Two days after the Parliamentary standing committee on finance submitted its report on the Companies Bill 2009, the ministry of corporate affairs (MCA) on Thursday said that it was “still studying the details” of the endorsement of basic principles made by the committee.
Corporate Affairs Minister Salman Khurshid said that the committee had made “general endorsements” to the ministry’s proposals in the Companies Bill 2009, from which the MCA would now have to formulate specific legislations. The Companies Bill 2009 seeks to enact a new law to regulate companies and other corporate entities and simultaneously repeal the Companies Act 1956.
The committee, Khurshid said, had supported the requirement of a code for independent directors that would be a “simple exposition of their duties and responsibilities.” “Independent directors should make a declaration that they are familiar with their responsibilities and obligations. They should be prepared to face sanction if they fail to do their duty,” he said.
In its report tabled on August 31, the standing committee has stated 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.”
Further, the report recommends that “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.”
Khurshid said that the committee had endorsed the proposal for rotation of audit firms, as well as accounting and audit standards. “The manner in which this will happen has to be worked out,” he added.
The MCA, in the Companies Bill 2009, has mooted that “every company shall, at each annual general meeting, appoint an individual or a firm as an auditor who shall hold office from the conclusion of that meeting till the conclusion of the next annual general meeting.”
But subsequent to further suggestions from the committee, the MCA has submitted a new clause that disallows any company to “appoint or re-appoint an individual or a firm as auditor for more than five consecutive years.”
Of the other proposals supported by the committee, Khurshid said that the matter of “managerial remuneration” had been addressed.
The committee’s report supports the formation of a “Remuneration Committee to determine, recommend and monitor principles, criteria and the basis of remuneration policy of the company.”
“We are targeting the Winter Session (of Parliament to table this Bill) but a lot of work has to be done. But we will definitely do this by the end of this fiscal,” Khurshid added.