Quick summary on Independent directors

Independent director
  • Who is Independent Director??
  • Non Executive Director of the company
  • Not get involved in routine activities of the company
  • Must have immaterial relationship with the company
  • Applicability of Independent Director u/s  149  of Companies  Act  2013
  • On listed  companies – one third of Directors 
  • On other Public company – As per Rule 4 of Companies  (Appointment and Qualification of Directors) Rules, 2014 , at least two directors as Independent directors  in below mentioned classes of companies :
> Public companies with paid-up share capital of  Rs. 10 crore or more.
> Public companies with a turnover of  Rs. 100 crore or more.
> Public companies with aggregate outstanding loans, debentures, and deposits, exceeding  Rs. 50 crore.
  • Vacancy in the office of Independent directors

Next Board meeting or three months whichever is later.

  • Tenure of Independent Director
  • Initially appointed for 5 years
  • Can be appointed for two consecutive 5 years by passing special resolution
  • There is a cooling period of three years after the expiry of his  terms
  • Independent director who have been appointed for the second time can be removed only after passing the Special resolution after giving the opportunity of being heard .
  • Vacancy in the office of Independent directors

Next Board meeting or three months whichever is later.

  • Tenure of Independent Director
  • Initially appointed for 5 years
  • Can be appointed for two consecutive 5 years by passing special resolution
  • There is a cooling period of three years after the expiry of his  terms
  • Independent director who have been appointed for the second time can be removed only after passing the Special resolution after giving the opportunity of being heard .
Every independent director shall give a declaration that he meets the criteria of independence when :
>He or she attends the first board meeting as a director.
>In every financial year, at the first meeting of the board of directors.
>When a situation arises which affects his or her status of independence being an independent director.
  • Requirements of being Independent Directors  u/s149(6)
Independent director

An independent director in relation to a company means a director other than a managing director or a whole-time director or a nominee director,—

  • Who is a person of integrity and possesses relevant expertise and experience.

(a) (i)   who is or was not a promoter of the company or its holding, subsidiary or associate  company.

(b) (ii)  who is not related to promoters or directors in the company, its holding, subsidiary or associate company;

(c) who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;

(d) none of whose relatives—

(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:

Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum

(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount during the two immediately preceding financial years or during the current financial year

(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount during the two immediately preceding financial years or during the current financial year

(iv) has any other pecuniary transaction or relationship with the company or it’s subsidiary, or its holding or associate company amounting to two per cent. or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii)

Independent director

(e) who neither himself nor any of his relatives—

(i) holds or has held the position of key managerial personnel or employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed

Provided that in case of a relative who is an employee, the restriction under this clause shall not apply for his employment during the preceding three financial years.

(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—

(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company

(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;

(iii) holds together with his relatives two per cent. or more of the total voting power of the company;

(iv) is a Chief Executive or director, by whatever name called, of any nonprofit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent. or more of the total voting power of the company;

(f) who possesses such other qualifications as may be prescribed.