Sebi chairman M. Damodaran in Mumbai on Wednesday. (Fotocorp)

Mumbai, Aug. 30: Domestic companies that have not appointed independent directors on their boards will not be exempted by the market regulator.

The Securities and Exchange Board of India (Sebi) has made appointment of independent directors on company boards mandatory under Clause 49 rules from January 2006. But many companies are yet to comply with the new rule.

“We are not here to punish people, but to create an environment to ensure compliance. Companies which have made genuine efforts to comply and have already adhered to most of the requirements would be encouraged to complete the process soon, while those who could have tried harder would be given a push,” Sebi chairman M. Damodaran said. He was addressing a seminar organised by the Confederation of Indian Industry (CII).

Damodaran said the market regulator’s approach to the implementation of Clause 49 would be to push compliance without sacrificing the interests of investors.

“If Sebi suspended trading of shares in such companies, investors will be locked in the shares without an option to exit,” he said.

Sebi, he said, will make a distinction between non-compliant companies that could not comply because of genuine reasons and those that have not made an effort to do so till now.

“However, let it not be misunderstood that we will not take action. There will be a process of dialogue and I hope some of the prospective examples wake up and realise that they do not want to be mentioned in that context,” he added.

“Before the year is out, we will persuade the stock exchanges to target big companies which are able to comply but have not made the effort to do so,” he added.

“We hope action by the stock exchanges would put pressure on the management of companies from international investors and other stakeholders to see that compliance is made,” he said.

“Laws cannot be different based on ownership. There will not be any distinction between big public sector and private sector,” added Damodaran.