Women directors: Erring companies to face minimum Rs 50,000 fine

Mumbai: Taking to task the companies without a woman director, Sebi on April 8 announced a minimum Rs 50,000 fine on them and warned of further action, including against promoters and directors, for non-compliance beyond September.

Without naming the companies that failed to appoint at least one woman director within the stipulated deadline of March 31, Sebi announced a four-stage penalty structure wherein fines increase with the passage of time. Sebi had warned of "serious consequences" for non-compliance, but a large number of companies, including many state-run firms, actually failed to meet the deadline.

The regulator has asked the stock exchanges to levy the fines as the violation relates to the Listing Agreement. As a result, the fines would multiply for the companies listed on multiple exchanges. As per estimates, more than 1,000 companies on the BSE and nearly 200 on the NSE are in non-compliance of the requirement, which was first announced by Sebi in February last year with an initial deadline of October 1, 2014 that was later extended by six months.

As per the fine structure announced on April 8, the companies can escape further regulatory action, beyond monetary fine, if they comply within next six months, that is till September 30, 2015. The listed companies complying between April 1 and June 30 will have to pay only Rs 50,000 as penalty. Those complying between July 1 and September 30 this year would need to pay Rs 50,000 and an additional Rs 1,000 per day till the date of compliance.

The listed companies complying on or after October 1, 2015 will have to pay Rs 1.42 lakh, plus Rs 5,000 per day till the date of compliance. "For any non-compliance beyond September 30, 2015, Sebi may take any other action, against the non-compliant entities, their promoters and/or directors or issue such directions in accordance with law, as considered appropriate," the regulator said in a circular.

At least 100 companies had actually announced the appointment of women directors on April 1, but they will also have to pay the penalty. Sebi said the direction has been issued "in the interest of trade and public interest and for the protection of the interests of investors in securities and to promote the development of, and to regulate the securities market and shall come into effect immediately".

The regulator had amended last year the provisions of Clause 49 of Listing Agreement relating to Corporate Governance, mandating, that the Board of Directors of listed entities shall have an optimum combination of executive and non-executive directors with at least one-woman director. "... the Stock Exchanges are advised to impose the ... fine on listed entities for non-compliance" to the Listing Agreement clause concerning women directors, Sebi said.

The stock exchanges have also come across discrepancies in cases where listed firms managed to announce the name of women directors before April 1. In some cases, the Director Identification Number (DIN) has been found to be missing for the appointed women directors, while there are also instances of due process not being followed in calling a board meeting for such appointments.

The Corporate Affairs Ministry may also take action against non-compliant entities, as the Companies Act also provides for having at least one-woman director on boards of listed companies. Some companies had also written to Sebi and the exchanges about their 'inability' to meet the deadline, while citing reasons like 'lack of quorum' at their board meetings and sudden exit of their existing women directors.

All of them would face penal action. Nearly 500 companies announced such appointments in the last two days -- March 30 and March 31 -- while over 100 firms made such announcements on April 1. Besides, close to 50 companies have announced the appointments after April 1, although they have stated that the women directors were appointed with effect from March 31 or before.

The biggest concern for the regulator has been the fact that some large state-run giants lagged behind in having at least one female member on their boards. All listed companies were required to have at least one woman director on their boards April 1 onwards, as per a new Sebi directive, as also under the Companies Act, 2013.

The companies have, however, mostly appointed wives or daughters of their promoters or top executives, while some have also replaced their independent directors with their female family members, mainly wives, daughters or sisters. According to leading proxy advisory firm, Institutional Investor Advisory Services India Ltd (IiAS), having a woman director on board is just the first step towards board diversity.

"Given that companies have had more than one full year to comply, we expect Sebi to take action," the proxy firm said. Sebi had warned of strict penal action against the firms that fail to comply, while Chairman U K Sinha recently said it was "really shameful" that many companies were not being able to appoint even one woman director.