Modification of terms of appointment of Independent Director

Hey Arjun,

Regarding your query on modification of the terms of appointment of an Independent Director (ID) under the Companies Act, 2013 — here’s a detailed take:

Situation Recap:

• The Independent Director (Woman) completes her second term and retires on 15th Sept 2021.

• The company wants to retain her on the Board as an Additional Director (Non-Independent, Non-Executive)from 16th Sept 2021.

• The question is: Can the Board pass a resolution for this change and ratify it later in the AGM?

Key Points under Companies Act, 2013:

1. Term of Independent Director:

   • IDs can hold office for a maximum of two consecutive terms of 5 years each (Section 149(10)).

   • After completing the term, they must vacate office but can be reappointed after a cooling-off period of 3 years unless they are appointed as a non-independent director.

2. Changing from Independent to Non-Independent Director:

   • The Act does not prohibit a person who has served as an Independent Director from being appointed as a regular (non-independent) director immediately after the completion of their ID term.

   • The key is the nature of appointment — a non-independent director can be appointed in the usual way (e.g., by the Board as an Additional Director, subject to shareholder approval in AGM).

3. Appointment of Additional Director:

   • Board can appoint an Additional Director (Section 161(1)), who holds office till the next AGM.

   • The appointment is subject to ratification by shareholders in the AGM.

4. Woman Director Requirement:

   • Section 149(1) mandates that certain companies have at least one woman director.

   • To comply with this, the company can appoint the retiring woman ID as a non-independent director.

So, Is this practice correct?

• Yes, the Board can pass a resolution on or after 16th Sept 2021 appointing the retiring Independent Director as an Additional Director (Non-Independent, Non-Executive).

• The appointment is valid until it is ratified in the next AGM.

• This will ensure compliance with the woman director requirement.

• Ensure the proper disclosure and filing with ROC for change in directorship and designation.

Important:

• Check the company’s Articles of Association (AoA) for any restrictions.

• Ensure that the appointment does not violate any contract or agreement with the retiring ID.

• Transparency and proper documentation will help avoid disputes.