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Private equity (PE) investors in India are coming out against certain clauses in the new Companies Bill that create a disparity between PE nominee directors and other directors on company boards.
According to PE experts, the nominee directors of banks and other financial institutions enjoy certain immunity for the wrongdoing of promoters, while nominee directors of PE firms are held responsible for these.
The Indian Private Equity and Venture Capital Association (IVCA), the premier body of PE and venture capital firms in India, plans to approach the corporate affairs ministry to demand removal of the contentious clauses in the Bill and treat PE directors on par with directors of banks and financial institutions.
Mahendra Swarup, president of IVCA, said: “This discriminates against the nominee directors of PE, as they are held responsible and considered just like any other director, including the promoter directors. Whereas both nominee directors of the banks or financial Institutions and PE should have same treatment as both are investors or lenders and not involved in the day-to-day operations of the company.”
The board members of a limited or a private limited company are liable for prosecution under various statutes for any default by the company management, including independent directors and nominees of PE Funds.
“The investors or limited partners (LPs) such as global Insurance companies or large pension funds insist on a very high level of governance and transparency, which the Indian promoters and their boards are not familiar with.
This creates a lot of reputational risk for both fund managers, LPs and personal risk for the nominee directors of the PE funds,” said a fund manager on condition of anonymity.
