Independent Director-under Companies Act, 2013

Independent Director-under Companies Act, 2013

Independent director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards. He/ She does not have any kind of relationship with the company that may affect the independence of his/ her judgment.

They act as a guide, monitor, and guard and keep a balance on the conflicting interest of the stakeholder. Their roles broadly include improving the corporate credibility and governance standards functioning as a watchdog, and playing a vital role in risk management.

Independent directors play an active role in various committees set up by company to ensure good governance. Independent directors must also play a pivotal role in professionalizing board operations.

Other important role he does is to be part of succession planning, evaluating the performance of board and management of the company, scrutinizing, monitoring and reporting management’s performance regarding goals and objectives agreed in the board meetings, take an active part on issues such as strategy, performance, risk management and resources. Their ultimate aim should be to safeguard the interests of all stakeholders.

The companies which are required to appoint independent directors:

-Every listed public company shall have at least one-third of a total number of directors as independent directors.

-Unlisted Public Company shall have at least 2 directors as independent directors, in case

• Its paid-up share capital of Rs. 10 crores or more.
• Its turnover is Rs. 100 crores or more.
• Its aggregate outstanding loans, debentures, and deposits, exceeding  Rs. 50 crores

There was an Amendment in the provision of the Independent Director of the Companies Act, 2013 in November2019 which has come into force with effect from December 1. 2019.

The amendment says

 a)Every individual, who has been appointed as an Independent Director in a Company shall within a period of three months from the commencement of the said Rules, or who intends to get appointed as an Independent Director in a company after 01/12/2019 shall before such appointment, apply to the 'Indian Institute of Corporate Affairs (IICA) for inclusion of his name in the data bank for a period of 1 (one) year or 5 (five) years or for his lifetime as the case may be.

The major impact of this amendment is on the individuals who are already appointed as the independent directors, i.e. existing independent directors. They have to get themselves registered in the Data bank of the IICA on or before February 29, 2020.

Currently the fees for 1 year subscription is Rs. 5000 plus 18% GST. Fee plan for 5 years is yet to be notified.

b)It also says that the Membership has to be renewed within 30 days from the date of expiry of the above period of 1 year, 5 years or lifetime as the case may be.

c) Every independent director to submit a declaration of compliance with these rules to the Board, each time he submits the declaration required under sub-section (7) of section 149 of the Act.

d)Also the individual shall pass an online proficiency self-assessment test conducted by the institute within a period of one year from the date of inclusion of his name in the data bank, with minimum score of 60%, failing which, his name shall be removed from the databank of the institute.

After this amendment, companies can appoint the independent director only amongst the individuals registered under the Databank of the IICA and the companies has to do the self due diligence of the person before his/her appointment as the independent director.

This is a new beginning on accountability and eligibility and will curb promoters placing their own ineligible candidates and family members on the listed companies’ boards which have public money also invested in the company.