Mumbai, Sept. 11: The Securities and Exchange Board of India (Sebi) today initiated action against 20 listed companies for violating its corporate governance regulations.

The market regulator said it planned to crack down on five public sector entities and 15 from the private sector for either having fewer independent directors than mandated under Clause 49 of the listing agreement with the bourses or violating other governance provisions.

Under the rules, at least one third of the board must consist of independent directors if the chairman is a non-executive director. If the company has an executive chairman, then independent directors must comprise half the board.

Sebi said it received quarterly reports from stock exchanges regarding compliance with Clause 49 of the listing agreement. Based on these reports, adjudication proceedings had been initiated against the 20 companies.

Of these, five companies are public sector companies against whom proceedings had been launched for non-compliance with provisions relating to board composition.

Of the 15 private sector companies, proceedings had been initiated against three companies for failing to comply with almost all the major provisions of Clause 49.

Two companies face action for non-compliance with provisions like board/audit committee composition and CEO/CFO certification.

The remaining 10 companies had been hauled up for failure to submit compliance reports under Clause 49 to the stock exchanges, it said.

The market regulator did not name the companies against whom adjudication proceedings had been initiated.

Sources said Sebi might take three different types of action — suspension, prosecution and levying penalty. It will first appoint an adjudicating officer who will issue showcause notices to the companies concerned. Action will be taken against the errant companies only after giving them a hearing.

“The names will be revealed only after action is taken,” a source said.

Sebi notified the revised Clause 49 of the listing agreement in October 2004. It was to have come into effect from April 1, 2005.

However, a large number of companies had informed the market regulator that they were still not prepared to be fully compliant with all the requirements. Sebi then set a revised deadline of January 1, 2006.

Observers are lauding the Sebi move. “The market regulator means business. Initiating action against five PSUs is a brave move as directors in these companies are appointed by the government and Sebi is telling the government that such PSU companies should follow Clause 49 at least in letter,” Prithvi Haldea of Prime Database told The Telegraph.