The Hindu Business Line : Clause 49: Deadline may be extended

THE December 31, 2005 deadline for appointment of independent directors on the boards of listed companies as per Clause 49 of the listing agreement set out by the SEBI may be extended to March 31, 2006 sources told Business Line.

According to the sources, few companies have so far complied with the stipulation and in the case of public sector units, though the lists have been drawn up of the likely independent directors, a final decision is pending in the case of many Ministries.

Besides, many private companies have also been caught unprepared because they were hoping that the compliance condition of 50 per cent independent directors could come down to 33 per cent if the Companies Act Amendment Bill incorporates the recommendation of the J.J. Irani Committee in this respect.

However, with the Government unable to bring the Bill during the winter session of Parliament, there is no clarity on the matter, according to highly placed corporate sources.

The Bill is now likely to be brought before Parliament during the Budget session in February.

Private companies are also said to be facing some difficulty in attracting adequate number of independent directors as the risks involved in accepting such directorship have increased in recent years.

For instance, if the managing director of a company issues a cheque that bounces, the independent directors too are liable for criminal prosecution.

Similarly, non-payment of statutory dues like provident fund, employees State insurance, etc., make the independent director liable for action.

Additionally, independent directors who quit are deemed liable for any misdemeanour by the company for one year after they have left the directorship.

Clause 49 of the listing agreement stipulates that in companies that have an Executive Chairman, at least 50 per cent of the board must comprise independent directors.

For companies with non-executive chairmen, one-third of the board must comprise independent directors.

The SEBI, however, is still officially maintaining that it will not extend the deadline beyond December 31.

According to sources in the Standing Conference on Public Enterprises (SCOPE), the date might have to be extended because there is no other alternative.

"You cannot delist the public sector one fine morning. Nor can you prosecute the CMD for non-compliance to something in which he has no direct role. Then, if it is the Ministry's responsibility, whom do you hold liable? The maximum penalty for non-compliance is delisting. What other alternative does one have except for extending the deadline," SCOPE sources said.

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