Appointment of Independent Director – Modus Operandi

​CS ​ Amey A Patwardhan

Preamble:

The Companies Act, 2013 (“the Act”) lays down number of provision as regards the Independent Directors compulsorily to be appointed on the Board of Listed & certain Public Companies meeting the criteria as prescribed by the Rules. Considering the distributed provisions regarding the appointment of Independent Directors (ID) – here is an attempt to present a consolidated modus operandi for their appointment on the Board.

Statutory Provisions:

1. Companies Act, 2013 –  Section 2(47), 149, 150, 152, 160, 164(1)&(2)
2. Chapter XI Rules viz. Companies (Appointment and Qualification of Directors) Rules, 2014
3. Listing Agreement – Clause 49

Requirements / Mode of Appointment:

1. The ID is to be appointed on the basis of recommendation of  the and pursuant to the Policy laid down by theNomination & Remuneration Committee constituted by the Company pursuant to section 178 of the Act;
2. The ID has to give consent to act as Director to the Company in Form DIR-2 before the appointment;
3. A declaration from the ID that he is not disqualified to be appointed as a Director as per provisions of Section 164(1) & (2) of the Act in Form DIR-8;
4. A declaration of independence* from the ID as per Section 149(6) & Clause 49 is required to be obtained before his appointment & be placed before the 1^st Board Meeting in which he participates as a director & 1^st Board Meeting each financial year thereafter;
5. The Company & ID needs to abide by the ‘Code for Independent Directors’ as specified in Schedule IV to the Act and the same is to be noted in the Board Meeting;
6. ID can be appointed upto a maximum period of 5 years in his first term and can be re-appointed for a second term upto 5 years provided a Special Resolution is passed by the members of the Company and the same is disclosed in the Board Report. As per MCA Clarification vide General Circular  No. 14/2014 dt. 9^th June, 2014, the ID – even if appointed for a lesser period than of 5 years- will be held as appointed for one term;
7. The ID will not be liable to retire by rotation in General Meetings of the Company;
8. A member has to propose candidature of the ID alongwith notice in writing and a deposit of Rs.1,00,000/- as per Section 160 of the Act;
9. The Explanatory Statement under section 102 to be annexed to the notice of General Meeting shall contain the justification for choosing the appointee as ID. The Explanatory Statement shall include a statement that in the opinion of the Board the ID fulfills condition specified in the Act for appointment and is independent of the management;
10. The Company will have to formalize the appointment of ID by issuing a  ‘Letter of Appointment’ as per Schedule IV(IV)(4) to the Act;
11. The terms and conditions of appointment of ID to be posted on website of the Company;
12. The Company has to file the consent of ID with ROC within 30 days of his appointment in Form DIR-12;
13. Sitting fees to be paid to ID for attending the Board Meetings pursuant to Section 197(5) which is maximum of Rs.1,00,000 per meeting is to be decided by the Board;
14. There shall be minimum one meeting per year of only the IDs of the Company as per Schedule IV(VII) to the Act.

* The Declaration of Independence to be obtained from ID by a Non Listed Public Company shall contain only the clauses enumerated by Section 149(6) of the Act and need not incorporate additional strictures of Clause  49.

 (​CS ​ Amey A Patwardhan, E​-Mail- cs.ameypatwardhan@gmail.com​, Voice-9833359049)

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