INDEPENDENT DIRECTOR - An Overview

INDEPENDENT DIRECTOR

Independent Director is that Non-Executive Director of the Company who does not have any material or pecuniary transaction with the Company, Directors, Promoters, senior managers, holding or subsidiary Company or associates apart from receiving managerial remuneration.

Independent Director under Clause 49 of Listing Agreement.

As per new circular, ‘independent director’ means non-executive director who :

1. 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. 
2. Is not related to promoters or persons occupying management positions at the board level or at one level below the board
3. Has not been an executive of the company in the immediately preceding three financial years
4. Is not a substantial shareholder of the company i.e. owning two percent or more of the block of voting shares.
5. Is not a material supplier, service provider or customer or a lessor or lessee of the Company, which may affect independence of the Director.
   
6. 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

Appointment of Independent Director

• 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.

Role of Independent Directors

Independent Director plays a very vital role in the Company. He is placed with fiduciary duty of maintaining standard level of corporate governance in the Company and prevents non compliance. He is watchdog of the Company and works in risk management, corporate governance, improving credibility etc.

In case of listed Companies, it is mandatory to set up Audit Committee which should comprise of two third Independent Directors.        

Important functions of Independent Director:

Following are some of very important functions of Independent Directors in the Company. 

1. Consideration and review of annual financial statements of the Company before it is placed before the Board for its finalization. Review of changes in application of accounting policies, major changes impacting Company’s position etc.  
2. Assisting the Board by recommendation in matters of appointment, reappointment and in some cases removal of statutory Auditor of the Company.
3. Consideration of financial reporting process. 
4. Consideration of quarterly financial statements. 
5. Consideration of Internal Audit process and make recommendations for improving the same. 
6. Place before the Board findings about the fraud, material non-disclosures etc, came to the knowledge of Independent Director. 
7. Consideration and analysis of reasons for the same. 
8. Special Review relating to related party transactions, transactions between subsidiary-holding company transactions and investments made between them, internal control procedure weakness etc.
9. At all the times he should act in good faith and impartially.

Conclusion:

In order to sum up we can say, Independent Directors are expected to play role of a torchlight 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.   

 

  

 

REQUIREMENTS FOR FORMATION OF NBFC IN INDIA

Requirements to be complied with and documents to be submitted to RBI by NBFCs for obtaining certificate and Registration from RBI

1.	Minimum NOF requirement Rs. 200 lakh.
2.	Application to be submitted in two separate sets tied up properly in two separate files.
3.	Annex II to be submitted duly signed by the director/Authorized signatory and certified by the statutory auditors.
4.	Annex III (directors’ profile) to be separately filled up for each director. Care should be taken to give details of bankers in respect of firms/companies/entities in which directors have substantial interest.
5.	In case the directors are associated or have substantial interest in other companies, indicate clearly the activity of the companies (whether NBFC or not).
6.	Board Resolution specifically approving the submission of the application and its contents and authorising signatory.
7.	Board Resolution to the effect that the company has not accepted any public deposit, in the past (specify period)/does not hold any public deposit as on the date and will not accept the same in future without the prior approval of Reserve Bank of India in writing.
8.	Board resolution stating that the company is not carrying on any NBFC activity/stopped NBFC activity and will not carry on/commence the same before getting registration from RBI.
9.	Auditors Certificate certifying that the company is/does not accept/is not holding Public Deposit.
10.	Auditors Certificate certifying that the company is not carrying on any NBFC activity.
11.	Net owned fund as on date.
12.	Certifying compliance with section 45S of Chapter IIIC of the RBI Act, 1934 in which director/s of the company has substantial interest.
13.	Details of changes in the Memorandum and Articles of Association duly certified.
14.	Last three years Audited balance sheet along with directors & auditors report.
15.	Details of clauses in the memorandum relating to financial business.
16.	Details of change in the management of the company during last financial year till date if any and reasons thereof.
17.	Details of acquisitions, mergers of other companies if any together with supporting documents.
18.	Details of group companies/associate concerns/subsidiaries/holding companies.
19.	Details of infusion of capital if any during last financial year together with the copy of return of allotment filed with Registrar of Companies.
20.	Details of the bank balances/bank accounts/complete postal address of the branch/bank, loan/credit facilities etc. availed.
21.	Business plan for next three years indicating market segment to be covered without any element of public deposits.
22.	Cash flow statement, asset/income pattern statement for next three years.
23.	Brief background note on the activities of the company during the last three years and the reasons for applying for NBFC registration.
24.	II(b) is the company engaged in any capital market activity? If so, whether there has been any non-compliance with SEBI Regulations? (Statement to be certified by Auditors).
25.	Whether any prohibitory order was issued in the past to the company or any other NBFC/RNBC with which the directors/promoters etc. were associated? If yes, details there of.
26.	Whether the company or any of its directors was/is involved in any criminal case, including under section 138(1) of the Negotiable Instruments Act? If yes, details thereof.
27.	Whether the company was granted any permission by ECD to function as Full-fledged Money Changers?
28.	Whether the company was/is authorised by ECD to accept deposits from NRIs.
29.	Whether “Fit and Proper” Norms for Directors have been fulfilled.

BRANCH OFFICE OR LIAISON OFFICE BY A FOREIGN COMPANY IN INDIA

Introduction

During Last couple of decades India has seen large amount of foreign investment as number of MNC`s watch India as a potential market, which is indeed very much true. The Govt. of India is also supporting and promoting investment by abroad which is evident as India has adopted liberalized monetary policies. Along with this, we have also promoted exports by various means and allowed 100% FDI in various sectors.

We do not seek progress for the sake of progress, hence government has regulated the Inflow as well. Usually the modus operandi for this MNCs is to incorporate a Company in India or enter into a JV whereby it can penetrate the India Market. The other ways are establishment of Branch office or a Liaison Office in India.

What is a Branch office?

A Branch office (BO) is the office established by the Company Incorporated outside India and engaged in trading or manufacturing process. As per the notification of RBI, a Branch office is allowed to carry out following functions;

1. Export or Import of Goods.
2. Rendering professional or Consultancy Services.
3. Carrying out research work in the areas in which the Parent Company is engaged.
4. Promoting technical and Financial collaboration between Indian Company and Parent Company or overseas group Company.
5. Representing the parent Company in India and acting as buying/selling agent.
6. Rendering services in Information Technology and development of software in India.
7. Rendering Technical support for products supplied by parent Company.
8. Airline Company/Shipping Company.

Normally speaking a BO can engage in those activities in which Parent Company is engaged. However there are some restrictions imposed as per the RBI notification which are;

1. Retail Trading activity of any nature is allowed in India by Branch Office.
2. A branch office is not allowed to carry out manufacturing or processing activity in India.

What is a Liaison office?

A liaison office is very much different from a branch office. A LO has got large number of restrictions as to functioning in India. A Liaison office or a Representative office is allowed to do only liaisoning activities only. When we say liaisoning, it refers to activities as intermediary or channel of communication between Head office and parties in India.

It is not allowed to do any business activity in India or earn income in India. The role of such office shall be limited as to gathering information about possible market opportunities and providing information about the Company and its products to the Indian Customers. Thus following type of functions can be undertaken by the Liaison office.

1. Representing parent Company or group Company in India.
2. Promoting export or import to or from India.
3. Promoting technical or financial collaboration between parent company and Indian parties.
4. Acting as communication channel between Parent Company and Indian Party.

Routes for Establishing Branch office or Liaison office In India

If a Foreign Company wants to establish a Branch office or a liaison office in India, RBI has stipulated 2 routes for the same, namely automatic route and approval route. The Company has to choose between these two routes on the basis of its nature of business and amount to be invested in India.

A] Automatic Route:

Where principle business of foreign entity falls under 100% approved FDI, then the Company can follow automatic route for their proposed establishment of BO or LO.

B] Approval Route:

Where the principle business of the foreign entity does not fall under 100% approved FDI, then it has to undergo through Approval route which involves following process.

The Applicant shall file appropriate form as specified by RBI via Authorized Dealer Bank to the department of Foreign Exchange, Reserve Bank of India. The Department shall grant permission on the basis of Companies Past performance, India`s Trade relations with the Country of origin of the Applicant and other relevant factors. The BO or LO will be allotted a Unique Identification Number.

RBI has laid down detailed documentation under its notification in this regard. The applicant can refer the same before taking any steps in this regard.

Criteria for Applicant

In order to regulate and control the establishment of BO or LO in India, RBI has laid down the criteria for the applicants. This qualification criteria mainly aims at past track records and net worth of the Company. Accordingly any applicant entity who wishes to open a Branch office in India must have a profit making track record of not less than 5 years and a Net Worth of USD 100,000 or equivalent. Similarly if an entity wants to open a liaison office in India, it must be having a profit making track record of not less than 3 years and Net Worth of USD 50,000 or equivalent.

Earnings In India

Profits earned in India by a Branch Office are freely remittable from India, after payment of all necessary taxes and producing certain documents to the satisfaction of the Authorised Dealer through whom the remittance is to be effected. We need to submit the certified copy of the audited balance sheet and profit & loss account to AD Bank in this regard.