Oil giants continue to pile up fines: IOC, BPCL, others penalized for non-compliance with board norms for fifth consecutive quarter

India's top oil companies including Indian Oil, BPCL and gas utility GAIL have been penalised for the fifth consecutive quarter by the BSE and NSE for failing to comply with listing norms that mandate inclusion of a specific number of independent and women directors on their boards for the April-June 2024 quarter. The fines were imposed due to the companies' failure to maintain the required board composition as per regulations, though the companies maintain that the appointment of directors is solely the government's responsibility.

The BSE and NSE have imposed fines on major oil refining and marketing companies such as Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL), Bharat Petroleum Corporation Ltd (BPCL), explorer Oil India Ltd (OIL), gas supplier GAIL (India) Ltd and refiner Mangalore Refinery and Petrochemicals Ltd (MRPL). The fines were due to non-compliance with the required number of independent directors and mandatory number of women directors on their boards for the quarter ending June 30, 2024. This is the fifth consecutive quarter that these companies have faced such penalties.

Despite these sanctions, companies have highlighted their lack of control over board appointments, citing the fact that these are government decisions. Listing norms specify a balanced ratio of independent directors to executive or functional directors, as well as the requirement of at least one woman on the board. Indian Oil Corporation (IOC) revealed that both BSE and NSE have fined the company Rs 5,36,900 each for non-compliance with SEBI Regulation 17(1) (LODR) regarding board composition during the aforementioned quarter.

“In response to the notices, IndianOil, by letter dated August 22, 2024, represented to the BSE and NSE that as a government company, the power to appoint directors (including independent directors) lies with the Ministry of Petroleum and Natural Gas, Government of India and therefore, the lack of independent directors, including non-appointment of women independent directors to the board of the company during the quarter ended June 30, 2024, was not due to any negligence/default of the company,” IOC said.

The company also argued that it should not be held liable for the fines and requested an exemption from them. It said it regularly communicates with the ministry to appoint the required number of directors to comply with corporate governance standards.

“We would also like to inform that the company has received similar notices from the BSE and NSE in the past, imposing fines and requests for exemptions from the company which were favourably considered by the exchanges,” the IOC added. BPCL has alleged fines of Rs 2,41,900 each from the BSE and NSE due to the absence of an independent director on its board. The company has highlighted its inability to influence the appointments of directors and has indicated its intention to seek exemptions from the fines from BSE Ltd and the NSE. HPCL has confirmed that it has been fined Rs 5,36,900 each by the BSE and NSE. GAIL has also been fined similar amounts. The companies have emphasised that the non-compliance was beyond their control and not due to any negligence on their part.

“This is to demonstrate that the non-compliance with the composition of the board was not due to any negligence/default on the part of the company or control of the management of GAIL and that continuous efforts were also made to meet the compliance requirements,” GAIL said.

OIL and MRPL were also fined Rs 5,36,900 each by the BSE and NSE. These companies have been struggling to comply with listing norms since April last year and have been fined every quarter since then.

For the previous quarter (January-March 2024), the penalties were identical, with IOC, HPCL, BPCL, GAIL, OIL and MRPL being fined Rs 5,36,900 each by NSE and BSE. For the third quarter of 2023 (October-December), the fines stood at Rs 5,42,800 each, mirroring the penalties imposed in the second quarter of 2023 (July-September).

The continued imposition of fines highlights the governance challenges facing these large state-owned oil companies. Despite efforts to address the issue through communication with the relevant ministry, compliance with mandatory board compositions remains unresolved, exposing these companies to continued sanctions.

With contributions from PTI