Listed companies have been given a reprieve -- they now have till December 31, 2005, to comply with Clause 49 of the listing agreement. The earlier deadline was March 31, 2005.

Clause 49 of the listing agreement specifies that at least 50 per cent of a company's board should consist of independent or non-executive directors and has laid out fairly stringent criteria for the selection of people who can be independent directors.

The board of the Securities and Exchange Board of India decided at a meeting today to give companies more time, given the fact that a significant proportion of listed companies was not in a position to comply with the requirement.

Addressing the media after his first board meeting, Sebi chairman M Damodaran observed, "Taking note of the realities, the board decided that it would be appropriate to give listed entities time till the end of the year to become fully compliant with the requirement."

Public sector undertakings, which have been demanding some freedom in the appointment of independent directors, would not get a special concession, Damodaran said. "We are not looking at the PSU board independently," he said.

Damodaran also made it clear that government nominees on the boards of public sector companies could not be construed to be independent directors since they represented the interests of the majority shareholder.

Asked if there would be any further dilution in the regulations, Damodaran said, "While the listed entities attempt to become compliant, we may look at making some modifications in the regulations but without diluting the requirements if there are any major problems."

Stating that Clause 49 was the means to improve corporate governance at the board level in the Indian corporate sector, he said: "It is necessary to ensure that the spirit of the clause finds appropriate expression and implementation. It was felt that as of today and going forward as of March 31, 2005, a large number of corporates would not be in a state of preparedness to fully comply with all the requirements of the clause."

He further said, "During the period of nine months (to December 2005) it is our expectation that listed entities will identify an adequate number of independent directors and will also attempt to equip themselves by way of appropriate orientation programmes to enable themselves to function effectively at the board level."

With respect to the notices issued to the 12 entities involved in the May 17, 2004, stock market crash, Damodaran said the names of the entities could not be divulged since "it is quite possible that some of them could have credible explanations for their actions that day."

Clause celebre

• Clause 49 of the listing agreement specifies at least 50% of a board should consist of independent or non-executive directors
• Sebi decided to give firms more time, as a significant number of listed firms were not in a position to comply
• Sebi boss M Damodaran said govt nominees on PSU boards could not be construed to be independent directors as they represented the majority shareholder