The Comptroller and Auditor General of India (CAG) has raised concern over the high number of vacancies for the post of independent directors in 59 of the 72 (82 per cent) listed central public sector enterprises (CPSEs). While no Maharatna company has the mandated number of independent directors on its board, CPSEs such as Coal India Ltd (CIL), NHPC, Mahanagar Telephone Nigam Ltd (MTNL), and REC have not appointed an independent director. The Companies Act, as well as the guidelines issued by the Department of Public Enterprises, mandates that in case the chairman of the board is an executive director, at least half the board should have independent directors. The CAG recommended the boards of directors of the listed CPSEs ensure compliance with these guidelines and regulations to bring in better transparency and accountability in their functioning. “The Administrative Ministries/Departments may ensure submission of quarterly compliance reports by listed CPSEs as prescribed in DPE/SEBI guidelines/regulations,” the CAG said in a compliance audit report tabled in Parliament for the year ended March 31, 2021. Independent directors are required to report concern about unethical behaviour, suspected fraud, or violations of the company’s code of conduct or ethics policy.

They ensure integrity of financial information, safeguard the interests of all stakeholders, and balance conflicting interests of shareholders. “The presence of independent representatives on the Board, capable of taking an independent view on the decisions of the management is widely considered as a means of protecting the interests of shareholders and other stakeholders,” the report noted. Recently, in PTC India, a state-run power trading company, independent directors resigned, mentioning lapses in governance and compliance. The boards of 37 of the 72 (51 per cent) listed CPSEs did not have a woman director.

This includes top CPSEs in terms of market capitalisation such as Bharat Petroleum Corporation, CIL, and NTPC.

The Companies Act, 2013, provides the board of directors of a company must have at least one woman director. In 32 (44 per cent of the total) listed CPSEs, including National Aluminium Company, Steel Authority of India, GAIL (India), Oil and Natural Gas Corporation (ONGC), NTPC, and Indian Oil, the required number of non-executive directors was not on their boards. The CAG highlighted the numerical deficiency of independent directors on the audit committees of 31 of the 72 listed CPSEs.

This violates the Companies Act, 2013, provision stipulating that there shall be an audit committee with a minimum of three directors as members, of which two shall be independent directors. Maharatna companies such as Hindustan Petroleum Corporation, ONGC, Power Finance Corporation, GAIL, REC, and CIL fall in this category. In eight (11 per cent of the whole) listed CPSEs such as Container Corporation of India, Indian Railway Catering and Tourism Corporation, and Rail Vikas Nigam, the audit committee did not review the audit observations of the CAG despite the guidelines of the Department of Public Enterprises (DPE) providing that the committee shall review them. The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, stipulate that the board of a company shall have an optimum combination of executive and non-executive directors with not less than 50 per cent of the board comprising non-executive directors. The DPE has incorporated “corporate governance” as a performance parameter in the memorandum of understanding of all CPSEs.