The Hindu Business Line : MTNL yet to comply with Clause 49

DESPITE warnings of punitive measures by the Securities and Exchange Board of India (SEBI), the state-owned Mahanagar Telephone Nigam Ltd is yet to comply with the requirements of Clause 49 of the Listing Agreement mandated for all companies listed on the stock exchanges.

SEBI had set a deadline of December 31, 2005, for all listed companies to fall in line with the directive. MTNL officials said the company was still awaiting directions from the Department of Telecom to appoint independent directors. They said that DoT, which is the nodal Ministry for the company, had not yet initiated the process to appoint the independent directors despite repeated requests.

"We have written to the Government on this issue a number of times but so far no action has been initiated. It is for the Department of Telecom to take a decision on the appointments," said a senior MTNL official. The SEBI Chairman, Mr M. Damodaran, had warned that the regulator could impose punitive measures on companies if they failed to comply with the Clause 49 stipulation. This could also lead to de-listing of the company's stock from the bourses. MTNL, however, is not the only company that is yet to appoint independent directors. Most public sector giants, including ONGC, NTPC, GAIL and IOC, are yet to comply with the norms. Some of the companies have convened an extraordinary general meeting (EGM) to seek shareholders' nod to amend their Articles of Association (AoA).

An amendment to the company's AoA would enable it to enhance its board strength and accommodate the independent directors. MTNL may also need to go through this route because at the moment it has a 10-member board, including an executive chairman and two Government representatives.

Clause 49 of the listing agreement stipulates that companies listed on the domestic bourses must have at least 50 per cent independent directors on their board. If the Chairman is non-executive, the independent directors should comprise only one-third of the board's strength.

The SEBI move is aimed at restricting the promoters of companies from taking decisions that may not be in the best interests of shareholders. SEBI has already asked the stock exchanges to submit information on the extent of compliance by listed companies. SEBI had initially set a deadline of March 2005 for companies to comply with clause 49. The regulator had extended the deadline twice, but refused to extend it beyond December 31.

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MTNL yet to comply with Clause 49