INDEPENDENT DIRECTOR

An Independent Director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards. The independent director should not be a managing director, a whole-time director, or a nominee director.

He or she does not have any kind of relationship with the company that may affect the independence of his/ her judgement. The provisions relating to the appointment of independent directors are contained in Section 149 of the Companies Act, 2013 should be read along with the Rule 4 and Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014.

APPLICABILITY ON APPOINTING AN INDEPENDENT DIRECTOR

Listed Public Company

Every listed public company must have at least one third of the total number of directors as Independent Directors. Any fractions contained in that one third shall be rounded off as one.

Unlisted Public Company

As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, the following classes of companies must have at least 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 crores or more.
Public Companies with aggregate outstanding loans, debentures, and deposits exceeding Rs. 50 crores.

Points to remember:

S.NO	Particular
	The amount existing on the last date of the latest audited financial statements shall be taken into account for calculating the paid-up share capital or turnover or outstanding loans, debentures and deposits.
	The company must appoint a higher number of directors if a higher number of independent director if required to compose audit committee.
	These unlisted companies – Joint Venture, wholly owned subsidiary and dormant companies are not required to appoint an independent director even if they meet the criteria.

Every Independent Director should give a declaration that he/ she meets the criteria of independence at first meeting of the board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or when a situation arises which affects his status of independence. The terms and conditions of appointment of independent directors should also be posted on the company’s website.

QUALIFICATIONS OF AN INDEPENDENT DIRECTORS

The person should possess appropriate experience, skills and knowledge in one or more fields of law, finance, management, marketing, sales, research, administration, technical operations, corporate governance, or other disciplines related to the company’s business.
The relatives of an independent director should not-

be indebted to the company, its subsidiary, holding or associate company or their director or promoters.
Have given a guarantee or security in connection with the indebtedness of a third person to the company, its subsidiary, holding or associate company or their directors or promoters of such holding company, for an amount of Rs. 50 Lakhs, at any time during the two immediately preceding financial years or during the current financial year.

The person is not:

A promoter of the company or its subsidiary, holding or associate companies.
Related to directors or Promoters in the company, or any of its subsidiary, holding or associate company.

The person should not have any financial relationship (other than remuneration as a director or having transaction not exceeding 10% of the total income) with company or any of its subsidiary, holding or associate companies or their directors or promoters, during the current financial year or the last two immediately preceding financial years.
The person or his/ her relative should not:

Held or holds the position of Key Managerial Personnel (KMP) or has been the employee of the company or any of its subsidiary, holding or associate companies in any of the three financial years immediately preceding the financial year in which such person is proposed to be appointed.
Be or has been an employee, proprietor or partner in any three financial years immediately preceding the financial year in which such person is proposed to be appointed – as an audit firm, cost auditor, legal consultant or company secretary of the company or any of its subsidiary, holding or associate companies.
Hold together with relative a total voting power exceeding 2% in the company.
Be a Chief Executive Officer or director of any Non profit organization that receives 25% or more of its receipts from the company, any of its promoters or directors or its subsidiary, holding or associate companies or that holds 2% or more of the total voting power of the company.

FREQUENTLY ASKED QUESTIONS

Q. What is the minimum age to get appointed as an independent director?

A. As per Company law, the minimum age to get appointed as an independent director is 18 years. There is no maximum age to get appointed as an independent director. As per SEBI (Listing and Obligations and Disclosure Requirements) Regulations, 2015 for the listed companies the minimum age to get appointed as an independent director is 21 years and maximum age is 70.

Q. What is the tenure of appointment of independent directors?

A. An independent director can be appointed for a term of up to five consecutive years. An independent director can also be re appointed for another term of five consecutive years after passing a special resolution in general meeting. However, an independent director cannot hold office for more than 2 consecutive terms.

Q. Can a practicing company secretary be appointed as an independent director?

A. Yes, an independent director is a non-executive director and thus a practicing company secretary can be appointed as an independent director.

Q. Can a company secretary working in a company get appointed as an independent director in the same company?

A. No, an independent director cannot be a whole-time employee of the company. Thus, a company secretary of a company cannot be appointed as an independent director of the same company.