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Richa Mishra

New Delhi , Oct. 9

THE Petroleum Ministry has identified independent directors who could be nominated on the boards of public sector oil and natural gas companies before the Securities and Exchange Board of India (SEBI) deadline of December 31 for compliance with its revised corporate governance norms expires. The norm requires all listed companies to have 50 per cent independent directors on their boards.

A senior Ministry official told Business Line that a panel of names had already been forwarded to the Department of Public Enterprises (DPE). Asked what was preventing the Ministry from appointing them, he said that it was not yet clear whether the requirement is of one-third (33 per cent) or 50 per cent. Once that is clear, the Ministry would be able to meet the deadline, he added.

While the revised Clause 49 of the Listing Agreement put out by SEBI had stipulated that at least 50 per cent of the board should consist of independent directors, the J.J. Irani Committee on company law had suggested that one-third (33 per cent) of the board should comprise such directors.

Further, the Committee had also recommended that the sector specific regulators be allowed to decide on the number of independent directors required for their respective sectors.

Companies such as GAIL (India) Ltd and ONGC have been apprehending a possible de-listing if they failed to meet the deadline.

The revised norms come into effect from January 1, 2006. While Bharat Petroleum says that its board composition is just right to meet the SEBI requirement for independent directors, Oil and Natural Gas Corporation (ONGC) may require one, Indian Oil Corporation may need three and GAIL six.

ONGC board at present has seven functional directors including executive chairman, three Government nominees, one IOC representative (shareholder) and three independent directors.

Hence, to meet the SEBI criteria prescribed for listed companies, ONGC would require eight more such directors.

However, according to ONGC officials, if the Government did appoint eight more independent directors, it would be contravening with the Articles of Association, which stipulates the board strength of 21. This would mean that the Government might have to either withdraw one of its nominees or the IOC nominee, they added.

Apart from functional directors, most PSUs have two Government directors on board. Under Clause 49, Government directors on the PSU board are not considered independent.

Mr Proshanto Banerjee, Chairman and Managing Director, GAIL, had said that he had written to the Petroleum Ministry to fulfil the requirement before the December 31 deadline.

Currently, the GAIL board comprises six functional directors, three Government nominees, and three independent directors.

This in effect would mean that GAIL would require six more independent directors so that the board consists of nine directors (functional plus Government nominees) and nine independent directors.

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