As per the Listing Agreement, one of the tests for determining the Independence of a Director is as follows:
“WHO APART FROM RECEIVING DIRECTOR’S REMUNERATION HAS NO MATERIAL PECUNIARY TRANSACTION OR RELATION WITH THE COMPANY, ITS PROMOTERS, DIRECTORS, SENIOR MANAGEMENT PERSONNEL, ITS HOLDING COMPANY, ITS SUBSIDIARIES OR ASSOCIATE COMPANIES WHICH MAY AFFECT THE INDEPENDENCE OF THE DIRECTOR”
Hence, if a Person appointed as Independent Director in a Company is also appointed as Director in one of its subsidiary company and receives remuneration from it, then he can’t be treated as Independent Director as he is said to be having a material pecuniary transaction with its subsidiary which will affect the independence of the Director.
Now, Clause 49(III) of the Listing Agreement provides as under:
“ATLEAST ONE INDEPENDENT DIRECTOR ON THE BOARD OF A COMPANY SHALL BE A DIRECTOR ON THE BOARD OF ITS MATERIAL UNLISTED INDIAN SUBSIDIARY”
Now, A Ltd. is a material unlisted Indian subsidiary of X Ltd. Mr. X, an Independent Director on the Board of X Ltd. is to be appointed as Director on A Ltd. and will draw remuneration from A Ltd. for services rendered as Director of the Company.
Now, my query is as under:
“Since Mr. X is drawing remuneration as Director on Board of A ltd. a material unlisted subsidiary of X Ltd. he is said to behaving material pecuniary transaction with A ltd. So, How can he be treated as Independent Director on Board of X Ltd.?????
Aren’t these two clauses of Listing Agreement self contradictory?
CAclubindia
