Firms will now have to replace independent directors in 90 days

Companies will henceforth have to replace independent directors who resign or are removed from the Board within 90 days, against the earlier 180 days.

The Corporate Affairs Ministry has altered the code for independent directors under Schedule IV of the company law to this effect.

However, it has exempted government companies from seeking shareholders’ nod for appointing independent directors. Independent directors of government companies have also been exempted from the norm that required their re-appointment to be on the basis of an evaluation of their performance.

In face, there won’t be a need for a performance evaluation of independent directors in government companies.

Moreover, the independent directors at their separate meetings need not henceforth review the performance of non-independent directors, of the Board as a whole, or of the Chairman of the Board.

Commenting on the development, SN Ananthasubramanian, Practising Company Secretary and former Company Secretaries’ Institute President, said this brings the Companies Act on par with the SEBI’s listing regulations.

“This shorter time period of 90 days will enhance the cause of good governance in unlisted companies also,” he said.

It will be interesting to see how the SEBI-appointed Uday Kotak Committee on Corporate Governance will respond to these exemptions, particularly in the context of SEBI Chairman Ajay Tyagi’s recent remarks on the independence of directors in listed government companies, Ananthasubramanian noted.

Corporate observers feel that exempting government companies from independent directors’ norms appears to be a “step backward”.

Lalit Kumar, Partner, J Sagar Associates, a law firm, said the requirement that independent directors be appointed within 90 days is to align the company law with SEBI (Listing Obligation and Disclosure) regulations, and it is a fair time period to find a replacement for an independent director.