Will Independent Directors Pass the Common Proficiency Test as Proposed by MCA?
The recent notification issued by ministry of corporate affairs, making it mandatory for independent directors to get listed with a central database, and to qualify under proficiency test, makes a global exception. Sure enough, there is need for sensitisation on things like duties or liabilities of directors, accountability and responsibility by virtue of being a member of the company board, but that cannot be a stuff for an online examination or proficiency self-assessment test.
 
There are training workshops and skill building courses for non-executive directors run all over the world, but that a director should mandatorily sign for one such test and qualify under the same with 60%, seems exceptional.
 
The intent of MCA was to demolish the myth that directors do not have fiduciary duty and to propagate corporate literacy to make them aware of their duties, roles and responsibilities, says a report from Business Today.  
 
There are several fallacies from which this notion suffers:
 
a.First, the question of testing a person for any “proficiency” arises only when a director is expected to have such common proficiency. Needless to emphasise, directors are appointed on boards of companies to fit the requirements of each case, which are, admittedly different in each case depending on the core skills/expertise/competencies identified by the board of directors as required in the context of its business(es) and sector(s). It does not seem that there are any such common skillsets, other than purely mundane and generic, which are expected from independent directors. 
 
b.Second, assuming there are directors who have passed such proficiency test, and those who have failed, will it be easy to say that the latter, despite their professional erudition, specialist skills or capabilities, are not less appropriate to be on corporate boards than the former? 
 
c.The contents of the common proficiency test, viz., company law, securities law and basic accountancy, seem to be eminently suited to corporate professionals.
 
Corporate boards have to have diverse skills – technical, behavioural, industrial, and so on. How does a common proficiency test assess the capability, for example, of a person, who has technical competence on the line of business that the company is engaged in?
 
d. The idea of the board report reporting their directors’ performance1 in the so-called proficiency test is even more bizarre.
 
Section 150 of Companies Act, 2013 provided the option to companies to select IDs from the databank. It was never mandatory for an independent director to be registered with the databank. The idea of centralising the database and mandating every independent director to register with the database transgresses the provisions of section 150, which is non-mandatory. Every existing independent director is required to confirm about having enrolled with the databank along with the declaration of independence submitted to the board under Section 149 (7) from time to time.
 
The amendments become effective from 1 December 2019. There is certainly a need for India Inc to represent to MCA to reconsider suitability of such proficiency self-assessment test.
 
(CS Vinita Nair is Partner at Vinod Kothari & Co)
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    COMMENTS

    Ramesh Bajaj

    4 months ago

    MCA must have given a lot of thought before deciding this. I think it is worth trying.

    Anurag Nath

    4 months ago

    In my opinion, this is a wonderful step by MCA even if no body in the world has thought of it or implemented it. Any person sitting in the board of directors should have a minimum level of skills as suggested by the MCA notification. Judgement of skills for non-independent directors should be left to the company's board. However, for independent directors, who basically represent interest of minor shareholders in a company, skills judgement should better be left to an independent third party. Any person who lacks basic skills even though he/she is an expert in the line of business should be appointed as an consultant and not a board member.

    Again, a wonderful decision by MCA given the extremely poor level of corporate governance in India.

    REPLY

    Ramesh Bajaj

    In Reply to Anurag Nath 4 months ago

    I agree

    Jugal Mundra

    4 months ago

    On the contrary, I think the idea of a proficiency test is excellent. If indeed so called experts from 'diverse fields' don't know of their rights and (more importantly) duties, accountancy, audit, etc., what's the use of having such a diverse individual on the board ? Corporate Governance, and not business acumen, is the fundamental duty of an independent director.

    suneel kumar gupta

    4 months ago

    Any one may have competency to deliver but important is his attitude to perform to his potential. This issue needs to be addressed

    R Balakrishnan

    4 months ago

    Absolute rubbish by the MCA. When anyone can start a venture, he should be free to appoint anyone as director. And 'independent' director from a database? Trash.

    SEBI challenges SAT order on Price Waterhouse
    The Securities Exchange and Board of India (SEBI) has moved the Supreme Court against the Securities Appellate Tribunal's decision to quash a two-year ban on international auditing firm Price Waterhouse due to its role in the Satyam Computer Services' fraud case.
     
    On September 9, the Securities Appellate Tribunal (SAT), Mumbai, overturned SEBI's order barring Price Waterhouse from auditing listed firms for a period of two years due to its role in the Satyam Computer Services' fraud case.
     
    SEBI in his plea said: "SAT has grossly erred in law by failing to appreciate that, on conclusion of inquiry, after a detailed consideration of the evidence adduced and materials on record, Whole Time Member (WTM), SEBI had found that there has been a total abdication by the respondent (Price Waterhouse) of their duty to follow the Accounting Standards prescribed by the ICAI and minimum standards of diligence and care expected from a statutory auditor, compelling the WTM to draw an inference of malafide and involvement of Respondents in the large scale financial manipulations of Satyam Computer Services Limited ('SCSL', 'the Company') that had come to light with the e-mail dated January 7 forwarded by B. Ramalinga Raju, the then Chairman of the said company."
     
    Challenging the tribunal's order, SEBI told the apex court that these auditors had ignored vital materials like the internal audit report which flagged material discrepancies in reconciliation of the invoices.
     
    According to the petition, SEBI found that the auditors had failed to get independent verification of the cash and bank balances done from banks for a period of eight years and had instead relied on purported one-line confirmation given by Satyam itself.
     
    Thus, "the current account balance of Rs 1,731.88 crore and the FD balance of Rs 3,318.37 crore projected in the accounts of Satyam as on September 30, 2008, and as audited by PW throughout the previous 8 years and wrongly published to the world at large was without following the procedures mandated under prescribed accounting standards," the plea said.
     
    The petitioner also said that SAT has grossly erred in holding that SEBI, as a Regulator, has no authority under the SEBI Act and the rules and regulations framed thereunder, to look into the quality of audit service performed by auditors.
     
    In its order, SAT has said that SEBI as a regulator has no "authority under SEBI laws and regulations" to look into the quality of audit services performed by the auditors.
     
    Consequently, the SEBI order debarring PW firms as well as the two auditors from auditing listed companies was found unsustainable and was quashed.
     
    Earlier, SEBI investigations had found that certain directors and employees of Satyam Computers (SCSL) had connived and collaborated in the overstatement, fabrication, falsification and misrepresentation in the books of account and financial statements of SCSL.
     
    "The published books of accounts of SCSL contained false and inflated current account bank balances, fixed deposit balances, fictitious interest income revenue from sales and debtors' figures. The investigation also noted that the statutory auditors of SCSL had connived with the directors and employees of SCSL in falsifying the financial statements of SCSL," SEBI said.
     
    SEBI had said that "firms practising as Chartered Accountant (CA) in India under the brand and banner of Price Waterhouse (PW) shall not directly or indirectly issue any certificate of audit of listed companies, compliance of obligations of listed companies and intermediaries registered with SEBI under the applicable laws for a period of two years".
     
    Individual auditors, the regulator added "namely, S. Gopalakrishanan and Srinivas Talluri, shall not issue an audit certificate or any certificate of compliance with respect to a listed company for a period of three years".
     
    "Gopalakrishanan, Talluri and M/s. Price Waterhouse Bangalore shall jointly and severally disgorge the wrongful gains of Rs 13,09,01,664/- alongwith interest @ 12% p.a. from January 7, 2009 till the date of payment".
     
    SEBI said that the facts leading to the filing of the aforesaid appeals are that PW Bangalore was given the audit for auditing the books of accounts of Satyam Computers Services Limited.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    VASANT KULKARNI

    4 months ago

    AUTHORITIES GO ON FIGHTING, WE ARE RELAXED (THE ACCUSED).

    Abhijit Banerjee for bringing govt stake in PSBs below 51%
    Nobel laureate Abhijit Banerjee on Tuesday called for reducing the government equity in public sector banks to below 51 per cent to remove the fear psychosis among bankers.
     
    Addressing a press conference here, Banerjee said that fear of investigation by the Central Vigilance Commission (CVC) in default cases has paralysed the banking system and bankers are scared to lend.
     
    Reducing the government equity in public sector banks under 51 per cent takes them out of the CVC's purview.
     
    Refusing to take questions on the economy and any contentious issues, Banerjee attempted to dispel the impression that he is a critic of the Narendra Modi government.
     
    He said that in his meeting with Prime Minister Narendra Modi earlier in the day, the Prime Minister jokingly said the media was trying to trap him to say anti-Modi things.
     
    Some statements made by the Nobel laureate regarding the economic slowdown and his prior association with the Nyay scheme of the Congress have been blurred to brand him a critic of the Modi government.
     
    After his meeting with PM Modi, Banerjee, referring to Modi's joke, said the Prime Minister has been watching television. He said the meeting was cordial.
     
    Before the press conference, the organizers had appealed that questions on political or contentious questions should not be asked and instead the focus should be poverty alleviation.
     
    Asked about the crisis in the banking system, Banerjee said it is "frightening". He said such crises are happening repeatedly and if there is a problem in bank balance sheets, then it should be stopped way ahead before it explodes.
     
    On the measure for the banking sector, he added that the government should reduce its equity share in PSU banks to below 51 per cent so that there is no oversight by the CVC.
     
    The fear of a CVC probe, he said, in case of loan defaults has paralysed bankers and the banking system and this power should be taken away.
     
    There are enough checks and balances in the banking system and the CVC has been very heavy-handed in its approach, he added.
     
    During his talks with the government and Niti Aayog, Banerjee has talked about the training of informal health professionals who do not have medical degrees but are providing health services. There are 15 lakh such professionals in rural areas, also referred to as quacks, but Banerjee said either their existence is denied or they are acknowledged and trained properly to boost the healthcare system.
     
    The National Medical Commission 2019 envisages creation of a cadre of health workers called community healthcare workers (CHW) who are not doctors but with training can extend their skills to reach difficult to access areas.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Ramesh Poapt

    4 months ago

    many things done by govt. many things yet to do. many things
    will be done in due course. no doubt. cleaning continues...

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