Independent directors at Satyam came out with their reputations tarnished. M Rammohan Rao of ISB has since resigned from the search committee to select the Deputy Governor of RBI. But these reputation effects are small beer compared to what can happen when things go seriously wrong with a company.
Nimesh Kampani, chairman of JM Financial and a highly respected figure in the Indian financial community, faces an arrest warrant for having served on the board of Nagarjuna Finance, a now defunct Hyderabad-based NBFC, in 1999. The company defaulted on a fixed deposit after he resigned. But the Andhra Pradesh police will have none of it. Presumably, Kampani is being held responsible for FDs collected in his time.
The ET report on this yesterday mentioned the Supreme Court rulings to the effect that independent directors cannot be held responsible for lapses in day to day management. It could also be argued that in matters such as default on fixed deposits, any liability should be civil, not criminal unless mala fide intent or culpability for misuse of funds ( in the sense of illegal use) is established. I mean, companies, including NBFCs, can go under. Does this mean independent directors should face criminal charges?