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Appoint independent directors by Dec 31 or face penalties: Damodaran

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Our Bureau

New Delhi, May 7

THE Securities and Exchange Board of India (SEBI) Chairman, Mr M. Damodaran, today said that companies that do not appoint the requisite number of independent directors on their board by December 31, will be liable to pay heavy penalties.

"I expect companies in the public and private sectors to find independent directors by December 31... there could be penalties after that and that could be costly," Mr Damodaran told industry captains at a seminar organised by the Associated Chambers of Commerce and Industry (Assocham).

Keeping in view difficulties being faced by corporates, SEBI had earlier extended the last date to December 31 from the earlier deadline of April for compliance of having a requisite number of independent directors on company boards, as envisaged in Clause 49 of Listing Agreement.

But Mr Damodaran made it clear that SEBI will ensure that corporates stick to the deadline this time.

"Time is ticking and we must get the process started. If that does not happen, there could be penalties that are uncomfortable and can erode investor confidence," he said.

Mr Damodaran was not ready to buy industry's argument that they cannot find about 25,000 independent directors in a country of one billion.

"Further, there is no bar on one person being on more than one board.

"I am not persuaded that companies, which are seriously looking around, may not find the adequate number of independent directors between now and December 31.

"I, therefore, advise the corporate sector that they should appoint independent directors, well within the deadline, who can rightly question the decisions of the board and demand disclosures of information that can protect the investors' capital and their commercial interests," he said.

He further added that examples such as Enron could be avoided if corporates have seasoned and right people as their independent directors, adding that such people will help millions of investors from being fleeced from corporate scams.

Admitting that there would be costs associated with adherence to Clause 49, he said it should not be viewed as expenditure but as investment adding value to the company as foreign investors are now looking at expanded opportunities in the country.

At a time when the entire world is looking at India as a potential investment destination, he said the country needs to set high standards in corporate governance to attract more investment that will sustain high growth.

(This article was published in the Business Line print edition dated May 8, 2005)
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