Stocks

Even kin of independent directors should not have financial links with firms, promoters: Govt

Surabhi Mumbai | Updated on May 10, 2018 Published on May 10, 2018

Fair play The new provisions will ensure there is no conflict of interest   -  Rawpixel

Bid to improve corporate governance practices

In a bid to step up corporate governance practices, the government has tightened norms for independent directors so as to ensure that even their relatives do not have a financial relationship with the concerned companies.

The Ministry of Corporate Affairs has now amended the Companies (Appointment and Qualification of Directors) Rules, 2014 to specify that none of the relatives of an independent director should be in any way “indebted” to the company, its holding, subsidiary or associate company , promoters or directors.

Further, the relatives should also not have given guarantee or provided any security in connection with indebtedness of any third person to the company or its promoters and subsidiaries.

To ensure that a proper arm’s length is maintained, the new rules would govern all transactions involving “an amount of ₹50 lakh” or more in the preceding two financial years or even the current year.

Questions about the independence of independent directors on the Boards of companies in India and its impact on corporate governance have arisen time and again as promoters often try to appoint independent directors who are in some way known or related to them.

The Uday Kotak committee on corporate governance had also looked into the issue and said: “Independent directors are expected to bring objectivity in to the functioning of the board and improve its effectiveness”.

The committee, in its report, had also recommended a number of changes in the eligibility criteria of independent directors so as to exclude persons who constitute part of the “promoter group” and also taking an undertaking that the independent director is not aware of any factor that could impact their judgment.

Experts also welcomed the latest move by the government and said it would ensure that the independent director is not influenced by the promoter or company in any way.

“Guidelines and eligibility criteria for independent directors were very loosely defined. These norms are in the right direction to ensure that independent directors are truly independent and not just ‘yes men’ on the Boards of companies,” said Pranav Haldea, Managing Director, Prime Database.

UD Choubey, Director General, SCOPE, said the new provision would take care of issues of conflict of interest. “It is a very good move and will ensure that independent directors take fair decisions based on ethics, transparency and honesty,” he noted.

Published on May 10, 2018

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
Independent Directors
corporate governance
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.