Under Listing Agreement
According to Clause 49 (II) (B) of Revised listing agreement, the expression ‘independent director’ shall mean a non-executive director, other than a nominee director of the company:
1. Who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience
2. Who is or was not a promoter of the company or its holding, subsidiary or associate company;
3. Who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
4. Apart from receiving director’s remuneration, 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;
5. None of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;
6. Who, neither himself nor any of his relatives —
- Holds or has held the position of a key managerial personnel or is or has been 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;
- 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 —
- Firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or 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;
- Holds together with his relatives two per cent or more of the total voting power of the company; or
- Is a Chief Executive or director, by whatever name called, of any non-profit 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;
- Is a material supplier, service provider or customer or a lessor or lessee of the company;
- Who is not less than 21 years of age.
Following explanation has been given for purpose of above definition:
1. “Associate” shall mean a company which is an “associate” as defined in Accounting Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”, issued by the Institute of Chartered Accountants of India.
2. “Key Managerial Personnel” shall mean “Key Managerial Personnel” as defined in section 2(51) of the Companies Act, 2013.
3. “Relative” shall mean “relative” as defined in section 2(77) of the Companies Act, 2013 and rules prescribed there under.
Under Companies Act 2013
Additional requirements given in definition under section 149 () of Companies Act 2013 are:
1. Is a Chief Executive or director, by whatever name called, of any non-profit 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; or
2. Who possesses such other qualifications as may be prescribed, which as per Companies (Appointment and Qualification Of Directors) Rules 2014 is as under:
“an independent director shall possess appropriate skills, experience and knowledge in one or more fields in finance, law ,management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to company’s business”.
B. Limit on number of directorships as per Listing Agreement
a. A person shall not serve as an independent director in more than seven listed companies.
b. Further, any person who is serving as a whole time director in any listed company shall serve as an independent director in not more than three listed companies.
C. Maximum tenure of Independent Directors
An independent director shall hold office for a term up to five consecutive years on the Board of a company and shall be eligible for reappointment for another term of up to five consecutive years on passing of a special resolution by the company.
Provided that a person who has already served as an independent director for five years or more in a company as on October 1, 2014 shall be eligible for appointment, on completion of his present term, for one more term of up to five years only.
Provided further that an independent director, who completes his above mentioned term shall be eligible for appointment as independent director in the company only after the expiration of three years of ceasing to be an independent director in the company.
D. Compensation and disclosures
All fees / compensation, if any paid to non-executive directors, including independent directors, shall be fixed by the Board of Directors and shall require previous approval of shareholders in general meeting. The shareholders’ resolution shall specify the limits for the maximum number of stock options that can be granted to non-executive directors, in any financial year and in aggregate.
Provided that the requirement of obtaining prior approval of shareholders in general meeting shall not apply to payment of sitting fees to non-executive directors, if made within the limits prescribed under the Companies Act, 2013 for payment of sitting fees without approval of the Central Government
Provided further that independent directors shall not be entitled to any stock option.
E. Other provisions as to Board and Committees applicable on independent directors
a. An independent director who resigns or is removed from the Board of the Company shall be replaced by a new independent director at the earliest but not later than the immediate next Board meeting or three months from the date of such vacancy, whichever is later.
Provided that where the company fulfils the requirement of independent directors in its Board even without filling the vacancy created by such resignation or removal, as the case may be, the requirement of replacement by a new independent director shall not apply.
F. Code of Conduct
a. The Board shall lay down a code of conduct for all Board members and senior management of the company. The code of conduct shall be posted on the website of the company.
b. All Board members and senior management personnel shall affirm compliance with the code on an annual basis. The Annual Report of the company shall contain a declaration to this effect signed by the CEO.
c. The Code of Conduct shall suitably incorporate the duties of Independent Directors as laid down in the Companies Act, 2013. Same will be discussed in next article
G. Liability of independent director
An independent director shall be held liable, only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently with respect of the provisions contained in the Listing Agreement.
Explanation: For this purpose, the term “senior management” shall mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.
H. Performance evaluation of Independent Directors
a. The Nomination Committee shall lay down the evaluation criteria for performance evaluation of independent directors.
b. The company shall disclose the criteria for performance evaluation, as laid down by the Nomination Committee, in its Annual Report.
c. The performance evaluation of independent directors shall be done by the entire Board of Directors (excluding the director being evaluated).
d. On the basis of the report of performance evaluation, it shall be determined whether to extend or continue the term of appointment of the independent director.
I. Separate meetings of the Independent Directors
a. The independent directors of the company shall hold at least one meeting in a year, without the attendance of non-independent directors and members of management. All the independent directors of the company shall strive to be present at such meeting.
b. The independent directors in the meeting shall, inter-alia:
i. Review the performance of non-independent directors and the Board as a whole;
ii. Review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
iii. Assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
J. Training of Independent Directors
a. The company shall provide suitable training to independent directors to familiarize them with the company, their roles, rights, responsibilities in the company, nature of the industry in which the company operates, business model of the company, etc.
b. The details of such training imparted shall be disclosed in the Annual Report.