The proviso to this section stipulates that the approval of the central Government shall not be required where any such provision or amendment thereof purports to increase or has the effect of increasing the amount of such remuneration only by way of a fee for each meeting of the board or a committee thereof attended by any such director and the amount of such fee after such increase does not exceed such sum as may be prescribed. Pursuant to this the central Government has notified that with effect from April 1, 2000 a fee of Rs 5,000 may be paid to each director for each meeting of the Board or committee thereof attended by him.

Reading the provisions as a whole it is abundantly clear that, without the approval of the central Government, a non-executive director can be paid either by way of a fee not exceeding Rs 5,000 per meeting per director or a commission not exceeding one per cent of the net profits for all of them put together. It is pertinent to note that all public companies with a paid-up of capital of Rs 5 crore or more are required to appoint mandatorily a managing or whole-time director. Under Section 73 of the Act every company intending to offer shares or debentures to the public for subscription by the issue of prospectus shall make an application to one or more recognised stock exchanges for permission for the securities so issued to be dealt with in the stock exchange(s). However, entry norms are fixed by different stock exchanges. As a natural corollary most of the public companies will come under the listing net and therefore the provisions of listing agreement will apply.

As a step towards good corporate governance Securities and Exchange Board of India (Sebi) appointed a committee headed by noted industrialist Kumaramangalam Birla to prescribe a code and based on the said committee's recommendations Sebi directed stock exchanges to amend the listing agreement so as to enforce the code of corporate governance through the instrumentality of the listing agreement. Amendment to Clause 41 and insertion of a new Clause 42 are aimed at taking care of some of the important recommendations made by the Kumaramangalam Committee. The requirements under these two clauses have already been dealt with in these columns.

For the purpose of the present exercise we shall deal with only that requirement which mandate the constitution of an audit committee by all listed companies comprising of a minimum of three non-executive directors majority of whom should be independent directors (independent directors are defined in the code). Whilst the terms of reference to this committee is to be decided by the board, the said clause spells out the duties and functions of the committee and its powers. The list is a tall order and the expectations are too onerous. Section 292A sought to be inserted in the Act by the Companies (Second Amendment) Bill 1999 makes a similar mandate but for all public companies with a paid-up capital of Rs 5 crore and above.

Though the requirement under the listing agreement varies from that under the Act, the basic concept of appointment of an audit committee of non-executive directors remain uniform and in fact the requirement under the Act is more stringent and the Act says that the recommendations of theaudit committee are binding on the board which clearly brings out the powerful character of the committee and the burden and responsibility to be shouldered by the audit committee.

Naturally the remunerable payable to the committee of directors has to be commensurate with the responsibility and the consumption of time that will be involved in the discharge of the duties. The option for remuneration available under the Act, without the rigmarole of the application to the central government is either the payment of sitting fee of Rs 5,000 per director per meeting or payment of a commission of 1 per cent of the net profits for all of them put together. In the event of loss or inadequacy of profit there is no provision for guaranteed remuneration to non-managerial directors other than sitting fee?

The listing agreement leaves the remuneration of the audit committee directors to be decided by the board. The above constraints will stare in the face of the board and it has to decide the issue within the framework of the provisions of the Act, which is constricted heavily as stated above. Sebi will therefore be well advised to take up the issue with the Department of Company Affairs to get either the Act amended or, if legally advised, revise the Rule 10-B of the Companies (Central Government) General Rules and Forms 1956 pursuant to the powers conferred under Sub-section (1) of Section 642 of the Act read with Section 310 of the Act so as to enable the companies to alter the articles of association or obtain the sanction of the shareholders for payment of adequate remuneration to the audit committee members. Since Schedule XIII deals with the package applicable to managing or whole-time directors any revision of this schedule cannot be done without amending the Act. In the absence of acceptable positionthe companies will be confronted with a situation where no director will be willing to become a member of the audit committee thereby defeating the very purpose of heralding good corporate governance. This calls for attention on a priority basis.