1. Section 149 (4) and rule 4 of Companies (Appointment & Qualification of Director) Rule, 2014
1. Every listed company shall have at least 1/3rdof total No. of directors as Independent Director, and
2. Following classes of companies shall have at least 2 Directors as Independent Director-
In case of Public Company having –
i. paid up share capital of Rs 10 Cr. or More, or
ii. Turnover of Rs. 100 Cr. or More, or
iii. In aggregate outstanding loans, debentures, and deposits, exceeding 50 Cr.
2. 1st Proviso of Rule 4
Provided that in case company cover under this rule is required to appoint a higher no. of Independent director due to Composition of the Audit Committee, then in such case such higher no. of independent director shall be applicable.
3. 2nd Proviso of Rule 4
Provided further that any vacancy in between the duration of an Independent director shall be filed up by the board not later than-
a. Immediate Board meeting,
b. or 3 months from the date of such Independent Director’s Vacancy,
whichever is later.
4. rd Proviso of Rule 4
Provided also that where a company failed to fulfill any of conditions, it shall not be required to comply with these provisions until such time as it meets any of such conditions.
5. Companies not covered under Rule-4
1. A Joint Venture Company,
2. A wholly on Subsidiary Company,
3. A Dormant Company U/s 455 of the Act
6. Meaning & Qualification of Independent Director Section 149(6) rule 5 of Companies (Appointment & Qualification of Director) Rule, 2014
An Independent director means a director other than a MD or WTD, or a Nominee Director;
1. who, in opinion of Board , is a person of integrity, having relevant expertise and experience,
2. Who is or was not promoter of the company or its holding, subsidiary or associate company;
3. who is not relative of promoters or directors in the company, its holding, subsidiary or associate company;
4. who has or had no monatory relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the 2 immediately previous financial years or during the current financial year, other than remuneration as such director or having transaction not exceeding 10% of his total income or such amount as may be prescribed,
5. none of whose relatives-
a. is holding any security of or interest in the company, its holding, subsidiary or associate company during the 2 immediately Previous financial years or
b. during the current financial year: Provided that the relative may hold security or interest in the company of face value not exceeding Rupees 50,00,000 or 2% . of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed by CG;
c. Provided that the relative may hold security or interest in the company of face value not exceeding Rupees 50,00,000 or 2% of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;
d. has given a guarantee or provided any security in connection with the indebtedness of any 3RD person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately previous financial years or during the current financial year; or
e. has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to 2 % or more of its gross turnover or total income singly
6. who, neither himself nor any of his relatives—
a. holds or has held the position of a KMPsn or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 financial years immediately Previous the financial year in which he is proposed to be appointed;
b . is or has been an employee or proprietor or a partner, in any of the three financial years immediately Previous the financial year in which he is proposed to be appointed, of-
(i) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
(iii) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to 10 % or more of the gross turnover of such firm;
c. holds together with his relatives two per cent. or more of the total voting power of the company; or
d. is a CEO or director, by whatever name called, of any nonprofit organization that receives 25%. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds 2% . or more of the total voting power of the company;
7. such other qualification
An Independent director shall possess –
a. Skills,
b. experience,
c. knowledge, in one or more field of finance law, management, sales, marketing , administration, etc
None of the relative to Independent director-
a. is indebted to company, its holding company, subsidiary or associate company or their promoters, or directors; or
b. has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company,
for an amount of 50 Lakhs rupees, at any time during the two immediately preceding financial years or during the current financial year
7. Declaration by Independent director Section 149(7)
Independent director-
In the 1st BM in which he participating as director or
Any change in circumstances which may his status as an Independent, Shall give a declaration that he qualify as independent Director us 149(6).
8. Abide by the code of Independent Director Section 149(8)
Both, the company and ID shall abide by the provisions of code of Independent Director i.e Schedule IV.
9. Remuneration and other monatory Section 149(9)
Independent director shall not be entitled to any stock option and receive by way of fees provided in section 197, reimbursement of expenses for participation in the Board and other commission as may be approved by the members.
10. Term of Independent Director Section 149(10)
A term of 5 year,
He shall be eligible for reappointment on passing of SR and the same shall be disclosed in Board report.
11. Maximum terms and reappointment thereof
Not more than 2 consecutive terms;
And further Eligible for reappointment after the expiration of 3 years of ceasing to become an Independent director.
12. Retirement by rotation
Provision of section 152(6) i.e retirement of directors by rotation shall not be applicable to appointment of independent directors
13. Data Bank Section 150
An Independent director shall be selected from a Data Bank,
Data bank shall contained-
i. Name;
ii. Address;
iii. Qualification of person who willing to act as ID,
Data bank maintained by the IICA, as notified by the CG
14. Company’s responsibility
It shall be the responsibility of the Company , exercise Due diligence before selecting a person from the data bank referred to above, as an independent director
15. Appoint of ID shall be approved in the general meeting
As per section 152(2) the company shall approved the appointment of Independent director and proper justification shall be made in the explanatory statement attached to notice of general meeting called to consider the said appointment.
16. Rule 6 of the Companies (Appointment & Qualification of Director) Rule, 2014 Data Bank Provisions
Every Individual
Whose appointment has been made as an independent director on or before the date of commencement of the Companies (Appointment and qualification of director) 5th Amendment Rules, 2019 shall within a period of 10 Months from the commencement, or
A person who wants to appoints as an Independent Director in any Company after commencement of the Rules, shall before appointment to do the following things-
1. Online application to IICA – shall apply online to IICA for inclusion of his name in the data bank maintained by IICA, for a period of-
a. 1 Year, or
b. 5 Year, or
c. Life Time, till he continue to hold office of an ID
2. A person can apply voluntarily to IICA for inclusion of his name in data bank
3. Application for renewal
Every natural Person whose name has been included in the data bank shall make an online application to IICA for renewal of his terms of 1 year or 5 year, within a period of 30 days from the expiry of the period otherwise his name shall be removed from the data bank.
4. An Independent director shall submit a declaration also under section 149(7).
5. Online proficiency self-assessment test
Every individual whose name has included in the data bank shall pass an Online proficiency self assessment test as conducted by IICA within a period of one year from the date of inclusion his name in the data bank otherwise his name shall removed from the data bank
6. Exemption from the Online Test
an individual shall not be required to pass the online test, if he has served as a director or KMPs , for a total period of not less than 10 years, as on the date of inclusion of his name in the databank, in one or more of the following, namely:-
(a) A listed public company; or
(b) An unlisted public company having a paid-up share capital of rupees ten crore or more; or
(c) any body corporate listed on a recognized stock exchange
Author Bio
