Audit committee heads may not get protection

Independent directors in charge of audit committees in companies may be held responsible for actions taken by the management.

In its suggestion to a Parliamentary Standing Committee which is examining the Companies Bill 2008, the Ministry of Corporate Affairs has also said that the head of the audit committee should be a chartered accountant.

There should be no other specific qualification or age limit prescribed for the appointment of independent directors as is the case in the Companies Act of 1956, the ministry has said.

The committee has started reviewing the norms governing independent directors which could be incorporated in the amendments to the existing Companies Act framed in 1956.

The Bill is expected to be placed before Parliament in its winter session, an official closely working with the Parliamentary Standing Committee said.

The ministry is also against giving a blanket protection to all independent directors.

While saying that these directors should not be held responsible for the actions of the company and could be free from any liability, both under criminal law and the Companies Act, the ministry has said this will be reviewed on a case-by-case basis.

The motive and criminal intent, otherwise known as mens rea, will be examined for each director. "An independent director will be held responsible for any action only if the investigations find a culpable intent," the official said. Mens rea is legally defined as the intention behind the commitment of a crime or fraud.

Under the existing Act, all directors, including independent ones, are held responsible for a company's actions.

Thus, the rules for independent directors are undergoing a complete change as far as qualification, liability and protection from prosecution are concerned. Schedule 13 of Section 292A and Section 309 of the Companies Act, 1956, govern independent directors.

The recommendations also provide for protection from prosecution of the independent directors to avoid harassment. The official added that no court lower than a special court or a high court should summon or prosecute an independent director.

At present, all directors, including independent ones, are liable to prosecution by any court or government agency.