Life Insurance Corporation and General Insurance Corporation have removed their nominee directors, Kranti Sinha and B P Deshmukh, from the board of construction major Larsen & Toubro for failing to comply with the June 2006 directive on not exercising the employee stock options granted by the company.
In a communication to L&T, the financial institutions on Thursday said they were withdrawing the nominations of Sinha and Deshmukh from the board with immediate effect.
DK Mehrotra, managing director of LIC, would replace Sinha as LIC's nominee, financial institutions sources said.
The identity of the new GIC representative on L&T's board is not yet known.
"I am not surprised," said Deshmukh, reacting to his removal. Deshmukh, who has been on L&T's board since 2002, said he had written to GIC to relieve him of his duties six months ago.
Sinha, on the other hand, had joined the L&T board in 2003 following his retirement from LIC Housing Finance as its chief executive officer.
Both were inducted as "independent" directors, representing the equity exposure of LIC and GIC in L&T.
T Thomas Mathew, managing director of LIC, is the other LIC nominee on the L&T board. He replaced AK Shukla in November last year.
The dismissal came after the financial institutions discovered last month that both Deshmukh and Sinha, who had received Esops worth Rs 4.5 crore and Rs 3.5 crore, respectively, exercised the options by March this year.
This was contrary to the directions issued by the financial institutions in June 2006 that had clarified that no nominee-director would exercise the share options granted to them by their respective companies.
Both GIC and LIC refused to comment, saying the matter is sub-judice.
The two financial institutions even moved the Bombay high court to bar its nominee directors from dealing with these shares. The Bombay high court on Thursday restrained GIC nominee-director Deshmukh from transacting in L&T stock option shares till June 13.
GIC had moved court after Deshmukh received 30,000 L&T shares as Esops and issued a cheque from his own account. According to GIC, it was supposed to issue the cheque and instead of transferring the shares to the institution, Deshmukh transferred the shares to his own demat account.
GIC also moved court against L&T for keeping it in the dark about the share transfer. The matter will be heard again on June 10.
Senior Counsel J J Bhat, instructed by Nitin Potdar, partner, J Sagar Associates, appeared on behalf of GIC before the Bombay high court against GIC nominee director Deshmukh.
Hearing a similar petition, the Bombay high court had barred Kranti Sinha, the LIC nominee on L&T's board, from dealing with the shares he received as Esops from L&T till June 12.
Sources in financial institutions said as long as the matter was pending before the court, they would not approach the Central Bureau of Investigation.