The term “Independent Director” has been defined in the Act, along with few new necessities identifying new prerequisites relating to their appointment, duties, role, and responsibilities. The provisions relating to the appointment of Independent Directors are contained in Section 149 of the Companies Act, 2013 ought to be perused along with Rule 4 and Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014.
Applicability on Appointing an Independent Director
Each listed public organization will have at least one-third of the total number of directors as independent directors. Any portion contained in that one-third will be rounded off as one.
Unlisted Public Company
The Central Government may prescribe the minimum number of independent directors if there should be an occurrence of any class(es) of public organizations. According to Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the accompanying classes of organizations will have at any rate 2 directors as independent directors.
- Public Companies with paid-up share capital of Rs. 10 crores 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.
Each independent director will, at the first meeting of the board in which he partakes as a director and from that point at the first meeting of the Board in each financial year or when a circumstance emerges which impacts his status of independence. The terms and conditions of the appointment of independent directors will likewise be posted on the organization’s site.
Role of an Independent Director
Independent Director goes about as a guide, mentor, and coach to the Company. The job incorporates improving corporate credibility and governance guidelines by functioning as a watchdog and help in overseeing hazard. Independent Directors are liable for guaranteeing better administration by effectively including in different councils set up by the company.
Given below is a list of the roles of Independent Directors:
- Encourage withstanding and countering pressures from proprietors;
- Fulfill a valuable part in progression planning.
An Independent Director plays a major role in different issues, for example, strategy, performance, risk management, resources, key appointments, and standards of conduct. - He should uphold in gaining independent judgment to tolerate on the board’s considerations
- While assessing the performance of the board and the management of the organization bring an objective view
- Scrutinizing, monitoring, and reporting management’s performance regarding goals and objectives agreed in the board meetings.
- Shield the interests of all the stakeholders especially the minority stakeholders.
- Balance the clashing enthusiasm of the stakeholders.
- Satisfying themselves that financial controls and systems of risk management are in operation and check on the integrity of financial information.
- In circumstances of conflict between management and shareholder’s interest, aim towards the solutions which are in the best interest of the company
- establishing the suitable levels of remuneration of:
- executive directors,
- key managerial personnel
- senior management
Duties of an Independent Director
Following are the duties of an Independent Director:
- Attempt appropriate induction and routinely refresh and invigorate their skills, information, familiarity with the company
- Endeavor to go to BOD’s meetings and board committees meeting being a member
- Have satisfactory information about the organization and the external environment in which it works
- Attempt to attend the company’s general meetings.
- Report matters concerning the unethical behavior, actual or suspected fraud or violation of the company’s code of conduct or ethics policy.
- Acting within his authority, help with securing the genuine interests of the organization, shareholders, and its employees.
- Not to unjustifiably obstruct the working of the organization or council of the Board.
- Participate in the Board’s panel being chairpersons or individuals of that committee.
- Not to disclose confidential information, including commercial secrets, technologies, advertising and sales promotion plans, unpublished price sensitive information, unless such disclosure is expressly approved by the Board or required by law
- Ascertain and ensure that the company has an adequate and functional vigil mechanism and to ensure that the interests of a person who uses such a mechanism are not prejudicially affected on account of such use.
