The Oil and Natural Gas Corporation, India's largest firm by market capitalisation, may face delisting from stock exchanges as a petroleum ministry directive appointing additional government directors on company board has violated its listing agreement.
The petroleum ministry last month appointed V K Sibal, director general of hydrocarbons, on ONGC board, in addition to two officials from the ministry and one from Department of Economic Affairs, taking the total number of government directors on ONGC board to four, informed sources said.
Together with seven functional directors, the number of executive directors has gone up to 11 in a board of 14, a clear violation of the Securities and Exchange Board of India's guideline that prescribes at least 50 per cent of the board being made up of non-executive directors (independent directors).
"The present composition of the ONGC board does not conform to the requirements of the listing agreement. The Sebi does not recognise government directors as 'independent directors'," said a Sebi official.
While Sibal's appointment was being seen as a conflict of interest with his regulatory role, the petroleum ministry cited 'precedence' of former DG, DGH, Avinash Chandra 'being on ONGC board for 10 years.'
Officials, however, said the ministry was setting a 'wrong' precedent as Chandra was never on ONGC board but on the board of its subsidiary ONGC Videsh Ltd.
Sources said the nomination of a fourth government director also violated the policy of having a maximum of two government directors on a PSU board.
The ONGC board currently consist of 14 directors -- seven executive directors (whole time), including chairman and managing director, and seven non-executive directors (two officials from petroleum ministry and one from finance ministry), one nominee of Indian Oil Corp and three non-official part-time directors (Navaratna).
"According to the definition of independent directors, ex-officio government nominee directors and the nominee of IOC cannot be treated as independent directors. Only the three non-official part-time directors quality the definition of independent directors," the Sebi official said.
Failure to comply with Clause 49 (Corporate Governance) of Sebi's listing agreement is punishable with imprisonment of up to 10 years or a fine of up to Rs 25 crore (Rs 250 million) or both.
Besides, stock exchanges can suspend the dealing/trading of securities.
Sources said ONGC Chairman and Managing Director Subir Raha has already written twice in as many months to Petroleum Secretary S C Tripathi for 'taking necessary steps to increase number of independent directors to have an optimum combination as required under Clause 49 and/or to reduce the number of government nominee directors.'
