Tackling the shortage of independent directors

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

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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.