By IANS,
New Delhi : A parliamentary committee has asked the corporate affairs ministry to define the role of independent directors, specifying their responsibilities and liabilities, to ensure that their presence in the boards of companies is not a mere formality.
“There is a need to circumscribe and limit the liabilities of independent directors, so that they are able to act freely and objectively and are able to share their expertise with the rest of the board,” said the report from the standing committee on finance (SCF), which scrutinised the Companies Bill, 2009.
The government should prescribe precisely their mode of appointment, their qualifications, extent of independence from promoters/management, their role and responsibilities as well as their liabilities,” it added.
The new bill will replace an over 50-year old companies act. It is expected to be tabled in parliament in the winter session.
“A provision may be made for the rotation of independent directors by restricting their tenure in a company to say, five years. The ministry of corporate affairs thus needs to revisit the institution of independent directors and make amendments in the bill accordingly,” said the committee, led by former finance minister Yashwant Sinha.
The role of independent directors came under spotlight after the Satyam Computers scandal. Questions are asked on their role for giving nod to the company’s statement of accounts year after year.
The SCF suggested that a provision may also be made for the rotation of independent directors by restricting their tenure in a company to say, five years.
The ministry was also asked to explore the feasibility of constituting advisory boards for bigger companies comprising of qualified persons or professional experts.
“The ministry of corporate affairs thus needs to revisit the institution of independent directors and make amendments in the bill accordingly,” said the committee.