India: the Companies Bill 2009 - Standing Committee report

The Companies Bill 2009 was introduced in the Lok Sabha on 3 August 2009 and was later referred to the Standing Committee on Finance for examination. The Committee's report was presented on 31 August 2010: see here (pdf).

There is much in the Committee's 375 page report but it is worth noting that it is stated, at paragraph 16, that the Ministry of Corporate Affairs has accepted that some of the matters included in the Corporate Governance Voluntary Guidelines 2009 (here, pdf) should be included in the Bill. These include the separation of the roles of chairman and chief executive; the attributes and tenure of independent directors; board evaluation; the appointment of auditors and the rotation of audit partners and firms. Elsewhere in the report the role and function of independent directors receives further consideration, with the Committee noting (at paragraph 29):

As the institution of Independent Directors is a critical instrument for ensuring good corporate governance, it is necessary that the functioning of this institution is critically analysed and proper safeguards are made to ensure its efficacy. The appointment of Independent Directors should not be a case of mere technical compliance reduced to the letter of the law. It is important that Independent Directors play their designated role to nurture the financial health of the Company and to protect the interests of various stakeholders, particularly the minority shareholders. The Committee, therefore, believe provisions pertaining to the Independent Directors should be distinguished from other Directors in the Bill. The Government should, therefore, prescribe precisely their mode of appointment, their qualifications, extent of independence from promoters/management, their role and responsibilities as well as their liabilities. In this context, it would be pertinent to mention that 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. A provision may also be made for their rotation 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. A code for independent directors may be considered for this purpose. The appointment process of Independent Directors may also be made independent of the company management by constituting a panel or a data bank to be maintained by the Ministry of Corporate Affairs, out of which companies may choose their requirement of Independent Directors. It is expected that the system of independent directors will evolve as a corporate governance institution over time. The Committee also desire that the Ministry may also explore the feasibility of Advisory Boards for bigger companies comprising of qualified persons/professional experts".