Independent Directors in Corporate Board - A reality check

Erstwhile Companies Act 1956 had no specific definition of "Independent Director". However by passing of time, Companies Act 2013 made a special recognization to " Independent Director" and has reposed faith as well as confidence for the better corporate governance.

Status in a Company - Non-executive Director

Applicable section, Rule & Schedule

(a) Section 149 of the Companies Act, 2013,
(b) Rule 4 & Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014
(c) Schedule-IV.

Applicability -

NB- The threshold mentioned above has to be seen/checked as per the "latest" audited Financial statements.

• Non-applicability - Private company, OPC, Small Companies, Wholly Owned subsidiary, Dormant Companies even if they meet the threshold criteria.
• Appointment - By shareholders in general meeting by passing Ordinary resolution.
• Re-appointment - By passing Special Resolution.

Other compliance:

1. The terms and conditions of appointment of independent directors shall also be posted on the company's website, if any.

2. If the provisions of CSR is applicable to a company, the Companies Act, 2013 requires the CSR Committee to consist of at least three directors, including at least one independent director.

3. Independent director shall be appointed for a maximum term upto 5 years. He can be appointed for less than 5 years as well, but the same shall be taken as " one term". The term shall not be more than 2 consecutive terms.

4. A person must be an independent director in not more than 7 listed companies at a time.(As per SEBI guideline)

5. An independent director shall not retire by rotation and shall not be included in "total number of directors' for the purpose of computation of rotational directors.

6. A person can be appointed as an alternate director. But he must be qualified to be appointed as an independent director.

7. If the Board meeting is called at shorter notice so as to transact some urgent business, then the presence of at least 1 independent director is mandatory.

8. Independent director's appointment process must be independent of the company's management. Databank may be used to appoint an independent director.

9. Every independent director shall give a declaration that he meets the criteria of independence when :

• he attends the first board meeting as a director;
• in every financial year, at the first meeting of the board of directors
• when a situation arises which affects his status of independence being an independent director

10. No need to give any security deposit for the candidature .

11. Not entitled to any Stock options, but can get Remuneration by way of sitting fees.

12. Vacancy created by Resignation or Removal must be filed by Board/members within 3 months from the date of resignation/removal.

13. In case the Board meets the criteria of Independent director provisions, then no need to fill the vacancy created by Resignation/Removal.

Recent Amendment - Inclusion in the data bank & ONLINE Examination

MCA has notified the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 , and the Companies (Accounts) Amendment Rules, 2019. The notification shall come into force with effective from Dec 01, 2019.

The new norms applicable to below Category only:-

1. Those who are already serving as " Independent Director" in the Board of a company
2. Those professionals who are intending to be appointed as " Independent Director"
3. The companies which are required to appoint " Independent Directors"

Way forward for an existing Independent Director (by the Individual director)

Way forward for a Prospective Individual not yet appointed as Independent Director

Note-Individuals who have served for a period of 10 years as on date of inclusion of his name in databank as director or Key Managerial Personnel (KMP) in listed public company or unlisted public company having paid-up capital of Rs. 10 crore or more shall not be required to pass online proficiency self-assessment test. For purpose of calculation of 10 years, if a person is acting as director or KMP in two or more companies shall be counted only once.

Way forward for a Company to appoint Independent Director

1. Register themselves and search the profile of Individuals registered there. Ps, ensure valid CIN. One OTP will be received.
2. Follow the process & get the company registered .(https://www.independentdirectorsdatabank.in/corporate_guide)
3. Company may restrict to two users who can search the database.
4. They need to go to the data base maintained and select the incumbent from the list. (www.independentdirectorsdatabank.in)