"The corporate governance guidelines are evolving in tune with market dynamics. As part of SEBI’s continual search for improvement, Narayana Murthy Committee was asked to evaluate the adequacy of the existing practices. Based on its recommendations, Clause 49 of the listing agreement was comprehensively revised in the last August. It caused some listlessness among the corporates, leading to spate of representations. Open, transparent, and consultative process had been adopted while evolving the said Clause 49. The Narayana Murthy Committee consisted of 23 members from various fields and interests. It went by highly professional and democratic method. The suggested recommendations were given to each member for rating them on a scale of 1 to 10 in terms of fairness, importance, ease of implementation, verification and enforcement etc., and those rated above 7 were arranged in a descending order and the first 20 were finally recommended. These were posted on the website for 21 days for public comments. Thereafter, in the light of the comments received, the recommendations were adopted by SEBI, and sent to Stock Exchanges, for incorporation in the listing agreement. It was therefore surprising that issues were still raised in the matter.

"Among others, three issues disturbed the corporates more: Definition of independent directors, Nine-year term for such directors and Whistle blowing policy. While materiality factor could have been taken as implied, comments have been made that the existing definition of independent director can be stretched to an extreme extent to mean that an user of a consumer product may be disqualified to be an independent director of the concerned manufacturing company! Similarly, it has been apprehended that the clause relating to nine year term prescribed for independent director would disconnect the promoters from the Boards of their own companies. While the apprehension is understandable, it cannot be gainsaid that too long an association could, more likely than not, breed mutual dependence. As regards whistle blowing policy, despite its likely frivolity - nuisance which can be tackled through appropriate internal guidelines, the policy itself cannot be abhorred as unwarranted. It is a known fact that, but for a whistle blown by Mr Watkins, the Enron’s cancer would not have been detected. Taking a cue from Enron’s episode, many multinationals, like Johnson & Johnson, GEC, Bayer, Xerox have drawn up their own internal whistle blowing system. Nevertheless, not being impervious to implementation – issues, SEBI engaged the same Narayana Murthy committee to evaluate the concerns or comments expressed by the corporates and the suggestions received from various quarters. Based on such evaluation, the recommendations have been revisited and refined by the committee. These have again been posted and are (as at 24th Jan. 2004) on the website."

An Extract from the Annual Report of SEBI for the year 2003-4 (part-1 Policies & Programmes) under title "Corporate Governance" states as under:-

SEBI constituted a Committee on Corporate Governance under the Chairmanship of Shri N.R. Narayanamurthy to frame new standards for corporate governance. Based on the recommendations of the committee and the submission of public comments, the listing agreement has been amended suitably. All the listed companies with paid up capital of Rs. 3 crore and above, or networth of Rs.25 crore and above, at any time in the history of the companies are covered under these corporate governance principles with effect from March 31, 2004. Implementation of the recommendations of the Committee have been, put on hold for the time being, owing to representations received from variousmarket participants.