With the Introduction of New Companies Act,
2013 the makeshift of Indian Corporate world is taking place. The issues which
were ignored under old law are getting emphasized. In the broader sense, if we
see the change in Law, there is genuine feeling that government wants to make
Companies i.e. Entities formed and governed under Companies act, a
self-governing and disciplined body. One of the key element and initiative in
this regard is Independent Director.
From the Surface of the Act it is understandable
that the role of shareholders have increased so as role of professionals and
mainly that of Company Secretaries, who are instrumental in catering corporates
with their experience and Expertise.
Independent Directors are expected to play
role of a torch light for development and maintenance of Corporate Governance
in a Company. For listed Company, he is statutorily a very important person. He
is expected to act as scrutinizer, who will ensure adequate measurements placed
for proper disclosures in financial reporting of the Company and maintenance of
high standards of internal auditing.
INDEPENDENT DIRECTOR AS PER LISTING
AGREEMENT
Clause 49 of listing agreement provided for
the appointment of independent director, accordingly the Board of directors of
the company shall have an optimum combination of executive and non-executive
directors with not less than fifty percent of the board of directors comprising
of non-executive directors.
Where the Chairman of the Board is a
non-executive director, at least one-third of the Board should comprise of
independent directors and in case he is an executive director, at least half of
the Board should comprise of independent directors.
Provided that where the non-executive
Chairman is a promoter of the company or is related to any promoter or person
occupying management positions at the Board level or at one level below the
Board, at least one-half of the Board of the company shall consist of
independent directors.
As per listing agreement Independent Director
is defined as a non-executive director of the company who:
- apart from receiving director’s remuneration, does not have any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associates which may affect independence of the director;
- is not related to promoters or persons occupying management positions at the board level or at one level below the board;
- has not been an executive of the company in the immediately preceding three financial years;
- is not a partner or an executive or was not partner or an executive during the preceding three years, of any of the following: i. the statutory audit firm or the internal audit firm that is associated with the company, and ii. the legal firm(s) and consulting firm(s) that have a material association with the company.
- is not a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director;
- is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares. g. is not less than 21 years of age
INDEPENDENT DIRECTOR AS PER COMPANIES
ACT, 2013
Subsection (6) of Section 149 of the
Companies Act, 2013 provided that
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,
(a) Who, in the opinion
of the Board, is a person of integrity and possesses relevant expertise and
experience;
(b) (i) who is or
was not a promoter of the company or its holding, subsidiary or associate
company;
(ii) Who is
not related to promoters or directors in the company, its holding, subsidiary
or associate company;
(c) who has or had no
pecuniary relationship with the company, its holding, subsidiary or associate
company, or their promoters, or directors, during the two immediately preceding
financial years or during the current financial year;
(d) None of whose
relatives has or had pecuniary relationship or transaction with the company,
its holding, subsidiary or associate company, or their promoters, or directors,
amounting to two per cent. or more of its gross turnover or total income or
fifty lakh rupees or such higher amount as may be prescribed, whichever is
lower, during the two immediately preceding financial years or during the
current financial year;
(e) Who, neither himself
nor any of his relatives—
(i) Holds or
has held the position of a key managerial personnel or is or has been employee
of the company or its holding, subsidiary or associate company in any of the
three financial years immediately preceding the financial year in which he is
proposed to be appointed;
(ii) is or has
been an employee or proprietor or a partner, in any of the three financial
years immediately preceding the financial year in which he is proposed to be
appointed, of—
(A) a firm of
auditors or company secretaries in practice or cost auditors of the company or
its holding, subsidiary or associate company; or
(B) 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;
(iii) holds
together with his relatives two per cent. or more of the total voting power of
the company; or
(iv) is a
Chief Executive or director, by whatever name called, of any nonprofit organization
that receives twenty-five per cent or more of its receipts from the company,
any of its promoters, directors or its holding, subsidiary or associate company
or that holds two per cent. or more of the total voting power of the company;
or
(f) Who possesses such
other qualifications as may be prescribed.
(7) Every independent director shall
at the first meeting of the Board in which he participates as a director and
thereafter at the first meeting of the Board in every financial year or
whenever there is any change in the circumstances which may affect his status
as an independent director, give a declaration that he meets the criteria of
independence as provided in sub-section (6).
APPOINTMENT OF INDEPENDENT DIRECTOR
Independent Director shall be appointed as
per provisions of Section 152 of the Companies Act, 2013. Accordingly the
appointment of Independent Director shall be nominated by Director of the
Company in the General meeting of the Members. Along with the notice of Meeting
the Directors must annex explanatory statement clarifying that the person
proposed to act as Independent Director possesses all requisite skills,
qualifications and fulfills requirements of Companies Act and also how the
appointment of that person justifies.
According to section 150 (1) of the Act,
independent directors may be selected from a data bank of eligible and willing
persons maintained by the agency (Any body, institute or association as may be
authorized by Central Government). Such agency shall put data bank of
independent directors on the website of Ministry of Corporate Affairs or any
other notified website. Company must exercise due diligence before selecting a
person from the data bank referred to above, as an independent director.
Further as per rule 6 (2) data bank of the
independent director must contain following information of the Director
(a)
DIN
(Director Identification Number);
(b)
Name
and surname in full;
(c)
Income-tax
PAN;
(d)
Father’s/Mother;s/
Spouse’s name( if married) ;
(e)
Date
of Birth;
(f)
Gender;
(g)
Nationality;
(h)
Occupation;
(i)
Full
Address with PIN Code (present and permanent)
(j)
Phone
number;
(k)
E-mail
id;
(l)
Educational
and professional qualifications;
(m) Experience /
expertise, if any;
(n)
Any
legal proceedings initiated or pending against such person;
(o)
List
of limited liability partnerships in which he is or was a designated partner
along with Name of the LLP, Nature of Industry; and Duration- with dates;
(p)
List
of companies in which he is or was director along with Name of the company;
Nature of industry; Nature of directorship – Executive / Non-executive /
Independent / Nominee Director; and Duration – with dates.
However the onus of checking all credentials
is always placed with the Company taking Independent Director. Neither data
bank nor central government are in any way responsible for correctness of data.
CODE OF CONDUCT FOR INDEPENDENT
DIRECTOR
Independent Director is entrusted with
fiduciary duty of keeping a hawk eye over functioning of management of Affairs
of the Company. After introduction of new Companies Act, 2013 a proper code of
Conduct is designed for independent directors working as part of Board. This
code of conduct is provided in Schedule IV of Companies Act, 2013. The
guideline, that is stipulated for Independent Director wants the Independent
Director to ensure that;
(1)
Uphold
ethical standards of integrity and probity;
(2)
Act
objectively and constructively while exercising his duties;
(3)
Exercise
his responsibilities in a bona fide manner in the interest of the
company;
(4)
Devote
sufficient time and attention to his professional obligations for informed and
balanced decision making;
(5)
Not
allow any extraneous considerations that will vitiate his exercise of objective
independent judgment in the paramount interest of the company as a whole, while
concurring in or dissenting from the collective judgment of the Board in its
decision making;
(6)
Not
abuse his position to the detriment of the company or its shareholders or for
the purpose of gaining direct or indirect personal advantage or advantage for
any associated person;
(7)
Refrain
from any action that would lead to loss of his independence;
(8)
Where
circumstances arise which make an independent director lose his independence,
the independent director must immediately inform the Board accordingly;
(9)
Assist
the company in implementing the best corporate governance practices.
LIABILITY OF INDEPENDENT DIRECTOR
The Independent Director is not liable or
rather responsible for day to day operations and business of the Company. They
are expected to exercise independence while performing their role as
independent director of the Company and therefore it is expected them to stay
away from actual regular course or functioning of Business.
The onus of Independent Director is that of
keeping a check on Compliance aspect of the Company and ensuring that the
Company is not engaged in fraudulent activities. And if Company is engaged in
such activities, ensure that the respective person is duly reported and exposed.
Post Satyam fraud many independent directors
have resigned as Independent Director just to avoid any kind of liability. In recent times SEBI too has taken some stringent actions against Independent Directors who have not performed their role as Independent Director and have been activly involved in mismanagement and willful false statements about affairs of the Company.
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