The Securities and Exchange Board of India would be making changes to Clause 49 of the listing agreement before the end of this year.
Sebi Chairman M Damodaran said, "We will address the gaps in Clause 49 in two stages, first with arithmetic on the number of independent directors and second, with the content (quality of directors)."
Clause 49 of the listing agreement states that if the chairman of a company's board is a non-executive director, at least a third of the board should comprise independent directors; and if he is an executive director, at least half of the board should comprise independent directors.
"Mental ability and courage would be more important than qualification for the post of an independent director," Damodaran said.
Nominees of institutions, for the time being, would remain independent directors because institutional activism was vital for a large percentage of shareholders, he added.
Flaws in the system - four members of the same family acting as independent directors on the same board - a loophole that exists because of the patriarchal definition of "relative", will be fixed in the second phase of Clause 49.
Damodaran was speaking at the launch of Directors' Database and the Indian Corporate Electronic Reporting System at the Bombay Stock Exchange today.
Directors' Database is an online toll that allows users to access information on directors of companies. The ICERS allows companies to submit their filings to the Bombay Stock Exchange through the internet.
Prithvi Haldea, managing director, Prime Database, the company behind Directors' Database, said that companies' records of directors were full of errors.
While there were data entry errors like the same name being entered differently, larger discrepancies such as multiple PAN numbers for the same person, different dates of birth etc. also occurred, he said.
