INDEPENDENT DIRECTORS
Independent Director in relation to company, means a Director other
than:
– A managing director; or
– Whole time director; or
– A nominee director.
Section 149(4) of the act provides that every listed public company
shall have at least one-third of the total number of directors as
independent directors.
The Central Government may prescribe the minimum number of
Independent Directors in case of any class or classes of public
companies. Rule 4 of Companies (Appointment and Qualification of
Directors) Rules, 2014 provides that the following class or classes of
companies shall have at least two directors as independent directors –
(i) The Public Companies having paid up share capital of ten crore
rupees or more; or
(ii) The Public Companies having turnover of one hundred crore rupees
or more; or
(iii) The Public Companies which have, in aggregate, outstanding loans,
debentures and deposits, exceeding fifty crore rupees.
Section 165 prescribes number of directorship an individual can hold. A
maximum limit on total number of directorship has been fixed at 20
companies including a sub-limit of 10 for public companies. i.e., a person
cannot be a director of more than 10 public companies.
For the purpose of counting such directorship in public company,
directorship in private companies that are either holding or subsidiary
company of a public company shall be included. Alternate directorship
which was earlier excluded while calculating the limit of directorship, will
now be included while calculating the directorship of 20 companies.
Appointment of Independent Directors
(1) Appointment process of independent directors shall be independent
of the company management; while selecting independent directors the
Board shall ensure that there is appropriate balance of skills, experience
and knowledge in the Board so as to enable the Board to discharge its
functions and duties effectively.
(2) The appointment of independent director(s) of the company shall be
approved at the meeting of the shareholders.
(3) The explanatory statement attached to the notice of the meeting for
approving the appointment of independent director shall include a
statement that in the opinion of the Board, the independent director
proposed to be appointed fulfils the conditions specified in the Act and
the rules made thereunder and that the proposed director is independent
of the management.
(4) The appointment of independent directors shall be formalized
through a letter of appointment, which shall set out:
(a) The term of appointment;
(b) The expectation of the Board from the appointed director; the Board-
level committee(s) in which the director is expected to serve and its
tasks;
(c) The fiduciary duties that come with such an appointment along with
accompanying liabilities;
(d) Provision for Directors and Officers (D and O) insurance, if any;
(e) The Code of Business Ethics that the company expects its directors
and employees to follow;
(f) The list of actions that a director should not do while functioning as
such in the company; and
(g) The remuneration, mentioning periodic fees, reimbursement of
expenses for participation in the Boards and other meetings and profit
related commission, if any.
(5) The terms and conditions of appointment of independent directors
shall be open for inspection at the registered office of the company by
any member during normal business hours.
(6) The terms and conditions of appointment of independent directors
shall also be posted on the company’s website.
(7) He shall be hold office for a term of upto 5 consecutive years of a
company. [Section 149(10)]
Re-appointment of Independent Directors
The re-appointment of independent director shall be on the basis of
report of performance evaluation.
Section 149(11) provides that the Independent Director shall be eligible
for re-appointment on passing of special resolution. He shall not hold
office for more than 2 consecutive terms, but such independent director
shall be eligible for appointment after the expiration of 3 years of ceasing
to become an independent director.
However, he shall not, during the said period of 3 years, be appointed in
or be associated with the company in any other capacity, either directly
or indirectly.
Appointment of Independent Directors for less than 5 years
It is clarified by Ministry of Corporate Affairs on 9 June 2014 through a
general Circular that section 149(10) of the Act provides for a term of
‘upto 5 consecutive years’ for an ID. As such while appointment of an ID
for a term of less than 5 years would be permissible, appointment for any
term (whether for 5 years or less) is to be treated as a one term under
section 149(10) of the Act.
Further , under section 149(11) of the Act, no person can have to demit
office after two consecutive terms even if the total number of years of his
appointment in such two consecutive terms is less than 10 years. In
such a case the person completing ‘consecutive terms of less than 10
years’ shall be eligible for appointment only after the expiry of the
requisite cooling –off period of 3 years.
