{"id":588,"date":"2019-10-01T09:12:28","date_gmt":"2019-10-01T09:12:28","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=588"},"modified":"2021-03-12T12:28:48","modified_gmt":"2021-03-12T06:58:48","slug":"independent-director-appointment-criteria-process-roles-duties","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/","title":{"rendered":"Independent Director: Appointment Criteria, Process, Roles &#038; Duties"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In relation to the Companies Act 2013, Independent Directors means a director other than a Managing Director or Whole-time director or a Nominee Director. For appointing the Independent Director, the Companies are required to follow the separate criteria which have been established to have an Independent Director.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#Amendment_in_Rules_of_Independent_Directors\" >Amendment in Rules of Independent Directors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#What_is_the_Role_of_an_Independent_Director\" >What is the Role of an Independent Director?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#What_are_the_Criteria_of_Appointment_of_the_Independent_Director\" >What are the Criteria of Appointment of the Independent Director?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#What_should_be_the_Qualification_of_Independent_Director\" >What should be the Qualification of Independent Director?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#What_is_the_manner_and_selection_process_of_Independent_Director\" >What is the manner and selection process of Independent Director?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#Remuneration_of_the_Independent_Director\" >Remuneration of the Independent Director<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#What_are_the_functions_performed_by_the_Independent_directors\" >What are the functions performed by the Independent directors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#Important_key_provisions_of_Independent_Directors\" >Important key provisions of Independent Directors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/independent-director-appointment-criteria-process-roles-duties\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Amendment_in_Rules_of_Independent_Directors\"><\/span>Amendment in Rules of Independent Directors<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>On October 22, 2019, The Ministry of\nCorporate Affairs has come\nup with the introduction\nof the Companies Creation and Maintenance of databank of Independent Directors Rules, 2019 and\nthe Companies Appointment and Qualification of Directors Rules, 2019 jointly referred to\nas&nbsp;&#8220;Independent Directors\nRules&#8221;, and\nboth is effective from 1<sup>st<\/sup> December, 2019.<\/p>\n\n\n\n<p>The Corporate Affairs Ministry has in addition introduced the Companies Accounts Amendment Rules, 2019\nwhich has now made it a\ncompulsory requirement to additionally disclose in the Company\u2019s Directors&#8217; Report. Therefore, as part of its Directors&#8217; Report, the company is now obligated to give a statement concerning the Board\u2019s\nopinion with respect\nto integrity, proficiency\nand experience (including the expertise) of the independent directors who are appointed throughout the year. The term\n&#8220;proficiency&#8221; here\nrefers to the independent\ndirector\u2019s\nproficiency as determined\nfrom the self-assessment proficiency\ntest conducted online\nby the institute as\nnotified under Section 150\n(1) of the Companies Act, 2013 i.e. in the Indian Institute of Corporate Affairs\n(&#8220;<strong>IICA<\/strong>&#8220;). He should clear this\ntest with 60% marks and within one year time period counting from the\ninclusion date of his name in the data bank and on\nhis failure, his name shall stand removed from the data bank of the\nIICA.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Role_of_an_Independent_Director\"><\/span>What is the Role of an Independent Director?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Independent Director is a\nperson of integrity and must have relevant expertise and experience.\nIndependent Directors plays an important role in improving corporate\ncredibility and government standards. Independent Director by actively\ninvolving in the committees set up by the company ensures better governance.<\/p>\n\n\n\n<p>They are responsible to examine, monitor and report the performance of\nmanagement concerning aims\nand objectives as has been\nagreed in the meetings of\nboard. They are obliged to preserve all the stakeholder\u2019s interests most importantly protect the\ninterest of the minority shareholders.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Criteria_of_Appointment_of_the_Independent_Director\"><\/span>What are the Criteria of Appointment of the Independent Director?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>To bring an objective view while evaluating the performance of the board and management of the company<\/li><li>To scrutinize, monitor and report the management\u2019s performance regarding goals and objectives agreed in the board meetings<\/li><li>To safeguard the interests of all stakeholders, particularly the minority shareholders and to balance the conflict of interest of the stakeholders;<\/li><li>Useful role in succession planning;<\/li><\/ul>\n\n\n\n<p>As per\u00a0<strong>Section 149(4) of the Companies Act 2013<\/strong>, and\u00a0<strong>Rule 4 of Companies (Appointment and Qualification of Directors) rules 2014<\/strong>, following class or class of Companies are required to appoint the Independent Director-<\/p>\n\n\n\n<ol><li>Every&nbsp;<strong>listed\ncompany&nbsp;<\/strong>shall have at least 1\/3<sup>rd<\/sup>&nbsp;of the total number\nof directors as Independent Directors,<\/li><li>For&nbsp;<strong>Unlisted\nPublic Companies<\/strong>-Following class or class of companies shall have at least\n2 directors as Independent Directors-The public Companies whose<\/li><li>Paid-up share capital is\nof Rs 10 crore rupees or more,<\/li><li>Turnover of 100 crore\nrupees or more,<\/li><li>Outstanding loans,\ndebentures, and deposits in the aggregate exceed 50 crore rupees.<\/li><\/ol>\n\n\n\n<div class=\"shadow1\"><strong>NOTE &#8211; <\/strong>If in case, the Unlisted Public Company is a joint venture, a wholly-owned subsidiary or a dormant company, the company will not be required to appoint Independent Director.<\/div><br>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_should_be_the_Qualification_of_Independent_Director\"><\/span>What should be the Qualification of Independent Director?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Rule 5(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014 describes the qualification of the Independent Directors<\/em><\/strong><\/p>\n\n\n\n<ol><li>An Independent Director\nshall possess appropriate skills, experience, and knowledge in One or more\nfields i.e.<\/li><li>Finance<\/li><li>Law<\/li><li>Management<\/li><li>Sales<\/li><li>Marketing and\nadministration<\/li><li>Corporate Governance<\/li><li>And technical assistance\nand operations.<\/li><\/ol>\n\n\n\n<p>Criteria of qualification also relate to the company\u2019s business (i.e. other Disciplines and fields)<\/p>\n\n\n\n<ul><li>The relatives of an Independent director should not in debt to the company\/its holding company\/subsidiary or Associate Company or their promoters\/directors.<\/li><li>The relatives of the Independent director has not given a guarantee or provided any security in connection with the indebtedness of any 3<sup>rd<\/sup>\u00a0person to the company\/its holding company\/subsidiary or Associate Company or their promoters\/directors for the amount of Rs 50 lakh rupees during the two immediately preceding Financial Years or the current financial year.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_manner_and_selection_process_of_Independent_Director\"><\/span>What is the manner and selection process of Independent Director?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As per\u00a0<strong>Section 150(1) of the Companies Act 2013<\/strong>, Independent Director may be selected from a data bank of the eligible and willing person maintained by the agency. Further, the agency shall put data bank of the potential independent directors on the\u00a0<strong>website of the MCA<\/strong><sup><a rel=\"noreferrer noopener\" href=\"http:\/\/www.mca.gov.in\/\" target=\"_blank\">[1]<\/a><\/sup>\u00a0or any other website as notified. Proper\u00a0<a href=\"https:\/\/corpbiz.io\/due-diligence\"><strong>Due diligence<\/strong><\/a>\u00a0process must be exercised before selecting a person, as an Director.<\/p>\n\n\n\n<p><strong>Approval by the members in the General\nMeeting<\/strong> &#8211; Appointment of Independent Directors has to be approved\nby the members of the company in the general meeting.<\/p>\n\n\n\n<p><strong>Fees payable<\/strong> &#8211; The agency may charge a reasonable fee from the applicant for the inclusion of his name in the data bank.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/5-kinds-of-share-capital\/\">What are the Types of Share Capital? \u2013 Detailed Overview<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Remuneration_of_the_Independent_Director\"><\/span>Remuneration of the Independent Director<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Remuneration of\nIndependent Director is covered under Section 149(9) of the Companies Act 2013\nwhich deals and provides that notwithstanding anything contained in any other\nprovision of the Act, an Independent Director shall not be entitled to any\nstock option and may receive remuneration by way of fee provided under section\n(5) of section 197. Reimbursement of expenses done in the board or other\nmeetings and profit related commission as may be approved by the members.<\/p>\n\n\n\n<p>Remuneration of the\nIndependent Director is subject to the provision of Section 197 and 198.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_functions_performed_by_the_Independent_directors\"><\/span>What are the functions performed by the Independent directors?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>To attend the company\u2019s general meetings, BOD\u2019s meetings and board committees meeting being a member.<\/li><li>To have adequate knowledge about the company\u2019s internal and the external environment in which it operates.<\/li><li>To report the matters concerning the unethical behavior, fraud or violation of the company\u2019s code of conduct or ethics policy<\/li><li>To protect the legitimate interests of the company, shareholders and its employees,<\/li><li>To ensure that the interests of a person who uses the vigil mechanism of the company are not prejudicially affected on account of using such policies. i.e. the vigil mechanism policy should be adequate and functional.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Important_key_provisions_of_Independent_Directors\"><\/span>Important key provisions of Independent Directors<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Declaration by the Independent director at the 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 that he meets the criteria of the independent director.<\/li><li>The appointment of the Independent director must be following the company\u2019s management.<\/li><li>In case of a company is not required to appoint the Independent Director, it shall appoint 2 or more self-governing director in the CSR committee.<\/li><li>As per the Companies Act, 2013 if the company triggers the criteria to have a CSR committee, it requires that the CSR Committee must consist of at least\u00a0three directors, which must include at least one independent administrator.<\/li><li>The liability of the independent administrator shall only be in respect of such acts of omission or commission by a company which has been occurred with his knowledge and with his consent. He will not be held responsible where he had not acted diligently.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The process for appointment of\nIndependent director should be independent and autonomous of the company\u2019s\nmanagement.&nbsp;The\nrequirement of this\nproficiency self-assessment online test shall ensure that there will be appointment of only qualified\nIndependent Directors on the Company\nBoard.<\/p>\n\n\n\n<p>Thus, the rule is expected to have Independent Directors with diverse skill to serve and do the compliance of the rules of the Companies and to impart rationale decision essential to encourage the maximum standards of corporate governance.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/provisions-for-the-allotment-of-securities-by-a-company\/\">Provisions for the Allotment of Securities by a Company<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In relation to the Companies Act 2013, Independent Directors means a director other than a Managing Director or Whole-time director or a Nominee Director. For appointing the Independent Director, the Companies are required to follow the separate criteria which have been established to have an Independent Director. Amendment in Rules of Independent Directors On October [&hellip;]<\/p>\n","protected":false},"author":6,"featured_media":589,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1,120],"tags":[122],"acf":{"service_id":"1"},"authorName":"Shalini Singh","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/09\/MEE.jpeg","authorDescription":"Shalini is a B.tech graduate but her keen interest in writing impelled her to continue as a content writer. Further, She has a rich experience in Companies Act and Ammendment related topics.","postViews":16134,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/588"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=588"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/588\/revisions"}],"predecessor-version":[{"id":27325,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/588\/revisions\/27325"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/589"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=588"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=588"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=588"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}