IRCON gets Rs 10-lakh penalty because half of its Board is not ‘Independent’

New Delhi: The stock exchanges, BSE and NSE, have levied a fine of Rs 10,85,600 on Railways Ministry PSU IRCON for its failure to ensure that half the board of the company comprises independent directors. In a regulatory filing to the stock exchanges on Wednesday, IRCON said, “… it is to inform that National Stock Exchange (NSE) of India Limited and BSE Limited (BSE) vide their letters/ e-mail dated 21st November, 2023 have levied a fine of Rs 5,42,800 each (incl GST) on the Company for the non-compliance with Regulation-17(1) i.e., half of the Board was not independent, for the quarter ended 30th September, 2023.”

“The fine levied by NSE and BSE has no impact on the financial, operation or other activities of the Company,” said IRCON.

IRCON clarifies it has no role in appointment of Independent Directors

Responding to the imposition of penalty by the stock exchanges, IRCON said in a letter dated November 22 that it has no role in the appointment of Independent Directors. “The Company, vide its letter dated 22nd November, 2023, has clarified to NSE and BSE that IRCON International Limited (IRCON) is a government company as per provisions of the Section 2(45) of the Companies Act, 2013. As per provisions of the Companies Act, 2013 and Articles of Association of the Company, the President of India vests with the power to appoint Directors (including Independent Director) on the Board of IRCON. All Directors in IRCON are appointed by the Government of India through its Administrative Ministry, Ministry of Railways (MoR) and IRCON has no role to play in the appointment of any Director unless nominated by the Government of India,” said IRCON in the regulatory filing.

According to the Department of Public Enterprises’ (DPE) guidelines on the Composition of Board of Directors of Public Sector Undertakings (PSUs), the number of independent directors mandated to be appointed on the board depends on whether the Chairman is executive or non-executive. In case of a non-executive chairman, at least one-third of board should comprise of independent directors and in case of an executive chairman, at least half of board should comprise of independent directors.

Independent Directors are supposed to help in bringing an independent/objective view on the Board’s deliberations, especially on issues of strategy, performance, risk management, resources, key appointments and standards of conduct, scrutinise the performance of management in meeting agreed goals, satisfy themselves on the integrity of financial information and safeguard the interests of all stakeholders.