MCA plans to frame tougher regulations for independent directors

Meanwhile, the Centre is working on final rules for the National Financial Reporting Authority (NFRA) to regulate auditors

The corporate affairs ministry is planning to frame rules to make independent directors more accountable for malpractice. Besides, it is also mulling action against 42 auditors that have resigned from companies.

According to a ministry official, an independent director cannot say he does not approve of what is happening in the company, and must put his foot down.
 

The ministry has already moved the National Company Law Tribunal against seven independent directors. Once the judgment is issued, the ministry will notify the new rules for independent directors.

According to the Companies Act, 2013, independent directors must constitute one-third of the board of every listed public company. Unlisted public companies must appoint at least two independent directors if the paid-up share capital exceeds Rs 100 million, the turnover is over Rs 1 billion, and the aggregate of all outstanding loans, debentures and deposits cross Rs 500 million.

The Act restricts the liability of independent directors only in respect of acts of omission or commission by a company that had occurred with his knowledge, attributable through board processes, and with his consent or connivance or where he had not acted diligently.

Recently, the National Company Law Appellate Tribunal (NCLAT) ordered the freezing of personal assets of some independent directors on the boards of companies of jewellery designer Nirav Modi, who is accused of defrauding Punjab National Bank (PNB) of over Rs 140 billion.

PNB has also asked a court in New York to issue subpoena to certain witnesses, including Nirav Modi and senior executives in his company, Mihir Bansali and Ajay Gandhi.

Auditors of a number of firms have resigned in some high- profile cases. Last month, Deloitte Haskins & Sells India stepped down as auditor to Manpasand Beverages a few days before the declaration of annual results. The auditor claimed the company did not share required information.

According to the Chartered Accountants Act, auditors can resign if they find misappropriation of funds in a company. However, they will be punished if a trail shows them being party to any malpractice during the signing of the audits.

Meanwhile, the government is working on final rules for the National Financial Reporting Authority (NFRA) to regulate auditors. Till then, auditors’ actions will come under the provisions of the Companies Act.