Section 149: Independent director

Section 149: Independent director

·         An independent director is someone who does not have any material or pecuniary relationship with the company or directors.

·         MD or WTD of company can’t be considered as independent director.

·         CG may prescribe the minimum number of independent directors for class of public companies.

·         Listed public company shall have at least 1/3^rd of the total number of directors as independent directors.

·         Rules 4 of Companies Rules, 2014 mandates the requirement of at least two independent directors for the following public companies:

-> Which is having paid up share capital of Rs. 10 crore or more; or

->Which is having turnover of Rs. 100 crore or more; or

->Which have, in aggregate, outstanding loans, debentures and deposits, exceeding Rs. 50 crore.

·         An independent director shall possess appropriate skills, experience and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research, corporate governance, technical operations or other disciplines related to the company’s business.

·         According to section 149(6), following persons are eligible to be appointed as independent director:

-> A person who is not a MD or WTD or nominee director.

->Person of integrity and possesses relevant experience and expertise in opinion of board.

-> A person who is or was not promoter of company, its holding, subsidiary or associate company.

-> A person who is not related to promoter or director of company, its holding or subsidiary or associate company.

-> A person who or whose relative has no pecuniary relationship with company, its holding company or subsidiary company or associate company or their promoters, or directors, during last 2 financial years or during the current financial year.

-> A person none of relative has or had pecuniary relation or transaction with the company, its holding, subsidiary or associate company or their promoters, or directors, amounting to 2% or more of its gross turnover or total income of Rs. 50 lacs, whichever is lower, during the 2 immediate preceding financial year or during current financial year.

->Who, neither himself nor any of his relatives:

-          holds or has held the position of a KMP or employee of the company or its holding, subsidiary or associate company in any of the 3 immediate preceding financial years;

-          is or has been an employee or proprietor or a partner, in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed, or

-          a 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 10% or more of the gross turnover of such firm;

-          holds together with his relatives 2% or more of the total voting power of the company; or

-          is a Chief Executive or director, by whatever name called, of any NPO that receives 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% or more of the total voting power of the company.

·         Independent directors are not required to be retired by rotation.

·         The tenure of the independent directors must not exceed two consecutive periods of 5 years each, and can be extended for a second term only after a SR and disclosure of such appointment in the Board’s report.

·         Section 149(11) mandates that reappointment after the expiry of second term can be done only after a cooling period of 3 years.

·         During the cooling off period of 3 years, independent directors can’t be appointed in or be associated with the company in any other capacity, either directly or indirectly.

·         The Act expressly disallows independent directors from obtaining stock options and remuneration other than sitting fees and reimbursement of travel expenses for attending the board and other meetings.

·         Profit related commission may be paid to independent directors subject to the approval of the shareholders.

·         The Act specifically provides that they can be implicated only for offences committed with their knowledge, connivance or negligence.