Idbi Board Nominees Better Off Than Peers

The nominee directors of ICICI and IFCI are at a distinct disadvantage compared with their counterparts in the Industrial Development Bank of India (IDBI) thanks to the introduction of clause (g) in Section 274(1) of the Companies Act, 1956. This clause comes into force from December 12, 2001.

Under the clause they will be debarred from holding office as a director in any company for five years if they are on the boards of companies which have defaulted on repayment of interest, deposits and debentures for a year.

Further, if they are directors on a company which has not filed its annual accounts for three years, then too the ban comes into force.

 

Senior officials of financial institutions said that while they welcomed the introduction of such a clause it should not be discriminatory in nature.

"The nominee directors of ICICI and IFCI should be treated on par with those of IDBI and the Industrial Investment Bank of India (IIBI). Our repeated pleas to do so have been turned down by the Department of Company Affairs (DCA), the Securities & Exchange Board of India (SEBI) and Department of Economic Affairs," senior institutional sources said.

IFCI and ICICI are at the receiving end as they have been registered as companies. On the other hand, IDBI is governed by the IDBI Act.

"Nominee directors of companies should behave more responsibly feels the DCA. This is the reason that they have exempted IDBI from the provisions of the clause while they have not given similar concessions to the directors of ICICI and IFCI," senior FI sources said.

Clause g has been incorporated into the Companies Act in order to ensure accountability of directors and ensure that the company complies with its statutory obligations. Initially, this was conceived as an umbrella clause that would encompass all the executive and non-executive directors of a company. Later, responding to the FI arguments the DCA, nominees of IDBI, IIBI, Small Industrial Development Bank of India and state finance corporations were exempted from this provision.

The institutions are now planning to make a fresh collective plea to the DCA to treat IFCI and ICICI on par with other financial institutions.