March 28, 2002

   The Government in the Department of Company Affairs (DCA) has issued orders exempting nominee directors appointed by the public financial institutions and companies established under the Acts of Parliament having non-obstante provisions over the Companies Act, 1956 in their respective statutes and those on the boards of assisted concerns or other public companies by public financial institutions within the meaning of Section 4A of the Companies Act, 1956, Central or State Governments and banking companies from disqualification under Section 274 (1) (g) of the Companies Act, 1956.

    Clause (g) of Section 274(1) of the Companies Act, incorporated by the Companies (Amendment) Act, 2000 and enforced from December 13, 2000 is intended to disqualify the errant directors, protect the investors from mismanagement, ensue compliance in filing of annual accounts and annual returns as a mean of disclosure to all the stakeholders, increase the compliance rate of filing of the statutory documents and infuse good corporate governance in the regulation of corporate affairs in the country.

    The DCA in consultation with the Finance Ministry has directed the Regional Directors and Registrars of Companies to exempt from action under Section 274(1)(g) of the Companies Act, 1956, the Government nominee directors as stated.

    The orders of DCA, however, clarify that such exemption shall be subject to fulfilling conditions like interest of the public financial institutions, banks, observance of good corporate governance practices in Government companies with regard to the legitimate interests of various stakeholders, ensuring of conduct of companies in keeping with public policy, observing strict compliance of all statutory provisions of the Companies Act, proper constitution and functioning of audit committee, nominations committee , remuneration committee and other such committees in the companies, regular attendance and participation in the proceedings of the boards and committees, safeguarding the interest of the Government, banks, financial institutions represented by them and provisions of feedback to the nominating institutions by the nominee directors. Besides, all Government and public funded institutions and companies are required to monitor the participation of nominee directors in boards and committee meetings, failing which replace them and a half yearly report about steps taken by them to ensure that their nominee directors are discharging their responsibilities and inclusion in the annual report of the measures taken by nominee directors’ effective functioning are some of the other conditions to make the institution of nominee directors function effectively and derive benefits of the exemption from disqualification under the Companies Act.