Independent Directors

An Independent Director, as the name suggests, is a director on the Board of a company, who is an independent individual not having any other relationship or transaction with the company except sitting fees.

COMPANIES IN WHICH INDEPENDENT DIRECTOR APPOINTMENT IS MANDATORY:

The following class of companies is required to appoint at least 1/3 of the total number of directors on their Board of Directors as independent directors:

1. Listed Companies
2. Public Companies having paid-up share capital of one hundred crore rupees or more; or
3. Public Companies having turnover of three hundred crore rupees or more;
4. Public Companies which have, in aggregate, outstanding loans or borrowings or debentures or deposits, exceeding two hundred crore rupees.

QUALIFICATION OF AN INDEPENDENT DIRECTOR:

1. Not promoter or related with the promoter of the company or its holding, subsidiary or associate company.
2. No Pecuniary relationship with the company or its holding, subsidiary or associate company.
3. Do not hold the position of key managerial personnel.
4. Shall possess an appropriate balance of skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

TERM OF OFFICE OF INDEPENDENT DIRECTORS:

1. An independent director shall hold office for a term up to 5 consecutive years on the Board of a company but shall be eligible for reappointment on the passing of a special resolution by the company and disclosure of such appointment in the Board’s report.
2. No independent director shall hold office for more than 2 consecutive terms, but such independent director shall be eligible for appointment after the expiration of 3 years of ceasing to become an independent director provided that he shall not, during the said period of 3 years, be appointed in or be associated with the company in any other capacity, either directly or indirectly.
3. Any tenure of an independent director on the date of commencement of this Act shall not be counted as a term under the above provisions.

OTHER IMPORTANT PROVISIONS CONCERNING INDEPENDENT DIRECTOR:

1. The appointment of an independent director shall be approved by the company in general meeting and the explanatory statement annexed to the notice of the general meeting called to consider the said appointment shall indicate the justification for choosing the appointee for appointment as an independent director.
2. Every independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence.
3. The company and independent directors are required to abide by the provisions specified in Schedule IV of the Act.
4. An independent director shall not be entitled to any stock option and may receive remuneration by way of fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.
5. An independent director shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.
6. The provisions relating to the retirement of directors by rotation shall not apply to the appointment of independent directors.

MANNER OF SELECTION OF INDEPENDENT DIRECTORS

• From the data bank maintained by anybody, association, etc., notified by the central government.
• Appointment process independent of company management.
• Appointment to be approved at the shareholders meeting.
• Appointment is formalized through a letter of appointment setting out its terms of appointment, the fiduciary duties along with accompanying liabilities, the code of business ethics, the remuneration etc.