The Telegraph
Since 1st March, 1999
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Respite for FI nominee directors

Calcutta, April 12: The nominee directors of public financial institutions (PFIs) like the Industrial Development Bank of India, IFCI and Unit Trust of India will not be held responsible or removed from the board of companies that default on repayment of privately-placed bonds or debentures or debt instruments as prescribed under the Companies Act, 1956.

Senior officials of the department of company affairs said, “After the introduction of Section 274 (1) (g), the department has been receiving representations from the public financial institutions on this particular section. The banking division in the finance ministry has also supported this apprehension.”

Section 274 (1) (g) states that a director of a public company, which has defaulted in filing of annual accounts and annual returns and in repaying deposits/interests thereon on due date or redeeming its debentures on due date or in paying dividend for period specified in that section, is disqualified to be appointed as a director of other public companies for a period of five years from the date on which his company defaulted.

DCA officials said that even though the nominee directors will not be accountable for defaults in repayment of bonds or any other debt instruments but they are expected to work assiduously towards the observance of good corporate governance practices in the company in the interest of various stakeholders.

The officials said that the directors should immediately inform the shareholders if they notice any financial problem that may lead to non-repayment of dues.

They further added that the representations have been considered carefully keeping in mind the need for strict compliance with the provisions of 274(1)(g) and the non-obstante clause in statutes in some of the public financial institutions.

Last year, the department had clarified that nominee directors appointed on the boards of public companies and other concerns assisted by PFIs are exempted from the provisions of Section 274(1)(g).

DCA had also clarified that nominee directors appointed on boards of public companies or assisted companies by the Centre or states and banking companies are also exempted from this clause.

Moreover, public financial institutions and companies established under the Acts of Parliament having provisions that specifically exclude the operation of provisions of the Companies Act are also exempted. Nominee directors of IDBI, LIC, UTI, and IIBI, which have been set up by special legislation, would not be liable to be disqualified by virtue of Section 274(1)(g). However, the relief granted to nominee directors of PFIs/banks/government companies comes with a host of stipulations.

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