ITC versus IIAS – An absolutely pointless defamation case…

Recently, ITC has slapped a defamation case to the tune of Rs.1000 crore against IIAS, a proxy advisory service based out of India. The reasons, to begin with, are quite frivolous. Ahead of the AGM last month, IIAS had urged the shareholders of ITC to vote against a particular resolution. While majority shareholders eventually voted in favor of the resolution, the company has still sought defamation charges from the proxy advisory…

What is the background? 

The resolution pertained to the payment of a monthly remuneration of Rs.1 crore per month to Mr. Deveshwar, who has recently demitted office as the CEO of ITC. This was to be paid in lieu of Mr. Deveshwar’s long tenure with ITC and his continuing role as a consultant. Proxy advisory firm, IIAS, was of the view that a payout of Rs.12 crore per annum to an ex CEO was not justified and did not really have any precedent in the Indian corporate context. IIAS also opined that such a resolution would be patently unfair to the existing management of ITC and would therefore be detrimental to shareholder value. Therefore IIAS had urged the shareholders of ITC to vote against the resolution and had also put up its argument on the website. While the resolution did get passed at the AGM, ITC felt that this note by IIAS had done reputational damage to ITC and hence the demand for a huge compensation!

Does ITC really have a case? 

While the Kolkata High Court has admitted the case and summoned the parties for a hearing, the case filed by ITC appears to be prima facie frivolous. For starters, since there is no precedent for a huge payout to an ex-CEO, it behooves upon the proxy advisory firm to highlight the same to the shareholders. IIAS has been only doing its job and discharging its duty towards minority shareholders of ITC. To opine that the note put out by IIAS could have created a reputational damage to the extent of Rs.1000 crore is far-fetched and preposterous. It is hard to fathom the relation between a note put out by the proxy advisory firm and the demand for compensation by ITC.

Is it a clear attempt to bully?

Prima facie, it looks like a clear attempt to bully. India really lacks in shareholder activism and it is a good start to let these proxy advisory firms do the job that portfolio investors are not exactly able to do. If companies like ITC are permitted to browbeat proxy advisory firms then it sets a bad precedent and could be detrimental to the interests of shareholders. What ITC is trying to do through this defamation case is purely to put pressure on IIAS and detract public attention from its recent proposal. Sadly, ITC does not have the likes of Murthy who drew the line when the Infosys board faltered. Touché! ©

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