An Independent director is a
part of the board of directors of a company that does not have any relation to
the company related to material, or pecuniary matters of the Company. They
charge their sitting fees and are those who are not in the whole-time
employment of the Company. However, the management seeks guidance in a
professional capacity for making decisions from the Independent Director.
They are appointed in the Board
to evaluate the performance of the non-independent Director of the Company, to
share their knowledge in the respective areas of their expertise, and they are responsible
for the better compliance. They act as a trustee of Shareholders and sometimes
they also work between the Board and other stakeholders.
Who can be an Independent
Any individual can become an Independent Director, if he meets the criteria prescribed under section 149(6) of the Companies Act, 2013.
Definition as prescribed under the Companies Act, 2013
An independent Director to a Company means a Director other than a Managing Director or a whole-time director or nominee director who fulfills the criteria as given under section 149(6).
Which Class of Companies are
Required to Appoint the Independent Director of the Company?
Every listed public company
shall have at least one-third of the total number of directors as Independent
Director of the Company and the following classes of the Companies are required
to appoint at least two directors as an Independent Director
- Public Companies having paid-up capital of Rs.
10 crores or more.
- Public Companies are having a turnover of Rs.
100 crore or more.
- Public Companies are having aggregate
outstanding loans, debentures, deposits exceeding Rs. 50 crore
The provisions of the appointment of the Independent Director do not apply to private companies. However, if companies to safeguard the interest of their shareholders and to attract the investors, they can appoint the Independent Director on Board.
Tenure of an Independent
The mandate of an Independent Director is as follows;
- An Independent Director shall hold the office up
to five years, but it shall be eligible for reappointment by passing a special
resolution in the Company.
- The Independent Director shall not hold the
office for more than two consecutive terms further such independent director
shall be eligible for appointment after the gap of three years of ceasing to
become an Independent Director
Notes: An Independent Director to as a non-executive director of the company.
Role and Functions of
The Independent Director shall:
- Bring an Independent Judgment, especially on issues of strategy, performance, risk management, resources, and critical appointment.
- Safeguard the interest of the stakeholders.
- To evaluate the performance of Board and Management.
- Analyze the performance of the management in meeting the objectives and monitor the reporting of performance.
- To evaluate the performance of Board and Management.
Duties of Independent
The Independent Director Shall:
- To take the induction, regularly update and
refresh their skills, knowledge, and familiarity with the Company.
- To attend all the meetings of the Board of
Directors and committee of which he is a member.
- To keep informed the management of the Company
regarding the external environment in which it operates.
- Attend the General Meeting of the Company.
- Ascertain and assure that the Company has an
adequate and functional vigil mechanism. And to ensure that the interests of a
person are not prejudicially affected on account of such use.
about unethical behavior, actual or suspected fraud, or violation of the
Company’s code of conduct or ethics policy.
Procedure for Appointment of
- The Independent Director need to submit the
consent to act as Director in DIR-2 Form
- The Independent Director has to provide the
declaration of independence as per section 149(6) of the Companies Act, 2013.
- The Director will be appointed as an Additional
Director of the Company in the Board, and his/her term is up to the ensuing
general meeting of the Company.
- Hold the General Meeting and pass the resolution
for the appointment of independent Director of the Company for a term of up to five
Notes: During the period of appointment, the Independent Director will be bound by the Company Code of Conduct as mentioned under schedule IV of the Companies Act, 2013
- The Independent Director of the Company shall hold at least one meeting in a year, without the presence of the executive director.
- All the Independent directors shall remain present in the Meeting.
- The Independent Director in its meeting shall:
- Review the performance of non-independent directors and Board as a whole
- Review the performance of the chairperson of the Company and taking into account the views of executive and Non-Executive directors.
- To assess the quality, quantity of flow of information between the Company Management and the Board that is necessary for the board to effectively and reasonably perform their duties.
Liability of Independent
The Liability of Independent
Director will only be in respect of acts or omission or commission by a Company
which had occurred with his consent or where he had not acted diligently.
It plays a vital role in the
management, appointing an Independent Director helps the Company in improving
the policies which apply to the Company, transparency, credibility of the
Company, and many more factors. They decide on an independent basis;
Independent Director does not have any relationship with the Company that may
affect the independence of judgment.