New Delhi, Oct. 18
THE Ministry of Company Affairs is veering round to the view that the new Companies Act should prescribe a minimum number of independent directors, with the proviso that sector-specific regulators could prescribe a higher number of such directors in their respective domains.
The Ministry has also sought the opinion of the Finance Ministry on this issue, particularly in reference to the board composition of listed companies, especially public sector companies.
The intention is to see that the two regulations the Securities and Exchange Board of India (SEBI) regulations for listed companies and the new Company Law were in sync with each other, a senior official of the Ministry told Business Line.
While SEBI regulations stipulate that at least 50 per cent of the board of a listed company should comprise independent directors, the J.J. Irani Committee, which has made recommendations to the Ministry on the new Companies Act, had opted for one-third directors to be independent directors.
Elaborating on the issue, the official said, "There is no overlap on this issue between SEBI and the Ministry." While the existing Companies Act is silent on the issue of independent directors, the new law is going to prescribe a minimum number and sector-specific regulators may be allowed to prescribe their own requirement, the official added.
On whether the draft of the new company law is going to stipulate that one-third of the board should comprise independent directors as suggested by the Irani Committee, the official said there was a broad consensus on that number.
Incidentally, the J J Irani Committee in its report had said "with the substantive law being compiled to reflect the core governing principles of corporate operations and separation of procedural aspects, it would be possible for the regulator to provide the framework of rules for its domain consistent with the law. Such rules would be complementary to the legislated framework and there would be no overlap or conflict of jurisdiction between regulatory bodies. We therefore recommend a harmonious construction for operation of the State and regulatory agencies set up by it."
The draft of the new company law could be expected by early next month, the official indicated.