A sharp fall in HDFC Bank shares following the resignation of former part-time chairman Atanu Chakraborty has sparked a legal debate on whether investors have any recourse.
In his March 17 resignation letter, Chakraborty cited “certain happenings and practices” over the past two years that were not aligned with his personal values and ethics, adding there were no other material reasons for stepping down.
The remarks unsettled markets, eroding shareholder value and denting the bank’s reputation.
Legal opinion, however, remains split.
Supreme Court lawyer D Varadarajan, specialising in corporate and insurance laws said the former chairman’s statements could expose him to legal action. He argued that a chairman owes fiduciary duties to stakeholders and must exercise caution, especially when making potentially market-moving statements. According to him, shareholders may explore a class action suit, while the bank could consider defamation proceedings to recover losses.
He also questioned the timing of the resignation, asking why concerns allegedly observed over two years were not raised earlier.
In contrast, K S Legal and Associates managing partner Sonam Chandwani said a fall in share price triggered by a broadly worded resignation does not, by itself, create a sustainable legal claim.
She noted that tort claims such as defamation or negligent misstatement would require a specific false statement, malice, and a clear causal link, thresholds unlikely to be met. Market losses driven by sentiment, she said, are typically treated as investment risk.
She added that under the Companies Act, a bona fide resignation, even if inelegantly expressed, would not amount to a breach of fiduciary duty unless it is proven to be reckless or made in bad faith. Remedies, if any, would lie with the company rather than individual shareholders.
Echoing the need for caution, the Securities and Exchange Board of India (SEBI) chairman Tuhin Kanta Pandey said independent directors should act responsibly and avoid insinuations.
HDFC Bank, meanwhile, has appointed external legal firms to review the circumstances surrounding the resignation.
(The article is written by V Jagannathan)