( …continue from last post)

Appointment conditions for board members

1. Duration of employment: All members of a board (including the chairperson) would have a fixed term of five years, subject to a retirement age for executive members. The age of retirement for executive members must be equivalent to the age of retirement for the equivalent senior-most Government positions.

2. Protection of entitlements: The salaries and other entitlements of the members of the board should be fixed by the Government. However, once they are set, they should not be varied to the detriment of the incumbent members of the board, or require further approvals from the Government.

3. Terms of removal: The draft Code provides for both, the reasons for which a member may be removed and the process by which removal will take place. This may be done for:

I Regular Reasons: Completion of term, reaching the prescribed age limit, declaration of           insolvency and conviction by a criminal court which involves imprisonment.

          II Special Reasons: Incapacity (physical and mental), behaviour unbecoming of the        position held, conviction by a criminal court which does not involve imprisonment and     dereliction of duty. For removal under special reasons to take place the Government          should establish a judicial committee (under the supervision of the Supreme Court), which will investigate whether removal is necessary on the suggested grounds and          create a public report on the issue.

4. Re-appointment: Members of the board can be reappointed for another term of five years as members. This provision will however not be available for the chairperson of the board who cannot be reappointed. There will be no automatic re-appointments – the incumbent member will be considered by the selection committee alongside other prospective candidates. If the selection committee finds the member suitable, he/she will be short-listed and the Government then may choose to reappoint such members. The Commission believes that this will ensure that the tenure of members is not extended as matter of course.

Clause 38 fix the term for member of the Board of a financial agency for fixed five year or age of retirement which will be same as of secretary to the central government. Members will receive salary, leaves, medical benefits and any other aspect of employment. The terms of any existing member must not be varied.

Fixed tenure and terms of employment of members gives them a peace of mind, and helps them to concentrate on discharging their duties independently and efficiently. In absence of this any financial agency will not be truly independent and always inclined to please political bosses and administrative ministry. However, this should not make them autocrats. Members may be removed on some specified grounds but not otherwise.

A member of the board of a Financial Agency may be removed from office if such member has–

(a) been adjudged to be insolvent;

(b) been sentenced to imprisonment for one hundred and eighty days or more;

(c) been convicted of an offence involving moral turpitude;

(d) engaged in any employment during the tenure of appointment, in violation of the terms and conditions of service;

(e) acquired any financial or other interest contrary to their terms and conditions of service that is likely to prejudice their functions;

(f) failed to adequately disclose any direct or indirect pecuniary interest;

(g) made any material misrepresentation to the selection committee;

(h) abused their position so as to render their continuance in office prejudicial to the objectives of that Financial Agency; or

(i) has become physically or mentally incapable of discharging their duties.

This list of ground of removal ensures that there may not be any removal for political or other inference.

The draft code ensures principle of natural will be followed for removal of a member and a reasonable opportunity shall be given to member. Draft code enumerates this procedure:

(a) the Central Government must establish a committee, chaired by a nominee of the n g6Chief Justice of India, to inquire if the grounds for removal have been met;

(b) the committee must have at least one retired judge of a High Court;

(c) the committee must inform the Central Government, in writing, whether one or more grounds for removal has been met; and

(d) if the committee has informed the Central Government that one or more grounds for removal has been met, then the Central Government must remove such member by publishing a notification.

It is left open for government to select members other than retired judge of High Court. This clause needs to be more specific and transparent after ongoing public discussion.


Law governing board meetings

The principles governing the following matters must be covered by the draft Code:

1. Frequency of meetings;

2. Quorum;

3. Method of taking and recording decisions;

4. Decisions without meetings;

5. Legitimacy of decisions; and

6. Conflicts of interest

There is also a need for a formal mechanism to evaluate the regulator’s compliance systems. This will be achieved by setting up a review committee that will be comprised only of non-executive members of the board.

Clause 34 deals with broad principle for meeting of board of a financial agency:

(1) The meetings of the board of a Financial Agency will be held in compliance with the requirements of the Second Schedule.

(2) The board of the Financial Agency must make bye-laws to govern the proceedings of its meetings.

(3) The bye-laws governing the proceedings of the meetings of the board of the Financial Agency must be consistent with the best practices of governance and transparency for deliberative bodies.

Schedule 2 contains basic guiding principles for board meeting. The board of a Financial Agency must meet as frequently. The members may attend meetings of the board of a Financial Agency using mechanisms that allow members to participate in the meetings from remote locations without being physically present. The quorum of a meeting of the board of a Financial Agency will be more than half of the number of members appointed to the board of the Financial Agency. Each member of the board of the Financial Agency must be given at least seven days notice of a meeting. The records will be published by the Financial Agency within three weeks of each meeting. Selected portions of records may not be published if such portions meet any certain conditions listed in this schedule. There is also a provision that selected portions of records may be published with appropriate delay. The publication of records relating to a particular meeting, may be delayed or prevented. The vote of each member is recorded and published. Portions of records delayed for publication must be published by the Financial Agency within six months, or as soon as the reasons for their delay cease to be applicable.

Decisions making process of Board is defined in clause 35. The board of every Financial Agency must discharge its duties by taking decisions through a majority vote of the members present at a meeting of the board of the Financial Agency. Each member of the board of a Financial Agency will have one vote. If there is an equality of votes, the person chairing the meeting will, unless otherwise provided, have a casting vote. The board of a Financial Agency must make bye-laws to provide for the process of making decisions without the physical presence of the members of the board of the Financial Agency.

Careful reading of clause 35 suggests that there may be an arrangement for electronic presence, teleconferencing, video conferencing or any other future development of technology which may facilitate decision making without physical presence.

Clause 36 requires a member of board of financial agency to disclose its interests. Any member who has any direct or indirect interest in any matter coming up for the consideration at a meeting of the board of a Financial Agency will, as soon as possible after relevant circumstances have come to that member’s knowledge, disclose the nature of interest at such meeting. A disclosure made by a member of the board of a Financial Agency will be recorded in the proceedings of the meeting of the board of the Financial Agency, and such member must recuse from any deliberation or decision of the board of the Financial Agency with respect to that matter.


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