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Applicability:

Companies (Appointment & Qualification of Directors) Rules, 2014

Chapter XI Appointment and Qualifications of Directors

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

WHEN IS A COMPANY REQUIRED TO APPOINT INDEPENDENT DIRECTOR?

Listed Company Unlisted Public Company
Mandatory

(atleast 1 /3rd of total director needs to be independent director)

For E.g. : Total Director 6, then atleast 2 director needs to be independent director

When:

  • Paid up share capital of 10 Crores or more

or

  • Turnover of 100 Crores or more

or

  • Aggregate outstanding loans, debentures and deposits exceeding 50 Crores

EXECPTIONS:

  • A Joint Venture
  • A Wholly Owned Subsidiary
  • Dormant Company

Note: No mandatory requirement for appointment of Independent Director in private company

WHO IS QUALIFIED TO BE AN INDEPENDENT DIRECTOR?

Sr. No. Individual None of His/Her Relative
1. Person of integrity Holding security or interest in company, holding, subsidiary, associate during 2 immediately preceding financial year or during the current year.
2.   Possesses relevant expertise and experience Provided that relative may hold security or interest in the company of face value <50 Lakhs or 2% of PUC of its holding, subsidiary or associate company
3.   Neither is or was a promoter in associate, holding or subsidiary company nor related to promoter of any company Indebted to company, its holding, subsidiary, associate or their promoters, or directors, in excess of such amount as may be prescribed during immediately preceding 2 financial year or current year
4. No pecuniary relationship except remuneration or transaction not exceeding 10% of ID total income with its holding, subsidiary, associate company, or their promoter during immediately preceding 2 financial year or current year Has given a guarantee or security in connection with indebtedness of third person to company, h, s, a or p, d during immediately preceding 2 financial year or current year
5. Any other pecuniary transaction or relationship with subsidiary, holding, associate company :- 2% or more of its gross turnover or total Income
None of the – INDIVIDUAL AS WELL AS RELATIVE OF THE INDIVIDUAL
6. Holds a position of KMP, or been an employee of company or, holding, subsidiary or associate company during 3 IPFY (relative being an employee than the above would not be applied during IP3FY)
7. Holds 2% or more along with the relative of Total Voting Power of the company
8. Is a Chief Executive or Director of any non-profit organization that receives 25% or more of its receipts from company, its promoter, holding, subsidiary or associate company
9. Employee or proprietor or partner in 3 immediately previous FY of

  • Auditor Firm, CS in Practice, Cost auditor of company holding, subsidiary or associate company or
  • Legal or consulting firm which have a transaction of more than 10% of gross T/O of the firm.

In which he is proposed to be independent director

COMPLIANCE BY AN INDIVIDUAL TO BE ELIGIBLE TO BE APPOINTED AS INDEPENDENT DIRECTOR (RULE 6)

Sr. No. Particulars Remarks
1. Registration
  • Register itself to independent director databank within 13 months from Commencement of the provision.
  • An Individual needs to apply to Institute for the inclusion of his name in Data Bank for a period of 1 year, 5 year or lifetime. (An individual not having a DIN can also get itself registered under the data bank)
  • The individual need to pass the online proficiency self-assessment test within 2 years from inclusion of the name in data bank.
2. Fees
  • Rs. 5,000 + 18% GST for 1 Year subscription
  • Rs. 15,000 + 18% GST for 5 Years subscription
  • Rs. 25,000 + 18% GST for Lifetime subscription
3. Renewal
  • Renewal for the further period shall be made within 30 days from the expiry.
  • For 1 year, 5 year or lifetime.
4. Exempted from test
  • Who has served as KMP or director for a period not less than 3 years in:

a) Listed company OR

b) Unlisted public company (with PUC 10 Crores or more) OR

c) body corporate listed on any RSE or in a country which is a member State of the FAFT on Money Laundering and the regulator of the securities market in such member State is a member of the International Organization of Securities Commissions OR

d) bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or more; OR

e) statutory corporations set up under an act of Parliament or any State Legislature carrying on commercial activities;

  • Pay scale equivalent to a director, or above in any Ministry or Department, of the CG or SG having experience of handling-

a) matters relating to commerce, corporate affairs, finance, industry or public enterprises OR

b) Affairs related to Government companies or statutory corporations set up under an Act of Parliament or any State Act and carrying on commercial activities.

  • In the pay scale of Chief General Manager or above in the SEBI or the RBI or the IREB or the IRDA of India or the PFRDA and having experience in handling the matters relating to corporate laws or securities laws or economic laws

FAFT. Force Action Task Force

SEBI. Securities Exchange Board of India

RBI. Reserve Bank of India

IREB. Insurance Regulatory and Exchange Board

IRDA. Insurance Regulatory and Development Authority of India PFRD. Pension Fund Regulatory and Development Authority

APPOINTMENT OF INDEPENDENT DIRECTOR

Earlier to Establishment of Databank After Establishment of Databank
As     per   the   qualification  required   to   an
independent director company appoints
From databank who is eligible and willing to be appointed as Independent Director of the Company
Director needs to Register itself with the institute before such appointment or within 13 months of commencement
Director needs to register itself by attempting the online assessment except the exempted director. The Director already registered needs to attempt the online assessment within 2 years of application for registration
  • Approval of Independent Director’s appointment in General Meeting.
  • Filing of Form DIR 12 within 30 days of appointment of Director.
  • Appointment to be formalized through Letter of Appointment including term of appointment, expectation of BOD, Remuneration, Code of Business Ethics of company, fiduciary duties, and provision for Directors & Officers (D&O) Insurance, List of actions that director shouldn’t do while functioning in the company.
  • Term & Conditions of appointment of Independent Director should be mentioned on website of company as well as open for inspection at the registered office of the company.
  • At 1st meeting of Board and thereafter at every 1st Board Meeting of any Financial Year, the Independent Director needs to provide a declaration of independence [i.e. it meets the criteria of independence provided u/s 149(6)]

Independent Director

Note: The re-appointment of independent director shall be on the basis of report of performance evaluation. (By passing of Special Resolution)

PROCEDURE FOR APPOINTMENT OF INDEPENDENT DIRECTOR:

Sr. No. BEFORE APPOINTMENT
1.   Due diligence of proposed person for the position of Independent director.
2.   Complies with Rule 6 and not disqualified Sec 164 and Sec 165 of the Act.
3.   The selected person should also eligible as per section 149(6) of the Act and Rule 5 of Companies (Appointment & Qualifications of Director) Rules, 2014.
4.   Declaration:

  • DIR 8 – Not Disqualified [152 (4)]
5.   Consent to act as a director in Form DIR-2
6.   Issuance of Notice and holding of Board meeting for:

  • Appointment of Independent Director,
  • Fixing day, date and time of General Meeting for approval of member for appointment of Independent Director.
7.   Issuance of Notice of General Meeting and Holding of General Meeting.
8.   Company would issue appointment letter with the terms & conditions of Independent Director’s Appointment and also post the same on the website of the company.
AFTER APPOINTMENT
9.   Obtain the declaration regarding interest in other entities in Form MBP 1 within 30 days of appointment or at the first Board meeting in which he participates as a director whichever is earlier.
10.   File Form DIR 12 and MGT 14 within 30 days of the appointment of independent director.
11.   Declaration of Independence as per section 149 (6) at first board meeting in which he participates as the director and at every 1st Board meeting of each financial year.
12.   Make necessary entries in the register of Directors and Key Managerial Personnel and their Shareholding.

SEPARATE MEETING OF INDEPENDENT DIRECTOR:

Sr. No. Particular Remarks
1.   Number of Meeting Atleast 1 meeting in a Financial Year
2.   Quorum All Independent Director of the company
3. Purpose of Meeting 1. Review the performance of :

  • Non-independent Director
  • Chairperson of the company

2. Assess the quality, quantity and timeliness of
flow of information between company management and Board

PRESENCE OF INDEPENDENT DIRECTOR ON BOARD

Sr. No. Particulars

 

Remarks

 

1) Independent Director
  • When Chairman Non-Executive Director:

Atleast 1/3rd of total of BOD

  • When Chairman Executive Director:

Atleast 1/2nd of total OF BOD

  • Top 2000 Listed Entities shall include atleast one director as Independent Director for every Board meeting
2) Maximum number of Directorship Serving as ID: 7 Company Serving as ID/MD/WTD: Then only 3 Company
3) Unlisted                         Material
Subsidiary
At least 1 ID on board of Listed Entity should also be on the Board  unlisted material subsidiary whether incorporated in India or not.

NOTE: ID- Independent Director

WTD Whole-time Director

MD – Managing Director

Material subsidiary-Subisdary whose income or net worth exceeds 20% of the consolidated income or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year.

TENURE OF INDEPENDENT DIRECTOR:

  • An independent Director can hold office for a period of 5 consecutive years for 2 terms
  • Reappointment can be made only after passing of Special Resolution by the company and disclosure of such appointment in Board’s Report
  • Independent Director after 2 terms would be eligible for Reappointment after expiration of 3 years of casing to become Independent Director.
  • The Independent Director shouldn’t be associated with the company in any other capacity either directly/indirectly.

VACANCY OF INDEPENDENT DIRECTOR:

  • If any independent director resign or is removed from the board of director of listed entity than new independent director to be appointed at the later of the following:
    • 3 months from the date of vacancy

OR

    • Immediate next Board Meeting
  • If the board fulfills the requirement of independent director on the board before filling up the vacancy created by resignation or removal then the requirement of appointment of new independent director shall not apply.

RESIGNATION OF DIRECTOR

(SECTION 168)

Sr. No. Particulars Remarks
1. Process
  • Independent Director gives notice of Resignation to the Company.
  • Company to file Form DIR 12 within 30 days of receipt of notice to ROC.
  • Company needs to mention the same in Director’s report as well as on the website of the company.
  • Director may intimate his resignation within 30 days of resignation in Form DIR 11 to ROC
2. Effective date of Resignation

w.e.later

  • Notice received by the company

or

  • Date specified in the Resignation Letter
3. Liability after resignation
  • Independent Director shall be liable even after his resignation for the offences occurred during his tenure with his knowledge.
4. Company Ceases the Condition
  • If company ceases to fulfill the condition for appointment of Independent Director for consecutive 3 years,
    • the Independent Director on Board would continue till the completion of his tenure except he puts up resignation or company remove him/her from Board.
    • As company won’t be require to comply with section 149(6) i.e. appointment of independent director.
5. Disclosure
  • Listed company needs to make disclosure to Stock Exchange within 7 days of resignation along with:

√ Resignation Letter mentioning detailed reason

√ Name of other listed entity in which the said director is also a director

  • Disclosure in Corporate Governance Report along with detailed reason of resignation if such director resigns before completion of his tenure.

REMOVAL OF DIRECTORS

(SECTION 169)

Sr. No. Particulars Remarks
1. Removal of director
  • Company may remove a director (not appointed by Tribunal) before expiry of his term by giving him a reasonable opportunity of being heard and passing an Ordinary Resolution.
  • An independent director re-appointed for second term shall be removed by the company only by passing a special resolution
2. Process
  • Where a special notice received by the company from shareholders holding 1% of voting power.
  • The company shall send a copy to the director concerned, who shall be entitled to be heard on the resolution at the meeting.
  • Director may make representation in writing to the company and requests its notification to members of the company.
  • If due to insufficient time or for the company’s default, the director may be heard at the meeting of members.
  • If any defamatory issue created by the director, the reimbursement of the expenses made by company would be recovered from him/her.

REMUNERATION TO INDEPENDENT DIRECTOR

  • Where company in loss: If a company suffers loss during F.Y. or has inadequate profits, the company need not pay to its directors (including ID) any remuneration exclusive of fees payable to them.
  • Sitting Fees: A director may receive remuneration by way of fee for attending meetings of the Board or Committee as may be decided by the Board such amount of such fees shall not exceed Rs. 1 Lakh per meeting.
  • Employee Stock Option Plan: An independent director shall not be entitled to any stock option and may receive remuneration by way of fees reimbursement of expenses for participation in the Board.

REQUIREMENT OF INDEPENDENT DIRECTOR UNDER VARIOUS COMMITTEE BOARD:

Sr. No. Particulars Committee Name
Audit Committee Nomination & Remuneration Committee Stakeholder Relationship committee and Risk Management Committee
1.   Composition O/S SR No O/S SR O/S SR No O/S SR O/S SR No O/S SR
All ID 1/3rd of total 2/3rd of total 50% of total 2/3rd of total 1
2.   Meeting Quorum At least 2 2 or 1/3rd of total director w.e. is higher
3. Chairperson Independent Director Independent Director

NOTE:

O/S SR – outstanding superior right equity shares

ID – Independent Director

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