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Dual voting system to hire independent directors soon

A dual voting system will allow two tier system for appointing independent directors.

, ET Now|
Jul 26, 2019, 01.01 PM IST
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BCCL
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The move will need detailed deliberations and appropriate changes will be made to Companies Act.
With the rise in corporate frauds and misappropriation of funds, the role of independent directors is on the radar of the corporate affairs ministry. Sources have told ET Now that govt will soon propose “dual voting system” for the appointment of independent directors in a bid to recalibrate the balance between promoters and minority shareholders and strengthen the boards independence.

A dual voting system will allow two tier system for appointing independent directors. It will enable separate minority shareholder voting after voting by all shareholders including promoters in line with the practice followed in UK, according to a source in the know.

As per the UK listing requirements, for a company with controlling shareholder, the election of an independent director has to be approved by shareholders and minority/non-promoter shareholders. If the minority shareholders don’t approve an independent directors appointment, then another resolution has to be proposed after a period of 90 days.

“Dual voting mechanism for independent directors is an idea whose time has come. Since most Indian companies are promoter driven, such changes will empower minority shareholders moderately while calibrating the balance with promoters”, the source added.

The move will need detailed deliberations and appropriate changes will be made to Companies Act.

Currently in India, the appointment of a director starts with the nomination and remuneration committee (NRC) identifying candidates for approval by the board of directors and subsequently by shareholders. A resolution to appoint a director needs a simple majority, that is more than 50 percent of votes cast, to succeed. While atleast half the NRC should constitute independent directors experts have often pointed out that promoters can influence the selection of candidates right at that stage and then use their majority shareholding to ensure the director is elected. This may often compromise the independence of the director even if he otherwise meets the definition of independent as laid down in company law.

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