INDEPENDENT DIRECTOR
AS PER COMPANIES ACT 2013
C S Balaji G
Company Secretary
Criteria/ Qualification for Independent Director
Independent Director for unlisted Public Companies
Code of Conduct for Independent Director
Declarations to be given by him...
Please read..
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MCA has notified most of the sections, rules and all the schedules of the
Companies Act 2014, the notified sections will be effective 1st
April 2014.
This article is to analyze
the concept of Independent director under the Companies Act 2013. This analysis
is significant because this is done based on the notified section and rules
governing the concept of independent director.
This comprehensive
analysis on “Independent Director” under the Companies Act 2013 is being done on
a question and answer format.
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1. Who is an independent Director?
Sub section 6 of section
149 of the Companies Act defines an independent director in relation to a
company, means a director other than a managing director or a whole-time
director or a nominee director.
2. What attributes an independent director should
possess and the conditions those are required to be satisfied?
For a director to be
considered as an independent, the following attributes/conditions are required
to be maintained / satisfied:
i)
In
the opinion of the Board, he is a person of integrity and possesses relevant
expertise and experience.
ii)
He
is not a promoter of the company or its holding, subsidiary or associate
company.
iii)
He
is not related to promoters or directors in the company, its holding,
subsidiary or associate company.
iv)
He
has or had no pecuniary relationship with the company, its holding, subsidiary
or associate company, or their promoters, or directors, during the two
immediately preceding financial years or during the current financial year.
v)
His
relative has or had no pecuniary relationship with the company, its holding,
subsidiary or associate company, or their promoters, or directors, amounting to
2% or more of its gross turnover or total income or Rs.50 lakhs or such higher
amount as may be prescribed, whichever is lower, during the two immediately
preceding financial years or during the current financial year.
vi)
He
or his relative has not held the position of a key managerial personnel or is
or has not been employee of the company or its holding, subsidiary or associate
company in any of the three financial years immediately preceding the financial
year in which he is proposed to be appointed.
vii)
He
has not been an employee or proprietor or a partner, in any of the three
financial years immediately preceding the financial year in which he is
proposed to be appointed, of
a) a firm of auditors or company secretaries
in practice or cost auditors of the company or its holding, subsidiary or
associate company; or
b) any legal or a consulting firm that has
or had any transaction with the company, its holding, subsidiary or associate
company amounting to 10% or more of the gross turnover of such firm
viii)
He
or his relative does not hold 2% or more of the total voting power of the
company
ix)
He
is not a Chief Executive or director, of any non profit organization that receives
20% or more of its receipts from the company, any of its promoters, directors
or its holding, subsidiary or associate company or that holds 2% or more of the
total voting power of the company
x)
He
should possess appropriate skills, experience and knowledge in one or more
fields of finance, law, management, sales, marketing, administration, research,
corporate governance, technical operations or other disciplines related to the
company’s business.
- Which company is required to have
independent directors on the Board?
i)
Every
listed company shall have minimum one-third of the total number of directors as
independent directors.
ii)
The
following companies shall have atleast two directors as independent director;
a) public companies with paid up capital of
Rs.10 crores; or
b) public companies with turnover of Rs.100
crores; or
c) public companies which have, in
aggregate, outstanding loans, debentures and deposits, exceeding Rs.50 crores.
- Whether the unlisted public
companies which are covered under the criteria laid down for independent
director, can have only two independent directors in all circumstances?
The answer is no.
In the case of unlisted public companies which are
required to constitute an audit committee
under section 177 of the Act, then the committee should comprise of directors majority of whom shall be independent
directors.
Assuming audit committee of a company consists of six
members, then it should have minimum
3 directors as independent directors.
5. What
declaration an independent director has to give to the company and at what
frequency?
A declaration to the
effect that he meets the criteria of independence as enumerated under question
No.2 hereinabove.
This declaration shall be
given
a) at the first meeting of the Board in
which he participates as a director and
b) thereafter at the first meeting of the
Board in every financial year or whenever there is any change in the
circumstances which may affect his status as an independent director.
6. What are the
roles and responsibilities of independent directors?
The roles and
responsibilities of independent directors are envisaged in Schedule IV.
This schedule contains a
detailed code of conduct for independent directors viz.
i)
Guidelines
of professional conduct
ii)
Role
and functions
iii)
Duties
iv)
Manner
of appointment
v)
Re-appointment
vi)
Resignation
or removal
vii)
Separate
meetings
viii)
Evaluation
mechanism
7. Who shall
abide the Schedule IV?
The company and the
independent director should abide the schedule IV.
8. Whether an independent director is entitled
to stock option?
No.
An independent director is
not entitled to stock option.
9. Whether an independent director is entitled to
remuneration?
Yes.
As per section
197(1)(iii), remuneration payable to
directors who are neither managing directors nor whole-time directors shall not
exceed
a) 1% of the net profits of the company, if
there is a managing or whole-time director or manager
b) 3% of the net profits in any other case.
10. Whether
an independent director is entitled to sitting fee?
In addition to
remuneration of 1% or 3% of the net profits of the company as the case may
be, an independent director may receive
by way of fee for attending meetings of the Board or Committee thereof or for
any other purpose whatsoever as may be decided by the Board.
11. What is the
maximum limit for sitting fee?
Rupees One Lakh
12. What is the
term of tenor an independent director can hold office?
An independent director
shall hold office for a term upto five consecutive years on the board of a
company.
He shall be eligible for
re-appointment on passing of a special resolution by the company and disclosure
of such appointment in the Board’s report.
However, an independent
director shall not hold office for more than two consecutive terms viz. more
than 10 years put together.
13. When an
independent director is eligible to be appointed in the same company again as
independent director?
He is eligible to be
appointed as independent director only after expiry of three years from the
date of ceasing to become independent director. Provided during the said three
years, he should not be associated either directly or indirectly with the
company in any other capacity.
14. When the tenor
of an independent director has to be reckoned for the purpose of limiting his
office for two terms of 10 years?
Any tenure of an
independent will be considered only from the date of commencement of this Act
and prior to the commencement of this Act shall not be counted for the purpose.
15. Whether
independent director is liable to retire by rotation?
No.
Independent director is
not liable to retire by rotation.
Note: The views expressed are the views of the author. If you have different interpretation on any of these points, kindly share it in Comment section of the blog or by e mail to us. Thank you.
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