Financial Daily from THE HINDU group of publications
Wednesday, Dec 28, 2005
Corporate - Corporate Governance
Finance Ministry does not favour extending Clause 49 deadline Wants to stick by SEBI's stance
New Delhi , Dec. 27
WITH a few days to go before the deadline for compliance with the revised Clause 49 of the Listing Agreement expires, the Finance Ministry has come out in support of the capital market regulator's current stance that there should be no extension beyond the December 31 cut-off date.
The Securities and Exchange Board of India (SEBI) Chairman, Mr M, Damodaran, has been maintaining that the deadline to comply with the revised Clause 49 would not be extended.
This clause prescribes certain corporate governance norms including the board composition that need to be adhered by listed entities.
As per the revised Clause 49, for a company with an Executive Chairman, at least 50 per cent of the board should comprise independent directors. In the case of a company with a non-executive Chairman, at least one-third of the board should comprise independent directors.
In a communication to the Ministry of Company Affairs, the Department of Economic Affairs in the Finance Ministry has stated that the implementation of the revised Clause 49 should not be delayed.
It has argued that the deadline had already been deferred by nine months from March 31 to December 31, 2005.
It has also pointed out that Clause 49 was revised on the basis of the recommendations of the corporate governance committee, headed by Mr N.R. Narayananmurthy, after due deliberations.
As regards the provision for board composition in the revised Clause 49 not being in sync with the existing company law, the Finance Ministry said in its communication that the "revised Clause 49 (provisions) are incorporated in the company law which is under preparation by the Ministry of Company Affairs following the J.J. Irani Committee recommendations."
The Finance Ministry also suggested that the Ministry of Company Affairs could revisit the aspect of board composition while formulating the new company law.
The SEBI Chairman has been maintaining that if the proposed new company law, when enacted, is found to be inconsistent with the revised Clause 49, then the enacted law would prevail and SEBI would redraft Clause 49.
Meanwhile, the board of SEBI is scheduled to meet on December 30 to consider a host of measures relating to the capital market.
However, there is no specific agenda item on the revised Clause 49 for the board to discuss.
Some of the proposals that the board is expected to take up for consideration include strengthening the regulations of offshore funds, introduction of gold exchange traded funds in India, introduction of optional grading of IPOs, issues arising from takeover codes amendments undertaken in 2004, and changes in position limits and other policy issues related to the derivatives market.
The board is also expected to review the status of corporatisation and de-mutualisation of stock exchanges, the additional mode for raising of capital by listed companies, and the guidelines for secondary offerings (rights issues and further public offerings).
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