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Independent Director in a Company

Independent Director Companies Act 2013

Independent Director in a Company

Corporate governance is a key aspect in the management of a company that has effect on profitability, growth and sustainability of a business. Corporate governance is also a multi-level process dealing with the culture, policies and code of conduct of the organization. Revised Corporate Governance structure has enabled reconstitution of board so as to be inclusive of good quality non-executive independent directors and the prevention of the concentration of power in one individual or a special influence. In this article, we look at the position, role, functions, duties, liabilities and so on related to an Independent Director of a company.

Requirement for Independent Director

As per the Companies Act 2013, all listed public limited companies are mandatorily required to have at least one-third of the total number of directors as an independent directors. Unlisted public companies should appoint at least two independent directors in the following situations:

  1. If the paid up share capital is in excess of Rs.10 crores;
  2. If the turnover is in excess of Rs.100 crores;
  3. If the total of all the outstanding loans, debentures and deposits is in excess of Rs 50 crores.

Duties of an Independent Directors

The guidelines, role, functions and duties of an Independent Director is defined in the Code of conduct under Schedule IV related to the Companies Act, 2013.  The key role and functions of an Independent Director as listed under Schedule IV of the Companies Act, 2013 are described as follows:

  1. Aid in bringing an independent judgment to bear on the Board’s deliberations particularly on issues of strategy, performance, risk management, resources, key appointments and standards of conduct;
  2. Enable an objective view in the evaluation of the performance related to board and management;
  3. Examine the performance of management in meeting the decided goals and objectives and examine the reporting of performance;
  4. Satisfy themselves on the reliability of financial information and that financial controls and the systems of risk management are considered robust and defensible;
  5. Protect the interests of all stakeholders, mainly the minority shareholders;
  6. Balance the conflict of interest of the stakeholders;
  7. Decide suitable levels of remuneration of executive directors, key managerial personnel and senior management and have a major role in appointing and where essential recommend removal of executive directors, important managerial personnel and senior management;
  8. Moderate and adjudicate in the interest of the company as a whole, in the situations of conflict between the management as well as shareholder’s interest.

Qualities of Independent Director

An independent director should preferably possess appropriate skills, experience and knowledge in one or more domains of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines that are related to the company’s business. Generally one who wishes to qualify as an Independent Director has to possess the following qualities:

  • Impartiality
  • Loyalty
  • Decision- making (judgment)
  • Professional repute

Independent Director Data Bank

The Companies Appointment and Qualification of Directors Rules 2014 has authorised for any body or institute or association, authorised by the Central Government to setup and maintain a data bank of Independent Directors who are willing and eligible to be appointed as independent director.

Accordingly, the data bank contains information like:

  • DIN (Director Identification Number)
  • Name and surname in full
  • Father’s name
  • Date of Birth
  • Gender
  • Nationality
  • Occupation
  • Full Address with PIN Code (present and permanent)
  • Phone number
  • E-mail id
  • Educational and professional qualifications
  • Experience or expertise, if any
  • Legal proceedings initiated or pending against such person
  • List of limited liability partnerships in which he is or was a designated partner along with:
    • Name of the limited liability partnership (LLP)
    • Nature of industry; and
    • Duration of appointment as Partner with dates
    • List of companies in which he is or was director along with:
      • Name of the company
      • Nature of industry
      • Nature of directorship – Executive or Non-executive or Managing Director or Independent Director or Nominee Director;
      • Duration of appointment as Director with dates;

While using  the data bank, the company must carry out its own due diligence before appointing any person as an independent director as the agency maintaining the databank or the Central Government cannot be held responsible for the accuracy of information or lack of suitability of the person  – whose particulars form part of the databank.

Also read: Procedure for Appointment of independent director