INDEPENDENT DIRECTORS – UNDER THE COMPANIES ACT, 2013 AND SEBI LODR, REGULATIONS 2015
An Independent Director is a non-executive director of a company who helps the company in improving corporate credibility and governance standards. We can also say that; an Independent director is a director who is not connected or associated with the company in any manner.
Definition:
| Companies Act, 2013 [Section 149(6)] | Sebi LODR, Regulations 2015 [Regulation 16 (1)(b)] |
An Independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director, –
None of his relatives: –
2 immediately preceding financial years or during the current financial year
Neither the Director nor his Relative:
(exception: a relative who is an employee)
i. a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or ii. any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
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Independent director means a non-executive director, other than a nominee director of the listed entity –
Note : the sub points are almost similar to Companies Act , 2013 Additional point: Neither the Director nor his Relative: · is a material supplier, service provider or customer or a lessor or lessee of the listed entity; |
Applicability and No. of IDs
| Class of Companies | Number of Independent Directors |
| Listed Companies : | |
| Case 1:
Chairperson – Non executive Director |
Atleast 1/3rd Director shall be Independent |
| Case 2:
Chairperson – Not a Regular Non- Executive Director |
Atleast 1/2rd Director shall be Independent |
| Case 3:
Chairperson – Regular non-executive chairperson or is a promoter of the listed entity or is related to any promoter or person occupying management positions at the level of board of director or at one level below the board of directors |
Atleast 1/2rd Director shall be Independent |
| Top 1000 listed entities | Atleast 1 Woman Independent Director |
| Other Public Companies | |
| Paid up Capital – Rs 10 crores or more,
Turnover – Rs 100 Crores or more, Aggregate, outstanding loans, debentures and deposits –exceeds Rs 50 Crore or more |
At least 2 independent Directors |
Note : –
In case a company is required to appoint higher number of independents directors due to composition of its audit committee and then they shall appoint such higher number of independent directors.
Tenure:
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Companies Act, 2013 [Section 149(10) & (11)] |
Sebi LODR, Regulations 2015 [Regulation (25(2)] |
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The maximum tenure of Independent Directors shall be in accordance with the Companies Act, 2013 and rules made thereunder, in this regard, from time to time. |
Maximum Directorship:
- Person shall not serve as an independent director in more than seven listed entities.
- Person who is serving as a whole time director / managing director in any listed entity shall serve as an independent director in not more than three listed entities
Note: –
The count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange.
Other Important Points under Companies Act, 2013
- Independent Director shall not be eligible for stock option.
- The provisions of retirement by rotation will not be applicable.
Other Important Points under Sebi LODR, Regulations 2015
- Minimum age 21 years.
- Meeting: Atleast 1 meeting in a year.
- An independent director who resigns or is removed from the board of directors of the listed entity shall be replaced by a new independent director by listed entity at the earliest but not later than the immediate next meeting of the board of directors or three months from the date of such vacancy, whichever is later.
Recent Amendment:
Insertion of new proviso to Regulation 25 (2A) w.e.f 14.11.2022.
| Current Regulation | Amended Regulation |
| The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution. | The appointment, re-appointment or removal of an independent director of a listed entity, shall be subject to the approval of shareholders by way of a special resolution
Insertion of new proviso to Regulation 25 (2A)
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DISCLAIMER: The content has been prepared according to relevant provisions and information that exist at the time of preparation of this document. The Readers are requested to refer the relevant existing provisions of applicable Laws.
Author Bio
IN a listed company Mr A an Independent Director completes his second consecutive term on 26th Sept, 2024 and he cannot be re-appointed again now. In his place company has to appoint a new Independent Director Mr B. Whether we can appoint Mr B at a later date i.e, within 3 months from the date of the cessation of office by Mr A and regularise his appointment in general meeting or through postal ballot within 3 months from the date of his appointment in the Board. ?