In one of the rare cases where independent directors are held liable in a financial fraud case, the National Company Law Appellate Tribunal (NCLAT) has ordered the freezing of the personal assets of high profile executives who served as independent directors on the Board of companies of Nirav Modi. The diamantaire is accused of defrauding state-run Punjab National Bank of over Rs 13,580 crore.

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The top executives include American Express president Sanjay Rishi, former PepsiCo executive Gautham Mukkavilli and former Wipro CFO Suresh Senapathy. All of them have been barred from transferring or disposing of their funds and properties.

According to sources, the Ministry of Corporate Affairs (MCA) has started the process of freezing their assets by writing to the concerned banks and authorities to ensure compliance of the order.

The action follows an order by the NCLAT last week staying the NCLT Mumbai order that gave relief to the executives. The government had appealed against the NCLT order vacating an earlier restraining order that had put restrictions on the personal assets, including bank accounts, of the former directors.

The list of former directors on the Board of Modi’s flagship company Firestar International also includes Haresh Vrajilal Shah and Angelina Nguyen. Most directors resigned after the fraud came to light.

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“By invoking section 221 of the Companies Act, 2013, and section 43 of the Limited Liability Partnership Act, 2008, hereby injunct the respondents and other companies, LLP, trusts and individuals from removal, transfer or disposal of funds, assets and properties of the entities and individuals mentioned above until further orders..” the NCLAT order states.

The MCA in its petition had sought a restraint order on the grounds that the funds of the bank have been routed through the companies and the LLPs to the trusts and individuals as well. Next hearing of the NCLAT is on May 3.

According to experts, such action has rarely been taken against independent directors in the past. However, it’s time that independent directors, who are expected to be independent of the management and act as the trustees of the shareholders, are held accountable, feel some experts.

However, Ved Jain, former president of the Institute of Chartered Accountants of India (ICAI) says that the independent directors need to be given immunity, unless there is an evidence against them, as they act in a fiduciary capacity and have no financial interest in the company.  “Even in Satyam case, independent directors had to resign after the government superseded the board,” he said.

By Anjul Tomar, DNA Money