The role of an independent director in a company is pivotal, guiding its growth and ensuring compliance with legal standards. Section 149 of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Qualification of Directors) Rules, 2014 and Regulation 25 of Securities Exchange Board of India (Listing and Obligations Disclosure) Regulations 2015, lays out a stringent process for appointing these directors. Let’s dissect this comprehensive procedure step by step.
Qualification and Databank: Before embarking on the appointment process, the aspiring director must have a qualifying skill set. Their name should be listed in the databank of independent directors, which can be accessed at Independent Directors Databank. The company may select qualified persons to be appointed as independent directors from the data banks. Once the desired person is selected, the Company shall follow the following procedure:
Step 1: Written Consent and Declaration
- In compliance with, Section 149(6) and (7) read with Rule 5 of the Companies (Appointment and Qualification of Director) Rules, 2014 ensure that the conditions specified in the Act and SEBI (LODR) Regulations, 2015 are fulfilled for the appointment as an independent director.
- Further, obtain a written declaration in conformity with SEBI (LODR) Regulations, 2015.
- Obtain written consent from the proposed independent director in Form DIR-2.
- Then a declaration has to be obtained from the proposed independent director in Form DIR-8 that he is not disqualified to be a director under the Act.
- Obtain disclosure in Form MBP-1 from the proposed independent director.
Step 2: Nomination and Remuneration Committee (NRC)
- If a company needs to constitute NRC under Section 178, then the committee shall recommend the appointment of an independent director to the Board of Directors of the company.
Step 3: Conduct Board Meeting
- Send notice to the Board of Directors and conduct a board meeting to consider the appointment of the independent director subject to the approval of members of the company.
- Decide the term of ID which shall not be more than 5 years.
- Take note of the disclosure of interest received from the independent director.
- Also, authorize the CS or CFO or any director of the company to file the requisite form with ROC.
- Decide upon the date & time of general meeting.
Step 4: Approval of shareholders in general meeting
- Within 30 days of the Board meeting, conduct a general meeting and approve the appointment of an Independent Director by way of special resolution. (Read regulation 25(2A) of SEBI LODR regulations, 2015).
- File necessary form (DIR-12) with the ROC along with the required documents and fees.
NOTE: Read the latest amendments to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 relating to the review of the approval process for appointment, reappointment and/or removal of Independent Directors for further understanding.
Step 5: Time Bound Disclosures after the meeting
- A listed company has to submit a disclosure of the appointment of independent director to the stock exchange where shares are listed within 24 hours from the conclusion of the board meeting.
- The same has to be posted on the company website within 2 days.
- A listed company has to submit the details of the proceedings of the general meeting to the stock exchange where shares are listed within 24 hours from the conclusion of the general meeting.
- Further, the listed company has to submit to the stock exchange within 2 working days from the conclusion of the general meeting the details of the voting result in the format SEBI has provided.
Step 6: Issue of Appointment Letter
- An appointment letter is issued to the ID stating the terms of appointment, roles, duties, remuneration, etc.
Step 7: Time Bound Disclosures
- A listed company has to obtain disclosure in Form B (relating to insider trading) within 7 days of appointment from the director.
Step 8: Statutory Register
- Necessary entries have to be made in the register of the directors and KMP and the register of contracts or arrangements in which directors are interested in Form MBP-4.
This is the complete process of appointment of an Independent Director.
Conclusion: Appointing an independent director is a systematic and rigorous process. Ensuring each step is accurately followed not only guarantees regulatory compliance but also ensures the director’s rightful place in steering the company’s future.
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Disclaimer:- This Blog is for the purposes of information/knowledge and shall not be treated as solicitation in any manner or for any other purposes whatsoever.
For queries or clarifications, reach out at 9953808432 or [email protected]. SINGHANIA & ASSOCIATES, based in Delhi, is a renowned firm of practicing company secretaries.
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