The Companies Act 2013 (referred as “the Act”) has introduced a new governance initiative that the independent directors shall meet separately without the attendance of non-independent directors and members of management. A similar clause also finds mention in the New York Stock Exchange Corporate Governance Rules. The various requirements for holding a meeting of the Independent Directors is highlighted herein below.
Applicability
Section 149(8) of the Act has prescribed the Code for Independent Directors in Schedule IV for every company that has Independent Directors. Clause VII of this schedule requires every company to call for a separate meeting of the Independent directors. These provisions are applicable to listed and unlisted public companies.
Structure of Board and Independent directors
The minimum Board composition of a listed company can comprise of 3 directors, which is the requirement as per section 149(1)(a) of the Act out of which 2 directors can be Independent directors and one executive director. This requirement of a minimum number of two Independent director is laid down in section 177(2) of the Act read with clause 49(II)(A) which requires a minimum of 2 independent directors to constitute an audit committee, whereas there is no provision that prescribes maximum independent directors in a company.
What is the frequency of the meeting?
Clause VII (1) of the schedule IV requires the independent directors of the company to hold at least one meeting in a year. Since there is no clarity about “year” it shall be interpreted as “financial year”. One or more of the independent directors may also request an extraordinary meeting of the independent directors if he or they reasonably believe that management has breached its fiduciary duty
Who can attend?
Only Independent directors can attend without the attendance of non-independent directors and members of management.
Who can call for the meeting?
The lead independent director shall call for the meeting; if there is no lead independent director then any independent director can call for the meeting.
What is the length of notice?
A minimum of 7 days notice is required to be given and the notice has to be in writing and sent to all directors, intimation by electronic mode is also allowed.
What is the quorum for the meeting?
Clause VII (2) requires that all the independent directors of the company shall strive to be present at such meeting; but for conduct of any meeting a minimum of 2 directors is required or one third of the independent directors (any fraction to be rounded off as one) whichever is more shall be the quorum. In case quorum is not present then the meeting stands dissolved and a fresh notice should be given.
Can this meeting be held through video conferencing?
It is preferred that this meeting is conducted in person but there is no prohibition to conduct this meeting through videoconference.
Who can be the Chairman of the meeting?
The lead independent director can be the chairman of the meeting; in his absence any director can be the Chairman of the meeting.
What to transact in the meeting?
Clause VII (3) of schedule IV requires the meeting shall:
(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
Other issues that may involve the management or the executive directors of the company and which is likely to have an impact on the reputation to the company which includes:
i) Any reporting of deviation in the ethical or governance issues
ii) Any reporting of insider trading issues
iii) Any reporting on critical whistleblower incident
Who should record the minutes?
The lead Independent director shall record the minutes of this meeting or any director in his absence.
When should the minutes be circulated?
The minutes shall be drafted within 15 days of the conclusion of the meeting and circulated; the directors shall forward their comment within 7 days thereof. The minutes shall be finalized and entered in the Minutes book within 30 days of the meeting.
Should the minutes be ratified at a Board Meeting?
No, as this minutes is a meeting of the independent directors there is no requirement of ratification or confirmation by the Board.
Who should have custody of the minutes?
The lead independent director or any other director shall keep the minutes of the meeting.
CAclubindia
SS 1 is for Board Meetings. Since Independent Directors are Board members and they meet in their capacity as board members in my view the standards are applicable for this meeting also. One other view is since the meeting is a class meeting (meeting of only independent directors) SS 1 may not be applicable. But SS 1 being a standard and Independent Directors meeting being a meeting of board members the provisions of SS 1 should be applicable for this meeting also.