Independent Director

Wish to become an Independent Director? Get ready to be examined

An Independent director as appointed by a Company in India is expected to possess some skills, expertise, and discipline to manage the administration of the company. He should be capable of taking worth decisions for the company impartially and be loyal to its members. The Companies Act, 2013 defines the manner and the requisite qualification of the person/individual to be appointed as an Independent Director in a Company.

Subject to the limitations of the current section process of Independent Directors, the government has recently proposed for an Online Qualification Test, which every individual appointed or in the process to appointment have to undergo to become an Independent Director in a Company.

Quoted in words of the Corporate Affairs Secretary ‘Injeti Srinivas’ – ‘The test will inspect those hired on board & left in favor of their interest of working with companies and replace them instead with those persons having integrity & posing relevant industrial expertise and experience’. 

Legal Background 

An Independent director helps the company in improving its creditability and assures the following of governance standards.

As per the Section 149 Companies Act, 2013 every listed company shall have to appoint at least one-third of the total number of directors as independent directors. Whereas for unlisted companies, the following companies shall have to appoint at least 2 independent directors :

Companies with a share capital of Rs 10 crore or more

– Companies with a turnover of Rs 100 crore or more.

– Companies with a debt of Rs 50 crore or more.

Role of an Independent Director

An Independent Directors :

– Helping management in success planning

– Provide intakes and receive feedback on new policies, risk management, key appointments, etc.

– Evaluating company policies and safeguarding the interest of stakeholders.

– Ensuring monitoring and achievement of objectives agreed in board meetings.

– Reducing conflicts, deciding a suitable level of remuneration for other key personnel.

– Attend general meetings, report matters concerning breach of policies to management, etc.

Updated Qualification for Appointment of Independent Director

Issued via a notification dated 22nd October 2019, as proposed in the Companies (Accounts) Amendment Rules, 2019 applicable from 1st December 2019, new qualification criteria have been added for the appointment of Independent Directors in a company.

As per the notification, Independents Directors those qualifying other benchmarks for appointment in the act, shall have to undergo an Online Qualification Test conducted by the Indian Institute of Corporate Affairs (IICA).

The key changes made in the rules further specify:

  • For compulsory enrollment of existing directors on IICA by February 2020.
  • Enrollment can be done for one year/ 5 years or any specific period depending on the requisite fees paid.
  • For qualification of the online test conducted by IICA within 1 year of enrollment in IICA data bank.
  • For the preparation of key topics related to companies and corporate governance including companies law, securities law, basic accountancy, etc for which basic study material and online lessons shall be provided.
  • For passing the test with a minimum of 60% accuracy in answers.
  • For renewal of enrolment within 30 days of the expiry of the term of the previous enrolment with IICA.
  • For exemption from such enrollment and qualification test to directors those serving as Director or a Key Managerial Personnel for at least 10 years in any listed company or any unlisted company having a paid-up capital of Rs 10 crore or more.

Additional Compliance

Other than details and declarations provided under Section 149(7)of the Companies Act, 2013, the director as identified as an independent (after receipt of qualification from IICA) shall have to submit an additional declaration of abidance of the above rules proposed.

The said changes shall be made applicable from 1st December 2019, the government is trying to add value base to the companies by ensuring the appointment of qualified directors to the companies and reducing corporate risking by removing those appointed based on their network/connections.

While it cannot be concluded that this exam will improve the status of Independent Directors in a company but it will surely reduce the chances of forge placements of favored candidates or family members ineligible to become directors.

Seeking to become an Independent Director in a Company?

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Also Read: Nitty Gritty of Internal Audit

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