An independent director is a director or board member who, except for sitting fees, has no material or financial connection to the company or anyone connected to the company. He is renowned for being an outside director. We will be talking about the function and applicability of the independent director in this blog<\/p>\n\n\n\n
Independent director means an independent director referred to in section 149 of the Companies Act<\/strong> 2013<\/strong><\/span>1<\/sup><\/a><\/span>. An Independent director is a director considered to be different from a :<\/p>\n\n\n\n Who possesses such other qualifications as may be prescribed?<\/strong><\/p>\n\n\n\n The role of an Independent Director can be described in the following points:<\/p>\n\n\n\n How Many Independent Directors Should the Board Have?<\/strong><\/p>\n\n\n\n The Board of Directors of a company should have a combination of both, i.e. executive and non-executive directors.<\/p>\n\n\n\n At least 50% of the Board should have non-executive directors. In case the chairman of the board is a non-executive director, then at least 1\/3rd of the Board should compromise independent directors.<\/p>\n\n\n\n If the chairman is an executive director, the independent director should make up at least half of the board.<\/p>\n\n\n\n Appointment<\/strong><\/p>\n\n\n\n The Act imposes a specific obligation on listed companies to have no less than one-third of the total number of directors as independent directors. Also, it empowers the central government to include other classes of companies within the scope of this requirement.<\/p>\n\n\n\n This process of selecting the central government and organization authorized by the central government will maintain a data bank of persons willing and eligible to be appointed as independent directors from which the companies choose suitable persons.<\/p>\n\n\n\n An independent director can be selected from a data bank containing names and qualifications of eligible people willing to be independent directors, maintained by anybody, association or institute with expertise in creating and maintaining such a data bank.<\/p>\n\n\n\n It may be noted that the company will approve the appointment of an independent director in the general meeting, and the explanatory statement annexed to the notice of the general meeting called to consider appointment shall indicate the justification for selecting the appointee for appointment as an independent director.<\/p>\n\n\n\n Statutory Criteria<\/strong><\/p>\n\n\n\n Responsibility<\/strong><\/p>\n\n\n\n Tenure<\/strong><\/p>\n\n\n\n An independent director shall be appointed for a consecutive period of not more than two; after that, a gap of three years is needed before their reappointment in such a company for the same position.<\/p>\n\n\n\n Reappointment for the second term is allowed only after the cooling period of 3 years.<\/p>\n\n\n\n Liability<\/strong><\/p>\n\n\n\n Independent Directors can be held liable only for those offences committed with their knowledge, connivance or negligence. This liability is limited so that it will hopefully instil confidence in the minds of such individuals for taking an honest decision.<\/p>\n\n\n\n Remuneration<\/strong><\/p>\n\n\n\n Meeting<\/strong><\/p>\n\n\n\n Committees<\/strong><\/p>\n\n\n\n Independent directors should compulsorily form part of the following committees:<\/p>\n\n\n\n 1. Corporate Social Responsibility:<\/p>\n\n\n\n Every company has:<\/p>\n\n\n\n The presence of an independent director is mandatory as it will see that CSR activities are implemented effectively.<\/p>\n\n\n\n 2. Nomination & Remuneration Committee<\/p>\n\n\n\n Every listed company must constitute a nomination and remuneration committee with three or more non-executive directors, of which one-half must be independent.<\/p>\n\n\n\n The presence of an independent director will ensure the identification and appointment of skilled individuals as directors\/key managerial personnel of the company.<\/p>\n\n\n\n 3. Audit Committee<\/p>\n\n\n\n The act stipulates explicitly that every listed company must constitute an audit committee of at least three directors with a majority of independent directors.<\/p>\n\n\n\n Applicability of Independent Director: Other Provisions<\/strong><\/p>\n\n\n\n Vacancy<\/strong>–<\/p>\n\n\n\n In case of any intermittent vacancy for an independent director, it has to be filled by the board at the earliest, not later than the next board meeting or three months from the date of the vacancy.<\/p>\n\n\n\n Disclosure-<\/strong><\/p>\n\n\n\n Every independent director at the first meeting of the board shall give a declaration that he meets the criteria for independence.<\/p>\n\n\n\n The act has given all these powers to the independent director to maintain proper checks and balances in the organization and that the management of the authorized person is not exercised in an uncontrolled manner but in a rational, controlled and accountable way. The main aim of appointing an independent director is to enhance corporate governance and ensure that the management and affairs of the company are conducted in the interest of shareholders.<\/p>\n\n\n\n A non-executive director, known as an independent director, assists a corporation in enhancing its reputation and governance practices. They also ensure that no one person or group of people with a particular interest dominates.<\/p> <\/div> Every listed public business must have independent directors who comprise at least one-third of the board. Any fractional part of that third must be rounded up to one.<\/p> <\/div> Unlisted public corporations in the classifications below do not require independent directors to be appointed: a partnership. An independent subsidiary. As defined by Section 455 of the Act, a dormant firm.<\/p> <\/div> According to Section 149(4) of the Act, any listed public company must have at least one-third of its directors who are independent, and any other types of public companies may also be required to have a minimum number of independent directors.<\/p> <\/div> The presence of independent directors reflects the board’s ability to decide objectively and in the organization’s best interests. An effective board requires both internal and external directors to offer the viewpoints needed to carry out their fiduciary duties.<\/p> <\/div> They shouldn’t be a sizable shareholder<\/a> or a family of any board members or staff members. Experience and knowledge: The Independent Director should be qualified in business, finance, management, law, or other pertinent professions.<\/p> <\/div> The only individual who can be appointed as a company director is an Individual (live person). It is impossible to appoint a body corporate or business entity as a company director. A special resolution may be passed to increase the number of Directors in a business beyond the maximum of fifteen.<\/p> <\/div> The PUBLIC COMPANIES with Paid-up share capital of at least Rs. 10 crores; or have annual revenue of at least Rs. 100 crore; or Overall outstanding loans, debt obligations, and deposits totalling over 50 crore rupees.<\/p> <\/div> Even if they meet the requirements, a joint venture, wholly owned subsidiary, and dormant business is not required to designate an independent director.<\/p> <\/div> The following issues will be decided at the board meeting called by the company to authorise the appointment of an independent director: The consent of shareholders at the General Meeting is required in order for the appointment resolution to be approved for a term of up to five years.<\/p> <\/div> Unlisted public firms and private businesses that meet the aforementioned requirements and are exempt from the Act’s (and the Rules’) section 149(4) requirement for independent directors on the board are permitted to form CSR committees without such individuals.<\/p> <\/div> <\/div>\n\n\n\n Read our article<\/b>:\nMCA notifies for Appointment and Qualification of Independent Directors: Amendment<\/a> Rules 2020\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":" An independent director is a director or board member who, except for sitting fees, has no material or financial connection to the company or anyone connected to the company. He is renowned for being an outside director. We will be talking about the function and applicability of the independent director in this blog Independent director […]<\/p>\n","protected":false},"author":73,"featured_media":40152,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[209],"tags":[3508],"acf":{"service_id":"1"},"yoast_head":"\n\n
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Conclusion<\/h2>\n\n\n\n
FAQs<\/h2>\n\n\n\n