Friday, September 9, 2011

Centre to Move Ahead with Companies Bill

As part of its effort to showcase its commitment to transparency and accountability, the government has decided to move forward with the Companies Bill, 2011. The Prime Minister’s Office has stepped in asking the corporate affairs ministryto move ahead with the proposed legislation.
The government would like to introduce the bill in the winter session of Parliament.
More significantly, the PMO has suggested that there needs to be an emphasis on ensuring that there are independent directors on the board of companies. This was decided at a review of ministries dealing with industry and commerce by the Principal Secretary to the Prime Minister TKA Nair. The Companies Bill, 2009 requires public listed companies above a prescribed size to reserve a third of all seats on the board for independent directors. It requires that independent directors (or their relatives) not do business with the company which amounts to more than 10% of the turnover of the company in the past two years. Permitting financial transactions with the company up to this point creates a potential conflict of interest.
The listing agreement under the SEBI Act prohibits independent directors from a material financial relationship with company but does not define the term ‘material’.
In its review of the Bill, parliamentary standing committee on finance had recommended that the liabilities of independent directors should be limited to enable them to act freely and objectively. It suggested that the appointment process of independent directors be made independent of its management.

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