The Hindu Business Line : Independent directors issue — Company Affairs Ministry seeks early solution

Corporate - Corporate Governance
Markets - Regulatory Bodies & Rulings

Independent directors issue — Company Affairs Ministry seeks early solution

Richa Mishra

New Delhi , Oct. 4

THE Ministry of Company Affairs has approached the Department of Economic Affairs (DEA) in the Finance Ministry for an early solution on the issue of board composition for listed entities, particularly the public sector undertakings (PSUs).

With less than three months to go for the Securities and Exchange Board of India (SEBI) deadline for compliance with the revised norms of corporate governance, the issue of independent directors is haunting India Inc.

SEBI had deferred the implementation of amended Clause 49 of the Listing Agreement to January 1, 2006, giving the companies enough time to get ready for compliance. The PSU companies in sectors such as power and fertilisers had approached the Company Affairs Ministry to clarify whether Government nominees could be treated as independent directors, and whether the Ministry had prescribed any limit on the number of such directors on a company board. The Petroleum Ministry had also taken up the issue with the Finance Ministry, urging that Government directors be accorded the status of an `independent director.'

Apart from functional directors, most PSUs have two Government directors on board. Under Clause 49, Government directors on the PSU board are not considered independent.

The revised Clause 49 put out by SEBI had stipulated that at least 50 per cent of the board should consist of independent directors. Speaking to Business Line, the Ministry for Company Affairs, Mr Prem Chand Gupta, said, "The Companies Act does not make any distinction between a public sector or a private sector company. The norms for both the sectors should be the same. The idea behind having independent directors on a company board is not to dilute the power of the board, but to have more transparency in the working of a company."

Asked whether the Ministry is set to toe the same line as the JJ Irani Committee, which had suggested that one-third of the board should comprise independent directors, the Minister said, "As far as the Ministry is concerned, we are still in the process of finalising the draft Bill, which would suggest the board composition. We hope to complete the process by the month-end. Subsequently, the Bill will be circulated to all the Ministries concerned by early November." The Ministry is targeting the winter session to table the Bill. The existing Companies Act is silent on the issue of independent directors.

The JJ Irani Committee had also suggested that the sector-specific regulators be allowed to decide on the number of independent directors required for their respective sectors.

This, in effect, would mean that SEBI could prescribe the numbers it wants, experts said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page