Independent Directors under Companies Bill, 2012

Reference Content Short notes

2(47) Independent Director Referred to in 149(6)
134(3) Statement on
declaration by
Independent Director
Directors' Report to include a statement on declaration given by
Independent Directors under 149(7)
135(1) ID on CSR committee CSR Committee to consist of 3 or more directors, one of which shall be
an ID
149(4) One-third of Board to
comprise of IDs
Listed companies shall have atleast one-third of the total number of
directors as IDs
149(6) Definition of ID MD, WTD, Nominee Director are not IDs;
'In the opinion of the Board, to be a person of integrity possessing
relevant experience and expertise;
Is or was not a promoter of the Holding, Subsidiary or Associate
company (HSA);
Should not be related to promoter or director of the company or of HSA;
Has or had no pecuniary relationship with company, HSA, or
directors/promoters thereof in last 2 years;
None of whose relatives have had pecuniary relationship with company,
HSA or directors/promoters thereof in last 2 years subject to a limit
of 2% of turnover OR Rs.50 lacs WIL;
Should not have been a KMP or employee of the company, HSA in last 3
years;
Should not have been employee or partner of Auditors, CS or Cost
Auditor in last 3 years;
Should not have been employee or partner of legal firm receiving 10% of
turnover in last 3 years;
Should not hold 2% of voting power, together with relatives;
Possesses other qualifications as may be prescribed
149(7) Declaration by ID Every ID shall, at the first BM attended by him and in the first BM of
each financial year thereafter, give a declaration that he meets the
criteria of independence as in 149(6)
149(8) ID to abide by
Schedule IV
Company and ID shall abide by Schedule IV
149(9) ID not entitled to
stock option
ID shall not be entitled to stock options;
ID is entitled to fee as specified in 197(5), reimbursement of expenses
for attending meetings and profit related commission as may be approved
by members
149(10) Term of ID's office ID may hold office for upto 5 consecutive years; but eligible for
reappointment by special resolution by company and disclosure of such
appointment in the Board's Report; subject to section 152 (appointment
of directors)
149(11) No more than 2 terms ID shall not hold office for more than 2 consecutive terms; Eligible
for appointment after expiration of 3 years of ceasing to be ID;
provided that he is not associated with the company in any other
capacity directly or indirectly during the 3 years
149(12) Protection to ID ID shall be held liable only in respect of acts of omission or
commission by company which had occurred with his knowledge,
attributable through Board processes, and with his consent or
connivance or where he had not acted diligently
149(13) No retirement by
rotation
Provisions of 152(6) & (7) on retirement by rotation shall not apply to
appointment of IDs
Independent Directors under Companies Bill, 2012
Reference Content Short notes
150(1) Manner of selection
of IDs
IDs may be selected from the databank of IDs maintained by any notified
body; Responsibility of diligence of selection lies with company
150(2) Appointment requires
approval in GM
Appointment of ID requires approval of company in GM; explanatory
statement annexed to notice shall indicate justification for the choice
152(5) Board's opinion on ID
to be annexed to
notice
For appointment of ID at general meeting, the explanatory statement
annexed to the notice shall include a statement that in the opinion of
the Board, the ID fulfils the conditions laid out for appointment
152(6) 'Total number of
directors' for
retirement by
rotation
Two-thirds of the total number of directors shall be liable for
retirement by rotation. 'Total number of directors' shall not include
IDs
161(2) ID cannot be
appointed unless
qualified
No person shall be appointed as ID, unless qualified for appointment
173(3) Atleast 1 ID in BMs
with short notice
Board meetings can be called with shorter notice than 7 days, but one
ID must be present in such meetings; If no IDs are present in such
meetings, decisions have to circulated to all directors and shall be
final only on ratification by atleast one ID
177(2) IDs to be majority in
AC
Audit Committee should comprise a minimum of 3 directors with IDs
forming a majority
178(1) One-half of
Remuneration
Committee to be IDs
Board of Directors of every listed company shall constitute a
Nomination and Remuneration Committee, atleast one half of which shall
be IDs
197(5) Ceiling on sitting
fees for IDs
Maximum fees paid for attending meetings may be prescribed, and may be
prescribed differently for IDs
197(7) ID not entitled to
stock option
ID shall not be entitled to stock options;
ID is entitled to fee as specified in 197(5), reimbursement of expenses
for attending meetings and profit related commission as may be approved
by members
Note: Also see Schedule IV on Code for Indpendent Directors
Salient points in Schedule IV
Code I Guidelines for
professional conduct
Uphold ethical standards, exercise bona fide responsibility, etc..
Code II Roles and functions Scrutinise the performance of management in meeting agreed goals and
objectives; Determine appropriate level of remuneration for Eds, KMPs
and SMPs; etc..
Code III Duties Insisting to record their unresolved concerns in minutes of meetings;
report concerns about suspected fraud....; etc..
Code IV Manner of appointment To issue an appointment letter with term, expectations, duties, etc.
Code V Reappointment Reappointment shall be on the basis of report of performance evaluation
Code VI Resignation and
removal
Same as for other directors as on 168 and 169
Code VII Separate meetings IDs to conduct atleast 1 meeting in a year without the non-IDs;
In the meeting they shall review the performance of the non-IDs,
Chairperson and assess the quality, quantity and timeliness of flow of
information between management and Board
Independent Directors under Companies Bill, 2012
Reference Content Short notes
Code VIII Evaluation mechanism Performance evaluation of IDs shall be done by the entire Board,
excluding the director being evaluated;
Reappointment should be based on the report of performance evaluation