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IDBI,
IFCI, ICICI and IRCI should create a
separate Department/Cell with official
at the level of GM and Dy. GM, whose
exclusive and whole-time function will
be to represent the institutions on the
Boards of Companies. In this way, the
work of nominee Directors will become an
integral part of the operations of the
institutions. The proposed
Department/Cell should function like any
other department of the institution with
normal rotation of official from one
department to another. Outsiders
should be appointed as nominee directors
only as additional directors on Boards
where the institution wishes to have
more than one nominee director.
Nominee
directors should be appointed on the
Boards of all MRTP companies, assisted
by the institutions. As regards non-MRTP
companies, nominee directors should be
appointed on a selective basis,
especially in cases where one or more of
the following conditions obtain
(a) The unit
is running into problems and is likely
to become sick;
(b)
Institutional holding is more than 26%;
and
(c) Where the
institutional stake by way of
loans/investment exceeds Rs. 5 crores.
Nominee
directors should be given
clearly-identified responsibilities in a
few areas which are important for public
policy. The illustrative lists of these
are:
(a) Financial
performance of the company;
(b) Payment of
dues to the institutions;
(c) Payment of
Government dues, including excise and
customs duty, and statutory dues. Where
the company feels that a particular tax
demand is unjustified, nominee directors
should satisfy themselves about the
prima facie reasonableness of the
company’s case;
(d)
Inter-corporate investment in and loans
to or from associated concerns in which
the promoter group has significant
interest;
(e) All
transactions in shares;
(f)
Expenditure being incurred by the
company on management group; and
(g) Policies
relating to the award of contracts and
purchase and sale of raw materials,
finished goods, machinery, etc.
The nominee
directors should ensure that the
tendencies of the companies towards
extravagance, lavish expenditure and
diversion of funds are curbed. With a
view to achieve this object, the
institutions should seek constitution of
a small Audit Sub-committee of the board
of directors for the purpose of periodic
assessment of expenditure incurred by
the assisted company, in all cases where
the paid-up capital of the company is Rs.
5 crores or more. The institutional
nominee director will invariably be a
member of these Audit Sub-committees.
The above
guidelines relating to the
convertibility clause and nominee
directors will come into effect from
March 1, 1984.
(Issued by the
Minis of Finance, Department of Economic
Affairs (Banking Division), dated March
2, 1984. Refer (1984) 55 Com cases (St)
158.] |
