By Dhanendra Kumar, Chairman, Competition Advisory Services India LLP
There is a need for a “Lakshman rekha” between promoter legacy and corporate governance norms in listed companies. In order to have sustained trust of shareholders and investors, adherence to corporate governance norms, ethics, and transparency are essential. It ensures corporate compliance and investor trust and confidence.
The role of promoter families in establishing and nurturing a company is undoubtedly essential. Many companies initially derive their valuations from the promoter’s legacy, later sustained through actual performance. While promoter’s legacy is important, it cannot be a legal right to intervene in management. The law and shareholders recognise the company as an independent legal entity where corporate governance must be rooted in accountability, transparency, ethics, and fiduciary responsibility.
Last month, the unfortunate and sudden demise of Sunjay Kapur of Sona BLW Precision Forgings (Sona Comstar) unexpectedly laid bare intra-family tensions out in the open. Rani Kapur, his mother, raised certain concerns about the company’s actions and also made objections to some board appointments. She also sought a deferral of the company’s annual general meeting (AGM), citing various issues. However, legally and technically, there were little grounds for it.
The separation of ownership and professional control has contributed to the growth of global giants as well as Indian champions. Whether it is Infosys, HDFC Bank, ICICI Bank, Axis Bank, or Larsen & Toubro (L&T), professionally managed companies have consistently delivered returns to shareholders respecting governance norms and insulating business decisions from personal disputes.
Even in companies where promoter families retain substantial equity, governance norms are crucial to demonstrate professional independence, transparency, obligations, and accountability to shareholders. This is the foundation of trust which retail and institutional investors place in the capital markets.
Companies are separate legal persons
Ever since the famous Salomon vs Salomon case, the law has been well laid out that a company is a separate legal entity distinct from its promoters. This principle, enshrined in statutes and judicial precedents including the Companies Act, 2013, has helped businesses to raise capital from the public, attract talent, and unlock value. The recent episode involving Sona Comstar is an example of how such incidents continue to test this framework.
While personal grievances naturally evoke sympathy, they must be carefully assessed in the context of the company’s legal structure, shareholder composition, and regulatory responsibilities. The listed entity, Sona Comstar, responded in accordance with corporate governance norms. According to the company’s stock exchange filing, Rani Kapur has had no shareholding in the company since at least 2017 and was not a director on the board since 2019. The company also emphasised that no documents have been signed or obtained from Rani Kapur following the demise of Sunjay Kapur. Last week, she again asked the UK government to probe the death, to which the latter responded by saying that it was due to natural causes.
From a legal standpoint, the company’s position appears to align with the principles of company and securities laws. Indian jurisprudence has consistently upheld that shareholders do not have the right to interfere in the day-to-day management of a company unless explicitly empowered by the articles of association or a shareholder agreement. Even directors must act in accordance with their fiduciary duty to the company, not to the promoter group or any family member.
Moreover, listed companies are bound by Securities and Exchange Board of India’s regulations which rightly emphasise transparency, independence in decision-making, and the protection of minority shareholders. Any deviation from these obligations, particularly under pressure from individuals without an official role in the company, may not be in the company’s interest. It is evident that the requisite majority of shareholders ratified the appointments. The company even sought legal counsel from an external law firm and proceeded with the AGM.
Listed companies not promoters’ fiefdoms
India has no dearth of examples where companies with legacy promoter shareholding have been professionally run and delivered great value. Infosys, despite its founder’s strong origins, transitioned to professional leadership. HDFC Ltd, before its merger with HDFC Bank, maintained an arm’s-length relationship with its major shareholders. L&T famously transformed into a widely held, professionally governed enterprise after fending off ownership challenges.
This is not to suggest that family members must stay away from the companies they helped build. But any involvement must be formal, transparent, and subject to the scrutiny and checks. Emotional appeals, despite evoking sympathy, cannot override statutory and fiduciary processes that govern listed entities.
As Indian capital markets deepen and attract broader participation, it is crucial to establish safeguards against the reputational and financial risks posed by such disputes. Companies may consider implementing stronger succession planning, clearer shareholder agreements, and more transparent family trust structures.
Recent episodes involving listed firms serve a reminder that the robustness of Indian corporate governance is critical now, especially in the context of geopolitical uncertainties and arbitrary tariffs, where everyone will increasingly be tested by regulatory compliance and it would be critical to ensure companies are run professionally. The interests of the Indian economy, millions of public shareholders, and the credibility of India Inc depend on it, particularly now.
Views are personal