The Hindu Business Line : `Proxy' war in bank turf

The rejection of proxies that tilted the election results during the wee hours on September 28 against the board's nominees in favour of the bank Chairman could be an overplayed exercise for two reasons.

Chennai , Sept. 29

NOT all is well in the Aluva-based Federal Bank Ltd. The battle between groups that are pro and against the incumbent Chairman has spilt from the boardroom to the general meeting, and on to the Company Law Board (CLB) and the media.

What gave rise to two camps in the bank after the board unanimously finalised the names of directors for the board and the same went in the meeting notice to shareholders?

The turning point appears to be a crucial meeting of the board on September 3 that decided against giving an extension to the current Chairman, Mr K.P. Padmakumar, who had attained the age of 60. Proxy war began in right earnest thereafter.

According to highly placed sources in the bank, rejection of proxies that tilted the election results during the wee hours on September 28 against the board's nominees in favour of the bank Chairman could be an overplayed exercise for two reasons.

One, there is no history of proxy rejection on such a large scale in Federal Bank. Two, almost all those that were rejected had one common thread - they had not voted in favour of the Chairman's candidates.

On proxies again, Mr M.S. Parthasarathi, an ex-director of Federal Bank decried that the management pressed into service its entire machinery to collect proxies from shareholders.

"It's not the job of the bank to take sides," he said. "Shareholders who entrusted the bank with proxies would have reasonably believed that the same would be used for electing directors mentioned in the meeting notice, after due approval of the board. But that's not what happened; the Chairman rushed in a different set of names for directorships at the AGM." Mr Parthasarathi said that it was too unprofessional for Federal Bank to raise the bogey of ICICI takeover bid, as if it were something that could happen overnight.

The entire process that culminated in the meeting and resolutions has come under question for various technical reasons such as insufficient notice for the new candidates on the board, absence of transparency in polling and shoddy proxy verification.

Sources said the bank Chairman hurriedly pushed his candidates for directorship without routing the task through a nomination committee as required under the directives of the Reserve Bank of India. Nor did he apply the `fit and proper' criteria. Sound corporate governance principles too have been thrown to the wind by blatant violation of CLB's order, they said.

With CLB's hearing on the issue scheduled a few weeks from now, there should be enough action to watch.