Do we need independent directors in companies?

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Querist : Anonymous

Querist : Anonymous (Querist)

22 November 2014 Do we need independent Directors in Companies? Yes or no. How is the company benefited? Is it expensive?

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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25 November 2014 Clause 49 of the listing agreement mandates appointment of independent directors on Board of a listed company.

With the passage of the new Companies Act of 2013, the concept of independent directors has found place in the Companies Act itself.

Following class of companies are required to appoint at least 1/3 of 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.

An Independent Director (ID) is vested with a variety of roles, duties and liabilities for good corporate governance. He helps a company to protect the interest of minority shareholders and ensure that the board does not favour any particular set of shareholders or stakeholders.

The role they play in a company broadly includes improving corporate credibility, governance standards, and the risk management of the company. The whole and sole purpose behind introducing the concept of ID is to take unbiased decisions and to checks various decisions taken by the management and majority stakeholders. An ID brings the accountability and credibility to the board process. These ID's are the trustees of good corporate governance.

Querist : Anonymous

Querist : Anonymous (Querist)

16 December 2014 Thank you Mitesh Mehta :)

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