One third of board should comprise independent directors: JJ Irani report

Our Corporate Bureau
01 June 2005

New Delhi: The JJ Irani committee, appointed by the ministry of company affairs to advice on the amendment to the Companies Act, 1956, has recommended that listed public companies and companies accepting public deposits need not reserve half the seats on their boards for independent directors. The committee has said that a third of the total number of directors as independent directors should be "adequate" for a company having significant public interest, irrespective of whether the chairman is executive or non-executive, independent or not.

Irani said, "We have provided more powers in the hands of the shareholders and in many cases where the existing Companies Act requires the company to approach the government, we have suggested that shareholders should be allowed to take a decision."

The Irani committee report, which studied the concept paper on the Companies Act floated by the ministry, will now be examined by the government, and its recommendations considered when the Act is redrafted and introduced in parliament.

The concept paper floated by the government had suggested that at least half the seats on company boards should be reserved for independents leading to much consternation in the corporate world.

The Irani committee report also gives a fillip to entrepreneurship with the concept of a single-person company. There are provisions to help companies raise long-term capital without affecting voting rights of existing shareholders. On the M&A front, the new law will require an independent valuation of companies getting merged or restructured. It will also make mergers and acquisitions as well as corporate rescue and liquidation easier.

The Irani committee further says that the Company Act should not prescribe the maximum number of directors that any company, private or public, should appoint. "Law should provide for only the minimum number of directors necessary for various classes of companies." The report also adds that the government should not intervene in the appointment and removal of directors in non-government companies.