The Hindu Business Line : Chamber opposes independent directors in majority number

PHD Chamber of Commerce and Industry (PHDCCI) has suggested that the minimum number of independent directors required to be appointed by the companies should be one-third of the total strength. The minimum number of directors should be retained at three and not increased to seven.

The chamber further said that non-executive and independent directors should be exempted from criminal and civil liabilities under certain circumstances. The Companies (Amendment) Bill, 2003 provides that every public company having paid-up capital and fee reserves of Rs 5 crore or more; or a turnover of Rs 50 crore or more shall have a minimum of seven directors out of which majority of directors shall be independent directors.

PHDCCI has said that the significance of the role of independent directors cannot be over-emphasised. However, it should not be expected that the board be constituted of majority of independent directors. This provision is also at variance with the recommendation of Naresh Chandra Committee on Corporate Audit and Governance, which had suggested that no less than 50 per cent of directors may be independent directors.

According to PHDCCI, the issue of majority of independent directors can have many dimensions, for instance, in case of disinvestment of a company or a joint venture agreement. By providing that the majority of board shall comprise independent directors, the entire documentation of share purchase and shareholder agreements will need to be re-worked. This problem will be more acute in case of joint venture companies where pre-emption rights in shareholder agreements are embodied into the contracts.

More importantly, if the independent directors are in majority, this would mean that the powers of the promoters, managing directors, etc. will be subject to the superintendence of the independent directors, i.e. it will amount to powers being given to the independent directors who can actually swing the fortunes of the company without having stake in the same, PHDCCI says.

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