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Thursday, Feb 19, 2004

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Independent directors: Chamber opposes panel recommendations

Our Bureau

New Delhi , Feb. 18

THE PHD Chamber of Commerce and Industry (PHDCCI) has suggested that the minimum number of independent directors required to be appointed by companies should be one-third of the total strength.

It said that the significance of the role of independent directors could not be over-emphasised. However, it should not be expected that the companies' board be constituted of majority of independent directors. This provision is also at variance with the recommendation of the Naresh Chandra Committee, which had suggested that not less than 50 per cent of directors might be independent directors.

According to PHDCCI, the issue of majority of independent directors can have many dimensions for companies in case of disinvestment or a joint venture agreement.

By stipulating that the majority of the board comprises independent directors, the entire documentation of share purchase and shareholder agreements will need to be re-worked. This problem will be 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 independent directors, who can swing the fortunes of the company without having stake in the same, it said.

The chamber has also sought to underline that the requirements under the Companies Act and those laid down by the Securities and Exchange Board of India should be in consonance with each other to remove any confusion arising out of overlapping of different directives to be followed by the companies in this regard.

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