In compulsory elections of the Independent Director can

In order to maintain transparency within the system and withhold an
structured pursuit and enterprise in the company in 2013, The Companies Act
formulated the position and appointed the post of an  Independent director and it further goes into
depth to explain its role. The terminology ‘Independent director’ was first coined
and disclosed in Section 2(47) and can be found in sub-section (6) of Section
149 of the Companies Act, 2013.  Therefore in my papers I have dwelled into the
intricate details to bring about and showcase the significance for the basis of
what makes a potential candidate eligible for the role of an Independent
Director, and the procedures for their appointment and affixture for their
given post and the responsibilities and duties which they must uphold and
perform at given situations and if they fail to the process through which they
can be removed.

 

 

Introduction:

The significance and importance of the Indepenedent Director was
first emphasized by the Corporate Governance in India. However the terminology of
the wordings ‘Independent Director’ nor any provisions for the compulsory
elections of the Independent Director can be found in the Companies Act, 1956.
Regardless of this clause 491 in the listing agreement
can be identified on all the listed companies and firms and has passed a decree
for the appointment of Independent Directors on board

The Companies Act, 2013 which is also popularly known as ‘the Act,
2013’ first came into picture on the 29th August, 2013 as Act no. 18
of 2012. The Act’s 98 sections
were first applied or implemented into it in the year 2013 through a
notification by The Ministry of the Company.

Section 149 of the Companies Act, 2013 is one of section of the Act
which has been imposed and is essentially concerned with the appointment and
qualification of the Independent Directors and their importance to establish and
incorporate a sturdy and able corporate governance in the company. However it has
not been put into force since the time it was created but when it does the
gazette shall be informed the moment it is implemented.

The Act goes greatly into details to establish and elaborate the
roles, liabilities, duties, etiquettes, and the means of selection of potential
candidates for the post of the independent directors in Boards and other
innumerable committees of the company.

Independent Directors- An Overview:

The role and importance of an Independent Director was first bought
into picture when the need of such a post arose in the corporate governance to
establish a sturdy, strong foundation, the relevance and significance of their
job and structured responsibility has been expanding ever since. The Companies
Act, 2013 has formulated the executive director’s role to be exteremely
divergent when compared to that of Independent Director’s. Although the
Independent Director’s job is diverse and quite intricate as he has the
responsibility of of innumerous roles, liabilities, duties for the advancement
of the company. One of these many duties is to highlight the opinions of the
minority shareholders and to recognize their voice as an attempt to make sure
that the institutes of discrimination and prejudice aren’t built  in favor of a certain category of shareholders
and stakeholder thus to insure that a healthy and welfare oriented structure is
persists  amongst the shareholders.

The primary and vital role of the Independent Director’s job include
upholding the repute of the government standards, improvising the corporate
reliability, and maintaining the risk management of the company. Independent
Directors must look into and keep a check on the decisions and implements
created by the management and shareholders, they must also uphold their
integrity and be impartial in the decision and resolutions which they make on
their own. The Independent Directors gare also responsible to bring about
reliability and accountability to the board affairs

Who can be an Independent Director under the statue:

 

The potential and the capacity in
order to be an Independent Director is identified and determined in Section
149(6) of the Companies Act, 2013:

·      A director who works occasionally or at part time through
professional basis or a director who is not an executive.

·      With significant insight alongside with integrity and experience who
also happens to have the approval of the Board of Directors. It is but then
that these Board of Directors shall pass their resolution. The usage of the
word ‘significant’ is not meant to limit the credentials to choose a potential
independent director.

 

·     Subsection (6) of Section 2 of the Companies Act, 2013 describes an
associate company, and an individual who has no ties to it as a promotor in the
current scenario or in the past of that company and therefore can be enlisted
for the role of an Independent director.

 

·      An individual who has no links to the company through financial ties
nor any monetary relations to its promotors or their directors or its
subsidiary or associate companies during the previous two financial fiscal
years or during the recent two financial year.

 

 

·      A family member who doesn’t have any financial links in the past nor
in the present  with the company its
holding, partnered or subsidiary company or any of their promoters or their
respective directors, and if the worth of such a transaction or busniness deal
has not surpassed its gross revenue nor has it transcended 2% of its aggregate
turn over  or a sum of Rs. 55,00,000 or
an amount which can be determined to be high during that current financial year
or the previous two financial or fiscal years.

·      An individual or his kin who hasn’t had any intermitted or
continuous links to the company as an employee of it through its holding or its
associate or subsidiary company  during
the previous three  financial/ fiscal
years or in the recent three financial years or is presently occupying or has
occupied in the past the post of a KMP

·      An individual or his kin who hasn’t had any intermitted or
continuous links to the company:-

1.     as either an employee, associate or proprietor of it in the time
period of the previous three  financial/
fiscal years or in the recent three financial years with posts in the firm
varying from (a) auditors to (b)cost accountants alongside with (c) working
company secretaries whose jobs are in effect in its holding or its partnered or
subsidiary company.

2.      An individual alongside with
his kin and kind who withholds more than 2% of the voting power in the company.

3.      If an Non-profit Organization
is established which gets its revenue 
from the company which is holding or its partnered or subsidiary
companies tends to make 25% more than the company’s revenue or withholds 2% or
more of the voting power amongst the shareholders of the company.

4.     Or the individual or his kin has ever had any relations with a firm
which provides legal or consulting services, and has had any links through transactions
and business agreements with the company its holding or subsidiary or partnered
company which adds up to an estimate of 10% or more of the gross turnover.

·      An individual who possess any such qualifications or attributes which
possibly may be sanctioned.

The most inclined uncertainty that arises is about
the prospect and background of an individual for the position of the
Independent director in a company which imparts legal services, as to weither
he has legal professional insight as an advocate, or sole holder   of a consultation
or legal firm. However as long as such a lawyer or his legal consulting firm is
elevating and increasing its revenue which do not surpass 10% or more of its
gross annual turnover there is no such legal barrier or restriction. Although
the concept of legal is applied regardless of total turnover in professions
such as (i) the firm of auditors or (ii) working company secretaries in effect
or (iii) cost accountant. The terminologies ‘legal’ or ‘consulting firm’ would
have been noticeable if not identified in Section 149(6)(ii) (A) instead of
being linked to its gross annual turnover if the motive of the legislature was
to put a baricate upon a lawyer or his consulting or legal firm. And to add on
to it a contract that deals with professional services that doesn’t breach or
contravene Section 297 of Companies Act, 1956 as according to the establishment
made in the circular No 1375 on 5th June, 1975 by the Ministry of
Corperate affairs. There has been quite a change of detectable nature in law as
long as the services which have the professional attributes showcased by an
advocate does not hinder his possibility of becoming an Independent Director by
surpassing the limit.

 

Strength of Independent Directors:

The minimum number of directors for the position of an Independent
Director is mentioned in Section 149(4) which states that not more than 1/3 of
the directors can enlist themselves for the role of Independent directors. Rule
4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 are
issued that the below mentioned category of public companies will have the
privilege of having the minimum number of 2 person as independent directors.

a)     Companies which are public who have pending loans or deposits or
unsecure bonds(debentures) which surfeit more that Rs. 50 Crores.

b)    Companies which are public in nature and have a turn over of more
than Rupees 100 Crores

c)     Public Companies which have funded by paying the share capital of
more than Rs 10 Crore.

 

 

Approach for Appointment:

It is not a necessity for an independent director to be appointed
through a data bank as its not its only resort for appointment, as per section
150(i) which states that, “an Independent director ‘may’ be appointed from out
of the data bank maintained by any association, body, institute and may be
notified by Central Government”. However, this method creates its own streak of
procedures as according to Section 152(2) the potential candidate for the role
of independent director shall first be assessed by Board of Directors to
analyse whether he is eligible enough or not after which he would have to be
backed up by the company through a general meet by ways of ordinary resolution.
The second tenure of the five consecutive years shall be determined through a
special resolution passed in a general meeting. The judgment and the point of
view of the Board of Directors is recorded in a statement which is inserted
within the Explanatory Statement which provides reasons for the approval of the
potential candidate to be eligible enough to take on the role of the
Independent Director and whether he fulfills the conditions emphasized in the
Act. A formal letter of appointment, where such terms as per Section-IV (Appendix
1) are mentioned, shall be provided to such an incumbent.

Roles
and Duties of Independent Director

 

 

 

 

 

 

 

 

The code in schedule IV of the Companies Act, 2013 clearly defines
and elaborates the role, function, principles, and duties of an Independent
Director thus further emphasizing on its relevant position. Several other vital
factors can be found in this code which are varying an of diverse in nature,
the few highlighted ones include protecting and identifying the opinions and
rights of the shareholders, diplomatically handing any controversial or
conflict oriented decisions of the stakeholders whilst maintaining the ever
crucial conflict management within the company. It has the authority to examine
and constructively criticize the performance of the management. As per the code
an Independent Director is required to keep himself aware and informed of the
activities that occur withing the company and 
the ones that are practiced in the external environment but has its
influence on the company or maintaining 
the confidentiality of significant information unless its authorized not
to do so by the law or the company. It is also advised for the Independent
Director as according to the code to engage in as many ventures which have been
undertaken by the various committees of which they are a part of as either
members or chairperson or advancing and gaining deeper insight and knowledge in
the functioning and the duties to mainting within the company

Meetings
and Committees:

The Independent Directors are required to every year on one or more
occasions are according to Companies Act, 2013. This meeting is strictly for
the Independent Directors and the company of the non-independent directors or
other such members who happen to be a part of the management wouldn’t be
entertained. And Independent director has the power as per Companies Act, 2013
to evaluate and judge the conduct and performance of the members of the
management, non-independent directors and most importantly chairperson and the
Board as a whole of the company. These steps were formulated in order to
maintain more structure and result oriented mechanism within the functioning of
the Board of Directors of the company.

 

 

The Independent Director has the
privilege to be a member or chairperson in several other committees, infact
them being so is given importance and stressed upon in Companies Act, 2013 and
it gives them a broader idea of the functioning of the company.  For instance, the independent Directors tends
to be in majority in the foundation of the Audit committee which usually
consists of a minmum of three directors and identical to this are the
nomination and remuneration committees. Similarly, in the stakeholder committee
there are over 1000 shareholders in the Board of Directors of a Company and may
also include the deposit holders alongside with the debenture holders and other
security holders in the financial/ fiscal time period and it shall consists
stakeholder committees which is composed of the members of the board and headed
by a non-executive chairperson.

 

Payment of sitting fee or commission:

 

As per
Section 149(9), an independent Director is eligible to receive:-

1.     Sitting fee for being present in the Board or the Committee
meetings, which is therefore stated in the second proviso of  Section.197 (5)

2.     Compensation for the amount spent for appearing in the board/
committee meetings

3.     The Independent Director isn’t given the license or the authority to
lay his hands on any of the ‘stock option’ and claim it as his own, However The
shares and commission of the profits made by the company fall under the
authority of Section 197 and Section 198, where 3% of the net profit is given
if there is the absence of  the Whole
time Director, Managing Director or Manager, otherwise its just 1% of the net
profits that’s given. Section 198 also deals with estimating the net profit.

Tenure of Office:

An
independent director is given the privilege to be the incumbent of his post for
a period of five consecutive years which can be extend further to another set
of five consecutive years, if he is appointed again with the accepted extended
approval of the shareholders, that is through special resolution in a general
meet and the effect of this is disclosed in the report of the Director.
However, an independent director cannot remain or withhold his post for more
than two back-to-back terms of five years each. Although, after three years
lapse of his expiration of being the independent director, he can he permitted
and qualified to run for the post once again. In reference to the above
mentioned context, the director shall not play any (professional) part or be
associated with the company overtly or covertly in that period of 3 years as
according to Section 149(11). The sub-sections of 149 further go into detail to
mention that the time period of the Director in hand is not calculated or
quantified with the motive to compute or evaluate the tenure of one or two
terms of five years, as the circumstance may be. 

Resignation or Removal: –

For an
Independent Director to resign it is mandatory on his part to send a letter of
resignation to the Registrars of Companies (ROCs) within a time tenure of 30
days specifying with detail the reason(s) for him to resign. Although in
Company’s Act, 1956, to send the ROC3 a copy of resignation
isn’t a legal requirement for an independent director. However, he must pen
down the letter to the company, which shall later be assessed by the board of
directors before being considered, and if they approve it the prescribed return
shall be intimated and then filled with the ROC.  And as soon as the independent director shall
resign there will be a mention of such resignation in the Director’s report.

 

For an
Independent Director to be removed by the Company an ordinary resolution is
passed in the general meeting where his is given sufficient resources and
chances in the hearing pursuant in the Special Notice which is accepted under
Section 169 of Companies Act, 2013. This Procedures’ mechanism for sending
notice and hearing functions infect in the same manner as it did in the earlier
Act. According to Appendix I to Schedule IV if there is a vacant spot it shall
be filled within 180 days from the time of resignation of removal of its
previous holder.

1 As available on the
website of BSE and NSE

2 Ministry of Corporate
Affairs
(http://www.mca.gov.in/ministry/pdf/CommencementNotificationOfCA2013.pdf)

3Registrars
Of Companies

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