Industry chamber CII has urged the government not to cap remunerations of independent directors under the amendments to the Companies Act, 2013.
It appears from the ‘Report of the Committee to review offences under the Companies Act, 2013′ that the intent behind this amendment is to cover the remuneration received by an independent director within the meaning of ‘pecuniary relationship’ so that the independence of the director concerned does not get impacted, the chamber said in a statement Sunday.
“Any cap would be regressive to the current mechanism prescribed under the Companies Act, 2013 and the SEBI regulations. Obtaining income details of independent directors would be difficult as directors may not be willing to share the income information. This is so especially in the light of Data Privacy Laws,” it said.
The total remuneration of non-executive directors, including independent directors, is capped by Section 197 of the Companies Act, 2013, it added.
“A second cap on the remuneration of independent directors is not required,” it added.
According to the proposed amendments, CII said the total pecuniary relationship of an independent director with the company, its holding, subsidiary or associate company, or their promoters or directors, shall not exceed 25 per cent of his total income.
It said independent directors also contribute to shareholder value creation through strategy evaluation, risk management, governance and control.
“Caps on remuneration may discourage him from fulfilling this role. In fact, such an approach carries the distinct risk of converting independent directors into auditors, thereby leading to conflict and dissension in Board processes,” it said.
It added that there is already a dearth of quality independent directors and excessive regulations may result in qualified person hesitating to take up this role.