INDEPENDENT DIRECTORS

Independent Directors’ Qualifications, Powers, and Terms of Appointment.

An Independent Director has traditionally been a highly esteemed and intelligent someone who represents governance within the Board. A non-executive director of a corporation who satisfies the Companies Act of 2013’s requirements for independence is referred to as an independent director.

Independent Directors serve as an oversight body for performance evaluation and should raise an alert anytime something unusual happens. In their capacity as stakeholder trustees, they are anticipated to be more informed and to inquire about pertinent matters with the Company. The institution of independent directors is a crucial tool for ensuring good corporate governance, thus it is essential to critically examine its role and put in place the necessary safeguards to ensure its effectiveness.

The following relevant provisions regarding independent directors are in accordance with Section 149 read in conjunction with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 and Schedule IV of the Companies Act, 2013.

NUMBER OF INDEPENDENT DIRECTOR

Every listed public corporation must have independent directors make up at least one-third of the board members. (Any fractional part of such a one-third number shall be rounded to the next whole number.

  • At least two directors must be independent for the following class or types of companies: Public Companies with a paid-up share capital of at least ten crore rupees; or
  • The public companies with annual revenues of at least 100 crore rupees; or
  • The public companies with a combined outstanding balance of more than fifty crore rupees in loans, debentures, and deposits:

WHO CAN BE AN INDEPENDENT DIRECTOR?

  • In regard to a firm, an independent director is a director who is not the managing director, a whole-time director, or a nominated director:
    Who is or was a promoter of the company or its holding, subsidiary, or associate company.
  • Who is not linked to promoters or directors in the company, its holding, subsidiary, or associate company.
  • Who, in the Board’s opinion, is a person of integrity and possesses necessary expertise and experience.
  • who, during the two most recent financial years or the current financial year, did not have or had any financial relationship with the company, its holding company, subsidiary, or associate company, or their promoters, directors, or other parties for any reason other than compensation as such a director.
  • In neither of the two most recent fiscal years nor the current fiscal year, any of their relatives had a security of, or an interest in, the company, its holding, a subsidiary, or an associate company

OBLIGATION

  • is obligated to pay the company, its holding, subsidiary, or associate company, or those entities’ promoters or directors, more than the maximum permitted amount for the two most recent fiscal years or the current fiscal year.
  • the company, its holding, subsidiary, or associate company, or their promoters or directors of such holding company, have given a guarantee or provided any security in connection with the debt of any third party owed to the company for the amount that may be prescribed during the two most recent fiscal years or during the current fiscal year.
  • OTHER PROVISION RELATED TO INDEPENDENT DIRECTOR
  • Every independent director must declare that he satisfies the independence requirements as outlined above at the first meeting of the Board in which he participates as a director, and then at the first meeting of the Board of every fiscal year or whenever there is any change in the circumstances that may affect his status as an independent director.

The provisions outlined in Schedule IV must be followed by the corporation and independent directors. (This article’s discussion of Schedule IV follows.)

Subject to the provisions of sections 197 and 198, and notwithstanding any other provision of this Act, an independent director may be compensated by way of a fee provided under sub-section (5) of section 197, reimbursement of expenses incurred in attending meetings of the Board and other meetings, and a profit-related commission as may be approved by the members.

  • No independent director shall hold office for more than two consecutive terms, but such independent director shall be eligible for appointment after the passing of a special resolution by the company and disclosure of such appointment in the Board’s report.

INDEPENDENT DIRECTORS’ CODE

(SCHEDULE IV OF THE COMPANIES ACT, 2013)
This Code serves as a standard for independent directors’ ethical behaviour.
According to Schedule IV of the Companies Act of 2013, the institution of independent directors will gain the trust of the investment community, particularly minority shareholders, regulators, and companies if independent directors adhere to the standards listed below and carry out their duties in a professional and faithful manner.

GUIDELINES OF PROFESSIONAL CONDUCT

  • An impartial director must:
    uphold moral principles of honesty and integrity.
  • while performing his job, act impartially and constructively.
  • exercising his duties honestly and in the best interests of the business.
  • sufficient time and focus to his professional responsibilities in order to make well-informed decisions.
    not allow any unrelated factors to impair his exercise of objective, independent judgement in the best interests of the entire company, whether he agrees with or disagrees with the Board’s collective opinion in making decisions.
  • DUTIES
  • take the proper induction, frequently update and renew their knowledge, abilities, and familiarity with the business.
  • seek for the proper elaboration or clarification of the material, and, if required, pay for and heed the professional guidance and judgement of outside specialists.
    Attempt to be present at every Board of Directors and Board committee meetings where he is a member.
  • actively and constructively participate in the Board committees they chair or are members of.
    Make an effort to attend the company’s annual meetings.
    When they have issues with how the business is being run or a proposed course of action, they should make sure that the Board addresses them, and if their issues are not resolved, they should insist that their issues be noted in the meeting’s minutes.

REMOVAL

  • An independent director may resign or be fired in accordance with the provisions of sections 168 and 169 of the Act.
    Within “three months” after the date of their resignation or removal, as applicable, independent directors who leave or are ousted from the company’s board must be replaced by new independent directors.
  • The requirement of replacement by a new independent director shall not apply where the firm satisfies the requirement of independent directors on its Board even without filling the vacancy created by such resignation or dismissal, as the case may be.

REFERENCE

LIVELAW.IN

THE COMPANIES ACT 2013.

THE NEW COMPANY LAW

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