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An Independent Director, as defined in Section 149(6) of the Companies Act, 2013, is a director who is not the Managing Director (MD), Whole-Time Director (WTD), or a nominee director. They must have integrity, relevant expertise, and should not be a promoter or related to promoters, directors, or key management personnel (KMP) of the company or its affiliates. They should not have any significant financial transactions with the company, and neither they nor their relatives should hold securities, be indebted to the company, or have guarantees exceeding certain limits. Additionally, an Independent Director should not have been an employee or partner of any consulting firm with significant business transactions with the company in the last three financial years. They should also not hold significant voting power or receive substantial funding from the company or its affiliates. Other qualifications may be prescribed by regulations.

Definition of Independent Director under Companies Act

Definition of Independent Director [Section 149(6) of the Companies Act, 2013]

1. Director shall be other than MD or WTD or a nominee director

2. In the opinion of the board has integrity and possesses relevant expertise

3. Not a promoter of the company or its holding, subsidiary or associate

4. Not related to promoters or directors of the company, its holding, subsidiary or associate

5. No pecuniary relation except remuneration in previous 2 financial years.

6. Shall not have transaction exceeding 10 % of his total income with the company its holding, subsidiary or associate during the 2 immediately preceding F.Y. or the current F.Y.

7. None of whose relatives

i. Holding any security exceeding 50 lakh rupees or 2 % of the paid-up capital of the company, its holding, subsidiary or associate during the 2 immediately preceding F.Y. or the current F.Y.

ii. Indebted exceeding 50 lakh rupees to the company, it’s holding, subsidiary or associate during the 2 immediately preceding F.Y. or the current F.Y.

iii. Given a guarantee exceeding 50 lakh rupees with the indebtedness of any third person to the company, its holding, subsidiary or associate during the 2 immediately preceding F.Y. or the current F.Y.

iv. has any other pecuniary transaction with the company, or its subsidiary, or its holding or associate amounting to 2 % or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);]

8. Who, neither himself nor any of his relative:

i. kmp or is or has been employee of the company or its holding, subsidiary or associate company in any of the 3 financial years

ii. employee or proprietor or a partner, in any of the 3 F.Y. immediately preceding the financial year

    • A firm of CA/CS/CMA of the company or its holding, subsidiary or associate; or
    • 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;

iii. holds together with his relatives 2 % or more of the total power of the company; or

iv. is a Chief Executive or director of any non-profit 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; or

9. Who possesses such other qualifications as may be prescribed.

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Greetings, readers! I'm Neel Lakhtariya, a recently qualified Company Secretary (AIR-23 CS Executive), passionate about reading and acquiring knowledge. I write articles to assist professionals in clarifying their doubts on specific topics. View Full Profile

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