Ministry stresses quality of directors

The company affairs ministry is considering introducing strict norms to ensure that "quality" independent directors are taken on board.

Company Affairs Minister Prem Chand Gupta today said more than the number of independent directors, the companies had to focus on their quality.

"Even one independent director is sufficient to raise corporate governance issues," Gupta said. He was speaking at the Institute of Chartered Accountants of India's workshop on simplifying procedural aspects under the Companies Act, 1956.

Gupta termed the debate on whether companies should have 50 per cent independent directors or one-third as being "over-hyped" by the media. He said, "The ministry is working with Sebi and there will be no confusion."

The ministry of company affairs is also represented on the Sebi board. Sebi will have to decide if it wants to stick to the 50 per cent requirement, an official said.

The corporate sector is looking forward to Sebi's listing requirement which will be applicable from December 31. Sebi Chief N Damodaran has indicated that under no circumstances the deadline will be extended again. It has already been extended twice.

The JJ Irani Committee has recommended that one-third of a board should comprise independent directors. Sebi, however, has proposed that 50 per cent should be independent directors if the chairman of a company is also the executive director, and at least one-third of independent directors if the chairman is not an executive director.

No unanimous view has emerged on the topic. The concept paper released earlier by the company affairs ministry had come out with a different set of proposals.

It suggested extending the purview of independent directors to include all public companies having a paid-up capital of Rs 5 crore, or a turnover of Rs 20 crore. It suggested independent directors should comprise 50 per cent of the boards of all such companies.

Although the Irani Committee report gives a detailed definition of independent directors, ensuring independence is practically not possible.

"If promoters or a CMD chooses me instead of you then where is my independence? And if a regulator appoints an independent director, that may be taken as an interference," a company law expert said.