monday.