The Hindu Business Line : Companies (Amendment) Bill — Ministry working on composition of boards

THE composition of boards in business houses has been a sensitive issue with India Inc particularly the form in which it was suggested in the controversial Companies (Amendment) Bill, 2003.

The Ministry of Company Affairs (MCA), which is working on a concept paper to make the Companies Act slimmer and user-friendly, is examining the provision relating to composition.

The Companies (Amendment) Bill, which was withdrawn under corporate pressure, provided that the boards of public companies having a paid-up capital and free reserves of Rs 5 crore or more or a turnover of Rs 50 crore or more to have minimum seven directors, of which `majority' should be independent directors.

But the corporate sector hadobjected to the word `majority'.

Hence, the MCA is likely to do away with the term. Sources told Business Line, "One line of thinking is to fall back on the suggestions made by the Naresh Chandra (NC) Committee on Corporate Audit and Governance."

The committee recommended, "No less than 50 per cent of the board of directors of any listed company, as well as unlisted public limited companies with a paid-up share capital and free reserves of Rs 10 crore and above or a turnover of Rs 50 crore and above, should consist of independent directors."

The committee, however, held that this norm should not apply to unlisted public companies, which have no more than 50 shareholders and which are without debt of any kind from the public, banks and financial institutions.

On whether, in the new provision, nominee directors will be excluded from calculations requiring the board to have minimum seven directors, of which majority should be independent, the sources said, "Nominee directors are not likely to be included in the calculation."

The Ministry at one point of time decided to alter this provision of the Bill and stipulate that a board of a public company should have minimum seven directors, of which, at least three should be independent.

According to official sources, "The MCA proposal in the concept paper would be in tune with the Securities and Exchange Board of India norms."

The concept paper is likely to be ready in a month, sources said.