Updated: Jul 29, 2020

[Authored by Anuragsheel Gupta, a 4th year BA LL.B (Hons.) student at CHRIST (Deemed to be University), Bangalore.]


The Chanda Kochhar scam came to the limelight as the former ICICI Bank CEO derived indirect benefit from the lending of a substantial loan to Videocon. It is alleged that sanctioning of the loan by Kochhar was only due to a quid pro quo arrangement between Venugopal Dhoot, promoter of Videocon and Deepak Kochhar, Chanda’s husband. Deepak Kochhar and Dhoot had business ties prior to the grant of loan by ICICI Bank to Videocon.

In 2018, Deepak Kochhar and Dhoot established Nu Power Renewables Pvt. Ltd. (NRPL). While Deepak Kochhar, Pacific Capital (owned by his father), and Chanda Kochhar’s brother’s wife held a 50% stake in the company; the remaining 50% was held by Dhoot along with his family members and associates. Dhoot resigned from his position as director in NRPL in January 2009. He transferred his 24,999 shares in the company to Kochhar for a sum of Rs. 2.5 lakh. In 2010, NRPL obtained a loan from a company owned by Dhoot (99% holding), Supreme Energy Pvt. Ltd. (SEPL).

SEPL became a 94.99% shareholder in NRPL by the end of March 2010. The remaining 4.99% was held by Deepak Kochhar. Dhoot transferred his entire shareholding in SEPL to Mahesh Chandra Puglia in November 2010. Punglia then transferred his holding to Pinnacle Energy, which was a trust wherein Deepak Kochhar was the managing trustee, between September 29, 2012 to April 29, 2013; for Rs. 9 lakh.  In short, Dhoot enabled the transfer of SEPL to Kochhar indirectly through a complex web of transactions.

The concern is that the transfer of ownership of SEPL was done about 6 months after ICICI bank sanctioned a substantial loan to Videocon. ICICI Bank was part of a consortium of banks lending money to the Videocon group for the group’s oil and gas capital expenditure programme. It lent about Rs. 3250 crore to the group. Chanda Kochhar was on the sanctioning committee to authorize these loans. At no point did she disclose any concerns regarding conflicts of interest and did not choose to recuse herself from the position.

Following the grant of the loan, the Videocon account was declared as a Non-Performing Asset in 2017.  ICICI Bank appointed a committee, headed by retired Justice B.N. Srikrishna, to investigate this matter. The report found that Chanda Kochhar had indeed violated the company’s code of conduct, and had acted in a clear conflict of interest. Thereafter, ICICI Bank sacked her from her position, treating her voluntary step-down from her position last year, as “termination for cause”. Further, Kochhar has been asked to return all bonuses paid to her from April 2009 to March 2018. The CBI has also registered cases against both Chanda and Deepak Kochhar, for cheating and criminal conspiracy.

A related party is someone who has a relationship with the company, body corporate, or its directors in any way that is not related to the company’s transactions; i.e., someone who has a pre-existing special relationship with the company, prior to the relevant transaction taking place. S. 2(76) of the Companies Act [“the Act”] defines who constitutes a related party. The provision encompasses relatives of directors and key managerial personnel, as well as firms and companies, etc., in which the director or manager holds a stake or interest; and any person upon whose advice the manager or director is accustomed to act.


1.     Whether the transaction between Chanda Kochhar and Venugopal Dhoot is a ‘Related Party’ transaction?

2.     Whether the said transaction can be held invalid under the Companies Act, 2013?


S.188 prohibits the company from entering into any contract or arrangement in respect of a given list of transactions.[1] However, the prohibition is not in the nature of a blanket ban. The section stipulates certain conditions within which such transactions are regulated. No related party transaction can take place legally without the consent and prior approval of the company’s Board of Directors. Further, a resolution must be passed by the Board to approve such a transaction, and the concerned person is not allowed to vote in such a proceeding. Rule 15 of Companies (Meeting of Board and its Powers) Rules 2014 also stipulates this requirement. Some transactions also require a special resolution to be passed in order to authorize a related party transaction. The Copyright (Amendment) Act, 1992, No. 13, Acts of Parliament, 1992 (India).

The section also provides for the concept of arm’s length transactions. Arm’s length transactions have been defined under the Act to mean a transaction between two related parties, which is conducted as if these parties were unrelated. Thus when a transaction is carried in good faith as an ordinary commercial transaction as though no relationship existed, it is allowed.

The Act provides for disclosure requirements. S.184 obligates a director to disclose his interest in any transaction that the company undertakes. Every such transaction must be referred to in the Board’s Report to the shareholders, along with a justification for such a transaction.[2] Further, the company is required under S.189 to maintain a register that contains particulars of all contracts and transactions entered into wherein one or more directors had an interest.[3] The Audit Committee must audit or modify any related party transaction, as per S.177.[4]

The rationale behind these provisions prohibiting related party transactions is to prevent any conflict of interest. Every director has a duty to act in good faith and undertake fair dealings. They must act in such a way that they do not breach their fiduciary duty to the company and its members. Related party transactions posit situations wherein the directors and managers face a conflict between their fiduciary duties and personal interests. The prohibitions exist to prevent any misuse of a company’s assets and business to satisfy a director’s personal benefits and interests. 

Contravention of any of these provisions would make such directors concerned personally liable to indemnify the company for losses occurred.[5] The company can also proceed against a director or any employee who entered into a related party transaction to recover any loss that was sustained by the company as a result therefrom. The impugned agreement is also rendered voidable.


S.2(76) elaborates on who constitutes a related party.[6] The first two sub-clauses of this provision, which contemplate relatives of directors and key managerial personnel, clearly do not apply, as Chanda Kochhar had no direct relationship or family ties with Dhoot. The third sub-clause covers a firm in which the director or relative is a partner. This would have been applicable if the loan sanctioned had been to one of the ventures between Kochhar and Dhoot. However, the loan was sanctioned to the Videocon group, wherein neither of the Kochhar’s had any stake.  Similarly, sub-clauses (iv) and (v) do not apply, as Chanda Kochhar herself was never a member in Videocon or any of the other companies; and neither did she have any holding in them. The only sub-clause under which she could possibly be brought under the ambit is sub-clause (vii), which talks about any person on whose advice a director is accustomed to act.

This sub-clause coincides with the concept of a shadow director, and in such transactions it must be shown that the director did not exercise any judgment or discretion on his own part. The SEBI Board has held that the founder of a company, who was also a majority shareholder, could be considered to be someone on whose directions a director could be accustomed to act.[7] Further, where the person vested complete trust and confidence in another; and the latter was privy to all information regarding the financial affairs of the former, it was held that the former was accustomed to act on the direction of the latter.[8] Thus, there seems to be a high threshold being followed while determining whether a person is accustomed to act in accordance with the direction of another. It is unlikely that such a threshold would be met in the present case. While there was certainly an element of quid pro quo in the granting of the loan, it would be a stretch to say that Chanda Kochhar was “accustomed to act” as per the directions of Venugopal Dhoot. Therefore, it appears to me that the impugned transaction would not qualify as a related party transaction under the Companies Act, 2013.

An analysis of the fact situation makes it quite clear that there were some red flags in the sanction of the loan to the Videocon group. The fact that the transfer of ownership in SEPL to Deepak Kochhar came so close in the heels of Chanda Kochhar sanctioning the loan shows that there was an element of quid pro quo in the grant of the loan. The right course of action to take then would have been to disclose the business ties between her husband and Dhoot and let the Board of Directors decide whether she could continue with the transaction. An abundantly cautious approach would have been to recuse herself from the matter altogether.


The Companies Act, 2013 was enforced to ensure the proper working of Companies and to avoid disputes that may cause losses to the Shareholders and other Stakeholders in a Company. A Company is an amalgamation of various parties with different interests and it is eminent to protect all said interests. In a democracy, the interest of the people is the utmost concern of the Government. The government heavily regulates a Public Listed Company, since there is a clear interest of the public in the form of Shareholders which needs to be protected and therefore the government enacts laws such as the Companies Act, 2013.

A Company has to major organs- the Board of Directors and the Shareholders (General Meeting). These organs are complementary to each other and integral in the working of the Company. The Board of Directors are responsible for the day-to-day management of the Company and the Shareholders make decisions that revolve around the interests reserved to them or that may affect the Company since they have a stake in the Company.[9] In most cases, the Managing Director heads the board and is responsible for the executive decisions of the Company.

Chanda Kochhar was the CEO and MD of ICICI Bank when the loan was approved for Videocon. There is a link between the two parties since Chanda Kochhar’s husband Deepak Kochhar and Venugopal Dhoot have been in business together. The irony here is that the law under S.2(76) gives specific guidelines as to what is a related party transaction that is prohibited by the Companies Act, 2013. The transactions in this specific case are not defined under this section.

The law does not prohibit such transactions but if principles of natural justice are to be considered, it is evident that there is an element of malice involved and the legislation clearly fails in its enforcement as the aim to protect the interests of the shareholders is lost.[10] The government needs to enforce efficient mechanisms to overlook the Companies. Further, to ensure the confidence of shareholders, accountability is necessary. Such lacunae in the law can be detrimental to the interest of all the citizens. Moreover, individuals can misuse such loopholes for their benefit, causing loss to bona fide parties. This case should be used as an example by the Courts to condemn such misuse of lacunae in legislation and to set an example in rem such that incidents do no take place in the future.

[1] Companies Act, 2013, No. 13, Acts of Parliament, 1992 (India).

[2] Id.,§184.

[3] Id.,§189.

[4] Id., §177.

[5] Id., §166.

[6] Arcelor Mittal India Private Limited vs. Satish Kumar Gupta and Ors., AIR 2018 SC 5646.

[7] In Re: Issuance of Optionally Fully Convertible Debentures by Sahara India Real Estate Corporation Limited (Now Known as Sahara Commodity Services Corporation Limited) and Sahara Housing Investment Corporation Limited, WTM/KMA/CFD/392/06/2011.

[8] Krishna Kumar Birla vs. Rajendra Singh Lodha and Ors., (2008) 4 SCC 300.

[9] Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame (1906) 2 Ch 34.

[10] S.L. Kapoor v. Jagmohan & Ors., AIR 1981 SC 136.

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