The Hindu Business Line : FIs asked to submit immunity proposal

THE Department of Company Affairs has asked the financial institutions (FIs) to submit a proposal, which will seek to grant immunity from prosecution to their nominees on the boards of companies, which default on deposits, debt payment and dividend.

The FIs had sought an exemption for their nominees from the provisions of Section 274 of the Companies Act. Section 274(1)(g) provides that a person shall not be capable of being appointed as a director of a company if such a person is already a director of a public company which has not filed annual accounts and returns for a continuous period of three financial years and has failed to repay its deposits or interest thereon or, redeem its debentures on due dates or pay dividend and such failures continues for one year or more.

"The department is considering relaxation of the norms for the institution nominees," sources said. "Something on the lines of the Sick Industrial (Special Provisions) Act, 1985, which provides for immunity against the FIs nominees can be incorporated for the defaulting companies under the Companies Act," the sources said.

According to bankers, though the nominee directors possess some immunity from prosecution, such exemption is granted under the present legal provisions only if they act in good faith and that too in the interests of the company on whose boards they are sitting.

Apart from the institutions, trade and industry have also been calling the provision "quite harsh". "Such disqualification would be unfair in respect of non-executive director of such public company who is not in-charge of day-to-day management of the company," industry sources said.

In fact, one fails to appreciate the rational of such a disqualification provision at all, the industry is quick to add. "It needs to be accepted that a director relies and acts on the information given to him by the company and per se there may not be any default on his part. However, if default is ultimately found, the director is punished and not the company, which has erred in providing him with the information goes away without punishment," sources said.

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FIs asked to submit immunity proposal