9/1/2010

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One cannot be independent director in more than 5 listed cos

ENS Economic Bureau Posted online: Wed Sep 01 2010, 03:11 hrs

New Delhi : The Standing Committee on Finance has recommended that a person may be an independent director in only five listed companies and 10 public companies. While there is no cap at present, the Ministry of Corporate Affairs (MCA) had proposed that a person may be an independent director in seven listed companies and 15 public companies. In its report on the Companies Bill, 2009, tabled in Parliament today, the committee suggested that the number of such directors in a company should be capped at 15, excluding the directors nominated by the lending institutions. It has also called for a Code for independent directors that elaborates on their role and responsibilities vis-a-vis other directors, their remuneration and extent of their liability. The report, which would be taken up during the winter session for discussion, has touched upon all the important issues that came to fore, including independent directors, auditors and corporate social responsibility, after the failure of many high profile corporations globally and the Satyam Computer accounting fraud episode in India. Since independent directors and auditors play a vital role in maintaining transparency and detecting irregularities in a company, the standing committee report has focussed on ways to make them more accountable for irregularities in a firm for protecting shareholders. The Committee has added that company may appoint more than 15 independent directors, but only after passing a special resolution. As regard auditors, the committee has suggested that no company shall appoint or re-appoint an individual or firm as auditor for more than five consecutive years and the National Advisory Committee for Auditing and Accounting Standards (NACAAS) should be entrusted with the task of preparing comprehensive list of auditing firms over a period of three years. After that it should be made mandatory for any company to appoint an auditor from this list, the committee report said. Further, the report says that a person convicted by court for fraud can not be appointed as an auditor for ten years. The committee recommend that the stringent proposals...stipulating joint and individual liability of the firm and audit partners...in case of fraud may be suitably incorporated in the bill, the report said. The report also suggested that the voluntary guidelines of corporate governance should be incorporated in the Companies Bill, thus making it mandatory. This would help in ensuring transparency for shareholders. Following the stock market scam of 2001, the government had drafted Companies Bill, 2003, by undertaking a
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9/1/2010

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comprehensive revision of the Companies Act, 1956, to plug the loopholes in the system. However, in the aftermath of the multi-thousand crore accounting fraud at Satyam Computer Services Ltd, the government was forced to rework on certain aspects.

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