Directors

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Arijit (Querist)
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20 December 2011 Dear Sir,
A Company named ‘Y’ has a wholly owned subsidiary private limited company in addition to other Companies in the group.
‘X’ is a managing partner of a Law firm and his firm provides legal services to the Company ‘Y’ and its other group Companies for about 2 years now and would continue to do so in the years to come. For this, Company ‘Y’ and its other group Companies makes payment to the Law Firm by cheque.

Now, this is regarding the appointment of ‘X’ as an independent non-executive director in the Board of the Company ‘Y’.

Now, does this attract sec- 297 of the Companies Act, 1956? Do we have to take approval of Central Govt.? Please give a detailed picture.
Request all the experts to provide their valuable opinion?

Regards
Arijit

Charu Srivastava

Charu Srivastava (Expert)
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20 December 2011 First of all you can not appoint X as an Independent Director because he is service provider of the company.

To make things more clear go through the below mentioned definition of Independent Director.
Independent Director is one who:
• is not related to promoters or management at the board level or at one level below the board;
• has not been an executive of the company in the immediately preceding three financial years;
• is not a partner or an executive of the statutory audit firm or the internal audit firm that is associated with the company, and has not been a partner or an executive of any such firm for the last three years. This will also apply to legal firm(s) and consulting firm(s) that have a material association with the entity.
• is not a supplier, service provider or customer of the company. This should include lessor-lessee type relationships also; and
• is not a substantial shareholder of the company, i.e. owning two percent or more of the block of voting shares.

He can be appointed as professional non executive Director.

Secondly X is appointed then Section 297 will attract provided the paid of the company exceeds 1 crore.

Thanks
Charu

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