Irani panel moots cover for company deposits

The J J Irani committee, appointed by the government to suggest changes in the Companies Act, today agreed on recommending that companies mandatorily take insurance cover on deposits accepted by them.

This is expected to protect small depositors who are currently treated as unsecured creditors and find it difficult to recover their money in case of company defaults.

The panel is, however, yet to arrive at a consensus on the issue of independent directors. The committee is examining the practicality of bringing in the concept through legislation.

"It is very difficult to ensure independent directors on a company's board through legislation", J J Irani, chairman of the committee, said.

Irani expressed satisfaction that the committee's views would be finalised by end of April. The seven sub-groups of the committee are expected to finalise their recommendations on specific issues referred to them in the next few days after which the final recommendations would be framed.

"Everybody on the committee was of the view that insurance is a viable mechanism to protect small investors," a member of the Irani committee said.

It was unanimously felt that the insurance cover would ensure that depositors recover at least a part of their money while the company and the insurer fight out a legal battle, he added.

The topic of independent directors is expected to prominently figure in the next few meetings of the committee. Even if it is agreed to legislate on independent director the debate on details is expected to be intense.

This recently led to the deferment of Sebi's amended listing agreement to December 31, apart from the fact that companies found it difficult to comply with the requirements specified.

The listing agreement had proposed at least 50 per cent independent directors in a company's board in case the chairman of the company was executive director and at least one-third independent directors in case the chairman was a non-executive director.

The concept paper, however, had come out with a different set of proposals and suggested extending the scope of independent director to all public companies having paid-up capital of Rs 5 crore or turn over of Rs 20 Crore. It suggested that all such companies should have 50 per cent of its board comprising of independent directors.

The concept paper defined independent directors as a non-executive director who, apart from receiving director's remuneration, did not have any material pecuniary relationship with the company, its promoters, directors, manager or its holding company and its subsidiary.

The ministry of company affairs is expected to firm up its view after taking on board Irani committee's view but as the law is expected to be debated in the parliament it might be a while before the final word is said on the contentious topic.