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Richa Mishra

New Delhi , Oct. 27

DIRECTORS of Government companies need not worry over the recent disqualification norm announced by the Department of Company Affairs (DCA).

The department has now decided to grant immunity to directors of public sector companies from disqualification from election as a director in case of defaults by a company. A notification granting the exemption has been issued by the DCA. This is, however, subject to approval from Parliament.

The department has laid a copy of the notification in draft before both Houses of Parliament as mandated under the Companies Act, 1926. Section 620 of the Companies Act empowers Central Government to modify the Act in relation to Government company. It, however, stated that a copy of every notification proposed to be issued is to be laid in the draft form before both the Houses to seek their approval.

Norms for disqualification of directors as prescribed under the Companies Act has always been a bone of contention between the companies and DCA. Consequent to certain amendments made in 2000 in the Companies Act, 1956, directors incur disqualification for election in case of defaults on deposits, debt payment and dividend by the company in which he has been a director.

Earlier, the department had exempted the nominees of public finance institutions, banks and sick companies, from the same. Elaborating on why the relaxation of norms has been restricted to a Government Company, sources told Business Line, "Chances of default by a Government company is negligible. Further, redemption is easier in such cases."

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 continue for one year or more.

India Inc is, however, far from happy. "The relaxation should be extended to all companies. This issue concerns all the corporate sector and not Government companies alone," they argued.

"It needs to be appreciated 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. What is surprising is that the company, which has erred in providing him with the information goes away without punishment and the director is punished," industry insiders said.

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