Information Suppression, an Unapproved Related Party Contract and a Stale Board Evaluation
Anantara Foods Ltd is a listed packaged-foods company. The promoter family holds 61%. The nine-member board comprises an executive chairman-cum-managing director, two whole-time directors, one promoter non-executive director and five independent directors. At the board meeting of 14 May 2025 the MD tables a note recording the loss of the company's second-largest modern-trade customer, which contributed 11% of FY2024-25 revenue. He says the note is commercially sensitive, asks that it not be circulated to directors before the quarterly results are announced, and asks that it not be minuted. Separately, the audit committee has just been told that the CFO, who is the MD's nephew, signed a Rs 4.6 crore supply contract with a firm owned by the MD's brother-in-law without audit committee approval. The independent directors have not met without management present since March 2024. The FY2024-25 board evaluation was again run internally using a questionnaire drafted by the company secretary, with no individual feedback and no peer review.
1. As the senior independent director, how do you deal with the withheld customer-loss note, both inside the meeting and afterwards?
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Frame the right first. Directors have an unconditional right to the information needed to discharge their duties. SEBI LODR Regulation 17(7) requires minimum information, including material commercial and operational developments, to be placed before the board. The MD's convenience is not a legal basis for withholding it. Commercial sensitivity can justify confidential handling and limited circulation, but not non-circulation to the board and certainly not exclusion from the minutes.
Inside the meeting: (1) ask for the note to be tabled and read into the record; (2) propose that the board resolve that the information be treated as unpublished price sensitive information with a restricted need-to-know list maintained under the company's code of conduct; (3) if the majority defers circulation, insist that the decision to defer, and the reasons, be minuted and that your dissent be recorded, since a director is entitled to have dissent noted.
After the meeting: (1) write to the chairman recording the request, the refusal and your view that the board cannot approve the quarterly results without knowing that 11% of revenue has been lost; (2) ask the audit committee to consider whether the loss is a material event requiring disclosure within 24 hours of the board becoming aware of it; (3) require management to produce the customer's written position, since a lost contract is very different from a delayed renewal.
Test yourself against Section 166. The duty is to act in good faith, in the best interests of the company, and with reasonable care, skill and diligence and independent judgement. A director who learns of a material loss and allows it to be buried has not exercised independent judgement, and will have no defence when the next quarter's results reveal it.
Practical lever: the independent directors may take external professional advice at the company's expense where the board's information is inadequate. That option itself usually resolves the resistance.
2. The unauthorised related party contract: what is the correct legal route and what should the audit committee do now?
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Characterise the transaction first. The supplier is owned by the MD's brother-in-law, so the counterparty is a related party. Two separate regimes then apply: Section 188 of the Companies Act, 2013 with Rule 15 of the Companies (Meetings of Board and its Powers) Rules, and the SEBI LODR Regulation 23 regime for listed entities.
Section 188 analysis. A supply contract in the ordinary course of a food company's business at arm's length is outside the prior board-approval requirement. That exception is the whole question here: if the pricing is not arm's length, or if the contract is not in the ordinary course, prior board approval by resolution was mandatory, and shareholder approval is required above the Rule 15(3) thresholds. The committee must therefore obtain benchmarking or a comparable-quotes analysis before concluding anything.
Regulation 23 analysis. This is independent of Section 188. All related party transactions, material or not, require prior approval of the audit committee. A Rs 4.6 crore contract is well below the materiality threshold, but that does not dispense with committee approval. Signing without it is a compliance breach regardless of whether the pricing was fair.
What the committee should do: (1) call the CFO and the MD to explain the process failure; (2) obtain the file, the price benchmark and the vendor's ownership documents; (3) decide whether the contract stands, is repriced or is terminated; (4) record the transaction in the related party register and require disclosure in the board's report; (5) satisfy itself that the CFO, being the MD's nephew, did not act under influence, and consider whether the audit committee should recommend a control remediation and delegated authority matrix.
Note that retrospective approval cannot cure a breach. The committee can regularise the accounting and disclosure, but it cannot retrospectively create the approval that Regulation 23 required at the time. The minutes should say so plainly.
3. The 14-month gap in independent directors' meetings and the recycled internal evaluation: what must now happen?
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The separate meeting is mandatory, not optional. The Code for Independent Directors requires the independent directors to meet at least once a year without the attendance of non-independent directors and management, to review the performance of non-independent directors and the chairperson, and to assess the quality, quantity and timeliness of information flow. Fourteen months is a breach. It should be convened immediately, by notice issued by an independent director to the other independent directors, with the MD and executives excluded and minutes kept.
Why the gap matters more than the formality. The single meeting is the only structured forum in which independent directors can discuss the chairman, the MD and their own information flow without the people being discussed in the room. Skipping it is precisely how the 14 May information suppression became possible.
The evaluation problem. An annual internal questionnaire, drafted by the person being evaluated's own staff, with no individual feedback and no peer review, is a process without content. Regulation 17(10) requires the board to monitor and review a formal annual evaluation framework covering the board, its committees and individual directors, and the evaluation of independent directors must be led by the board without the director concerned participating. Criteria should be approved in advance by the nomination and remuneration committee.
What to insist on: (1) written criteria approved before the exercise; (2) one-to-one feedback to each director, not an aggregate score; (3) peer review between independent directors; (4) external facilitation where the same weaknesses recur for a third year, since an internal process that has produced no change is evidence of failure; (5) truthful reporting in the corporate governance report, which must describe the process actually followed.
Personal exposure. Certifying that a meaningful evaluation took place when it did not is a misstatement in a regulatory filing, and it contradicts the Section 166 duty to exercise independent judgement.