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Tackling the shortage of independent directors

Published: 27 Jan 2018

I have been writing frequently on the one-sided, high-handed and unjust treatment met out to independent directors recently by the government which disqualified many, if not, all of them merely because some companies defaulted on their statutory filing. This summary dismissal was against natural justice – they should have been given a chance to submit their case at least. Their woes were compounded by court rulings restricting them from dealing in their personal property due to default made by promoters of real estate companies.

As a result, many corporate boardrooms are either short of competent or distinguished professionals as independent directors or are facing shortage of such people’s availability. Today, no worthy professional wants to face such insult or a blockage on their personal assets. Many of them are resigning from their directorships.

Considering this, the central government feels that there is an imperative need to conduct a comprehensive analysis of functioning of independent directors.

The intent behind review of the independent directors functionality is to analyze the whys and wherefores behind the resignation of independent directors from the companies’ board and to come up with a adapt resolution to avert such resignations with the objective to repose the lost confidence of the independent directors in the corporate management system.

The Ministry of Corporate Affairs (which is responsible for putting into practice the provisions of Companies Act, 2013) is considering to reinforce the organization of independent directors class by re-enacting certain provisions in relation to appointment and removal of independent directors and other connected matters.

The government ideology is to play minimal role in corporate affairs and in this regard, independent directors have to play an important role in aiding corporates to manage their corporate affairs.

However, government recent ruling of debarring independent directors is contrary to its own ideology and created havoc in independent directors’ class - detrimental to such director’s interest and landing their imminent prospect in despair and jeopardy for no fault of them.

There is indeed an instant requirement to conduct exclusive research to dig deep on certain aspects (reasons for resignation and establishment of independent directors database) related to independent directors to strengthen the regulatory mechanism – adequate protection should be provided to independent directors from the bad vices of defaulted companies, if they are not at fault.

The positive sign is that the government has recognized independent directors as the pivot of corporate governance structure and their ardent role to play in corporate affairs in terms of advisory and monitor position.

One should hope that the government’s decision to review the existing independent directors structure and to revisit certain provisions of companies law – with the intent to promote and protect the interests of independent directors in adversary conditions – will certainly put an end to the resignation row and protect the corporate system from the ongoing crisis in the form of acute shortage of talented professionals to act as independent directors – ultimately strengthen the standards of corporate governance structure.

Research inputs by Paruchuri Bawanth Mohan


About the author :

Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at bhumesh.verma@corpcommlegal.com.

Firm: Addleshaw Goddard

Practice Area: Trade & Customs

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