'New independent director within 6 months'

The Securities and Exchange Board of India (Sebi) has said all companies will have to appoint an independent director within six months of an incumbent resigning or being removed.

The decision to amend Clause 49 of the Listing Agreement plugs a loophole that allowed companies to be suspended from the stock exchanges and thereby lend them unaccountable to investors.

Prithvi Haldea, director, Prime Database, a company tracking the corporate actions of listed firms, is of the view that the new rule would make listed companies more accountable to investors.

"Earlier, companies did not appoint independent directors for years. These companies were then suspended from the stock exchanges because they did not comply with the listing agreement," he said.

According to Haldea, firms that did not want to be accountable to investors deliberately exploited the loophole. "This move by Sebi will make companies more responsible," he said.

Sebi chairman C B Bhave also modified provisions pertaining to the disclosure of relationships between the directors.

The circular also specified that if the non-executive chairman was a promoter, related to the promoters or people occupying management positions at the board level or one step below, at least one-half of the company's board should consist of independent directors.

In simple words, the relatives of promoters cannot be appointed independent directors.