8/7/2019 Accountability of Independent Directors-Some Court Rulings to Rescue Them From Their Prosecution by Delep Gos

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AccountabilityofIndependent Directors- Some

Rulings to Rescue them From their ProsecutionDelep Goswami, FCS, Advocate ( Supreme Court), New Delhi.

e-mail:

delepgoswami@ gmail. com

To ensure good corporate governance, the requirement of the appointmindependent directors cannot be ignored howsoever strong may be the criticism agsuch appointments. Till suitable legislative changes ar e made efforts should bto encourage professionals and others to accept such positions and to impart prtraining to discharge their functions. They should also be adequately compenscommensurate with their expertise an d time spent on the role assigned to the

Thanks to the SEBI mandated stipulation for listed publiccompanies to appoint a specified number of directors to be termedand identified as "Independent Directors" (in short "ID") andhanks largely to the euphoria created on the positive side of

corporate governance practices by the Indian corporate sector,he term "Independent Director" has become fairly well known

to the Indian corporate houses. Despite the fact that the CompaniesAct has not yet defmed and earmarked the role, responsibilitiesand accountability of this new class of company directors termedas "independent directors ", yet the corporate professionals, generalbody of public investors as well as the institutional investors havestarted paying special attention and notice to the composition ofhe corporate boards of directors and as compared to the family

dominated corporate boards, greater preference is given tocompanies which have a fairly large size of professional IDs. Ofate, no discussions in the meetings of the professional bodies

and the chambers of commerce and industry is complete withoutstressing the importance of good corporate governance and.... nvariably in those meetings the issue regarding the role,

responsibility and accountability of the IDs find special mention.

Indian corporate professionals are aware that in addition to

he SEBI guidelines for appointment of IDs in listed companies,he provisions of Section 292A of the Companies Act, 1956

also mandate specified public companies to constitute an "AuditCommittee", wherein two-thirds of the total number ofmembers shall be directors, other than the Managing or theWhole-time Directors. The IDs perfectly fit in the category"other than the Managing or the whole-time directors." Thisalso recognizes the legislative intent to stress the importanceof non-whole time directors in company boards and evenhough the term ID does not find any specific mention in

Section 292A , it can be inferred that no apparentcan be made to the non-whole time directors and the indedirectors. As to what this Audit Committee is supposeda look at .... Section 292A(7) of the Companies makes it clear that "the Audit committee shall have autto investigate into any matter in relation to the itemin this section or referred to it by the Board and fo r thshall have full access to information co ntained in the ro f he company an d external professional advice , if nThus, the legislative intent is quite clear that whenenon-whole time directors/IDs feel it necessary , thoutside professional advice and help, so that acorporate decisions could be taken keeping in viewinterests of the company , its shareholders and inveother stakeholders. Therefore, the IDs/outside directobe held accountable if they fail to show .. . . hoavailability of such specific company law proviregard to their functioning why they failed to exdiligence, care and caution in the functioning of thand why the IDs should not be squarely blamed for nin duty and be held accountable for allowing the pr

directors/whole time directors group to perpetrate mismanagement and thereby put the investors and oholders to great loss and damage.

It is therefore perfectly justified for the public atquestion as to what the so-called outside IDs weryears together and how could the IDs be ignorantwhich was being carried on with impunity by theDirectors group of one of the top most IT companieThe role and responsibility of the IDs become mbecause they did not discover the corporate fraud, bu

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