The Hindu Business Line : `Independent directors should form 1/3 of board' <br>Irani panel submits report on company law

The Minister for Company Affairs, Mr Prem Chand Gupta, with Dr J.J. Irani, at a press conference after the release of the J.J. Irani Committee report on amending the Company Law in the Capital on Tuesday. — Kamal Narang

New Delhi , May 31

TAKING a position that is at variance with that of the Securities and Exchange Board of India, the J.J. Irani Committee on company law has recommended that one-third of the board of a listed company should comprise independent directors.

SEBI had in the revised Clause 49 of the Listing Agreement mandated that at least 50 per cent of the board of a listed company comprise independent directors. The capital market regulator had made it clear that corporate India should comply with revised Clause 49 by December 31, 2005.

The committee, which submitted its report to the Company Affairs Minister, Mr Prem Chand Gupta, here today, has also suggested that corporates should be allowed to maintain pyramidal corporate structures.

"We are suggesting that pyramidal structures should be allowed because it is in the interest of corporate sector, especially when many companies are making acquisitions abroad. Although the committee started its deliberations under the presumption that only one layer should be allowed, we later decided against it," Dr Irani told Business Line.

Interestingly, the committees set up in mid-nineties to recodify company law had suggested that pyramidal structures should not be allowed, that is, a company which is a subsidiary of a holding company should not be a holding company.

The committee has also mooted the concept of single-person company. "The whole idea is that if there is an entrepreneur who wants to form his own company, he should not be bound down by company law to find other partners," he said.

On harmonisation of his committee's recommendations with Clause 49 requirements, Dr Irani said that his committee has made recommendations to the Ministry of Company Affairs for a new company law. "It is for the Ministry to sort out the harmonisation issue with SEBI before December 31."

He also made it clear that the committee did not go into the issue of regulatory overlap — an issue that corporate India expected the committee to address.

Dr Irani said that the committee has now laid down guidelines on what independent directors should be doing on company boards to look after the interest of the minority shareholders.

He highlighted that the main thrust of the committee's recommendations were to give full liberty to the shareholders and owners of the company to operate in a transparent manner.

"We have suggested a number of areas where shareholders could take the final decision and the government need not have a role," Dr Irani said.

A case in point is directors' remuneration. "We have recommended that there should be no cap or limit on the remuneration payable to directors and that the shareholders should decide the extent of remuneration," Dr Irani said.

Further, in a significant recommendation, the expert panel has said that non-executive directors and independent directors should not be punished for day-to-day actions of the company that have not been brought to their notice.

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