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Thursday, Mar 28, 2002

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Nominee directors of cos exempt from Act provision

Our Bureau

NEW DELHI, March 27

THE Department of Company Affairs (DCA) has clarified that nominee directors appointed on the boards of the public companies and other concerns assisted by the public financial institutions (PFIs) are exempted from the provisions of Section 274(1)(g) of the Companies Act.

This section states that a director of a public company, which has defaulted in filing of annual accounts and annual returns, is disqualified to be appointed as a director of other public companies for further period of five years from the date on which the public company has defaulted. A similar disqualification is attracted when the company defaults in repaying the deposits/interests thereon on due date or in failing to redeem its debentures on due date or in the payment of dividends.

The DCA has also clarified that nominee directors appointed on boards of public companies or assisted companies by the Union or State Governments and banking companies are also exempted from this clause.

Moreover, PFIs and companies established under the Acts of Parliament having provisions that specifically excludes the operation of provisions of the Companies Act, 1956 are also exempted. Nominee directors of IDBI, LIC, UTI, and IIBI, etc., which have been set up by special legislation, thus would not be liable to be disqualified by virtue of Section 274(1)(g).

However, the relief granted to nominee directors of PFIs/banks/Government companies comes with a host of stipulations. The nominee directors are now expected seek memberships of the important committees like audit committee, nomination committee, remuneration committee and through their active participation ensure that the objectives of setting up such committees are being achieved.

Further, PFIs are now expected to send a six-monthly report to the DCA bringing out the steps taken by them to ensure that their nominee directors are discharging their responsibilities.

The FIs should now in a separate section of their annual report clearly bring out the measures instituted by them to ensure that the system of nominee directors is functioning effectively.

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