There may soon be a ceiling on the number of directorships an individual will be allowed to hold on the board of companies in India. According to recommendations made by the Standing Committee on Finance, a person will no longer be able to act as a director of more than five listed companies and 10 public sector (non-listed) companies. If these recommendations are accepted in the new Bill, then directors will henceforth have to limit the number of companies they chair.
This will affect a significant number of companies, as, according to Director’s Database, a corporate governance initiative of BSE developed by Prime Database, 198 people hold more than five directorships in listed companies with two holding 14.
The Companies Bill is expected to become law by the end of this year, according to Mr R. Bandyopadhyay, Secretary, Ministry of Corporate Affairs. The earlier cap on the number of public limited companies an individual could be the director of was 15. Making a shift from that, the Ministry of Corporate Affairs proposed that the maximum number of listed and public sector companies to which a person could be appointed as director should not exceed seven and 15 respectively.
“A director needs to spend sufficient time for understanding the nature and working of the company in which he is a director, to enable him to perform his functions properly,” the Ministry had said. In this light, it was proposed that the Bill should provide clear provisions in respect of restrictions on number of companies in which he may be appointed as director.
For its part, the Ministry of Corporate Affairs had come up with a proposal of allowing a person to be the director of more than 20 private companies at the discretion of the Central Government. However, The Committee rejected this proposal.
The Committee has also put an upper limit on the number of non-executive posts a full-time managing or whole-time director can hold.
The number of listed companies where such a person can act as a non-executive director has been capped at two and for public sector companies, it has been restricted to 10. The Ministry will levy a fine on any person found not to be following the law.