Applicable Provisions
Section 149 and Section 150 of the Companies Act, 2013 should be read along with Companies (Appointment and Qualification of Directors) Rules, 2014.
Independent Director: ‘independent director’ means a director who fulfills the condition of independent director as referred to in sub-section (6) of section 149.
Applicability
Every listed public company shall have
at least one-third of a total number of directors as independent directors.
Unlisted Public Company
Following classes of companies shall have at least 2 directors as independent directors.
- Public Companies having paid-up share capital of Rs. 10 crores or more.
- Public Companies having turnover of Rs. 100 crore or more.
- Public Companies which have in aggregate outstanding loans, debentures, and deposits, exceeding Rs. 50 crore
* (Any fraction contained in that one-third shall be rounded off as one).
Exemption for Appointment:
The following classes of unlisted public company shall not be required to appoint Independent Director.
(a) a joint venture;
(b) a wholly owned subsidiary; and
(c) a dormant company as defined under section 455 of the Act.”
Code for Independent Directors:
The Code (Schedule IV) is a guide to professional conduct for independent directors, which is mandatory to abide by the Company and Independent Directors. http://(http://ebook.mca.gov.in/Actpagedisplay.aspxPAGENAME=17920)
The Code Includes Guidelines of Professional Misconduct, Role, Functions and Duties of Independent Directors and Manner of Appointment, Re-Appointment, Resignation or Removal of Independent Directors.
Disclosure Required:
Every independent director shall at the first meeting of the Board in which he participates as a director and 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, give a declaration that he meets the criteria of independence.
Liability:
Independent Director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently.
Separate Meetings:
The independent directors of the company shall hold at least one meeting in a financial year, without the attendance of non-independent directors and members of management, All the independent directors of the company shall strive to be present at such meeting.
Mandatory Agenda of Meeting:
The meeting shall:
(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
Remuneration:
An independent director shall not be entitled to any stock option and may receive remuneration by way of sitting fee (as per sub-section (5) of section 197), reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.
Note:-Remuneration shall be subject to the Provisions of Section 197 and 198 of Companies Act, 2013.
Sitting Fees
As per Rule 4 of Companies (Appointment and Remuneration of Managerial Personnel Rules), 2014 shall not be more than 1 lakh Rupees per meeting of Board or Committee to directors.
Sitting Fees paid to independent directors and Women Director shall not be less than to other Directors.
Term of Appointment:
Appointment shall be as per the provisions of Section 152 of Companies Act, 2013 and shall be for a term of upto 5 consecutive years. MCA circular no. 14/2014 dated 9th June, 2014 clarifies that Independent Director can be appointed for less than 5 consecutive years.
Re-appointment:
Independent Director shall be eligible for re-appointment on passing of a special resolution and disclosure of such appointment in the Board’s report.
However no independent director shall hold office for more than two consecutive terms.
Term: MCA circular no. 14/2014 dated 9th June, 2014 clarifies that one term of appointment can be of less than 5 years but appointment shall not be for more than two consecutive terms.
Cooling Period:
Independent director shall be eligible for appointment after the expiration of three years of ceasing to become an independent director. However independent director shall not, during the cooling period shall be appointed in or be associated with the company in any other capacity, either directly or indirectly.
Vacancy:
In case of Vacancy arise of Independent Director; it shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy.
Retirement of Directors by Rotation:
These provisions shall not be applicable to Independent Directors.
Compliances for Independent Directors
Eligibility:
As per the provisions of Rule 6 of Chapter XI The Companies (Appointment and Qualification of Directors) Rules, 2014 Every Individual who has been appointed as an independent director in a company, on 01.12.2019, shall within a period of ten months and who wants to get appoint as an Independent Director after 01.12.2019 shall before such appointment apply online to the institute for inclusion of his name in the data bank for a period of one Year or five year or for his life time.
Online proficiency self-assessment test
An individual whose name is included in the data bank shall pass by obtaining a score of not less than sixty percent. in aggregate in online proficiency self-assessment test conducted by the institute within a period of one year from the date of inclusion of his name in the data bank, failing which, his name shall stand removed from the databank of the institute.
However an individual who has served for a period of not less than ten years as on the date of inclusion of his name in the databank as director or key managerial personnel in a listed public company or in an unlisted public company having a paid-up share capital of rupees ten crore or more or body corporate listed on a recognized stock exchange shall not be required to pass the online proficiency self-assessment test.
Note: For Calculation of 10 Years any period during which an individual was acting as a director or as a key managerial personnel in two or more companies at the same time shall be counted only once.
FREQUENTLY ASKED QUESTIONS:
Q 1. How to find Independent Directors?
Ans: An independent director may be selected from a data bank containing names, addresses and qualifications of persons who are eligible and willing to act as independent directors maintained by Indian Institute of Corporate Affairs at Manesar.
Q 2. Which topics will be part of online proficiency self-assessment test?
Ans: This test will be based on all relevant topics on functioning of an individual acting as an Independent Director, such as, Companies Law, Securities Law, Basic Accountancy and Corporate Governance.
Q 3. Who approve the Appointment of Independent Directors?
Ans: The appointment of independent director shall be approved by the company in general meeting.
Q 4. What if Company failed to fulfill the Conditions of Appointment in later date?
Ans: A company ceases to fulfil any of the conditions laid down above for three consecutive years, it shall not be required to comply with the provisions until it meets the Conditions again.
Note: The paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial statements shall be taken into account.
Q 5. For How much time name can be include in Data Bank?
Ans: Inclusion of name in the data bank can be for a period of one year or five years or for life-time by paying accordingly.
Q 6. How to apply for Renewal of Application?
Ans: Application for renewal shall be filed within a period of thirty days from the date of expiry of the period.
Q 7. How many attempts are allowed for appear in online proficiency self-assessment test?
Ans: There is no limit.
Q 8. Is DIN Required for Inclusion of name in Data Bank?
Ans: Any individual not having DIN, may voluntarily apply to the institute for inclusion of his name in the data bank.
***
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
For any further queries and suggestions you can contact me on the mail id csaadityagarg@gmail.com and on Mob. 8376993605. Your suggestions and feedback are highly appreciated
