An Independent Director plays a very crucial role in an organization as they bring better governance and increases the credibility of the company. An Independent Director is a non–executive director who contributes to the growth of the company by providing better expertise and proper evaluation of the performance of the Board of Directors of the company.
WHO IS AN INDEPENDENT DIRECTOR
As per the provisions of the Companies Act, 2013 an independent director means an Independent Director referred under section 149(6) of the act.
APPOINTMENT OF INDEPENDENT DIRECTOR
The following companies are required to appoint an independent director as per the provisions of the companies act, 2013
- Every listed Public Company shall have at least one-third of its total number of directors as independent directors.
- The Public Companies with a paid-up share capital of Rs. 10 crores or more
- The Public Companies with a turnover of Rs. 100 crore or more
- The Public Companies with aggregate outstanding loans, and deposits exceeding Rs. 50 crore.
The Independent Directors are appointed by the Board of Directors after judging their capability, experience, skills, and integrity of such Director. Such appointment is approved by the members in the general meeting.
TERM OF APPOINTMENT:
The Independent Director shall be appointed for a maximum term of five years. Provided that the Independent Director can be appointed for two consecutive terms and the reappointment of the Independent Director can be made only after passing a special resolution in the general meeting.
ROLE AND FUNCTIONS OF INDEPENDENT DIRECTORS
- Independent Directors help in impartial and independent decision-making.
- Independent Directors undertake an effective evaluation of the performance of the board of directors and management.
- Independent Directors guide in appointment, remuneration, and removal of executive directors, managerial personnel, etc.
- Independent Directors shall ensure that the interest of the minority shareholders is protected.
- Independent Directors acts as an arbitrator in the situation of conflicts between management and shareholders upholding the interest of the company.
- Independent Directors ensure that an effective risk management policy is employed and appropriate measures for internal financial control are taken in the company.
MEETINGS OF INDEPENDENT DIRECTORS
As prescribed under the Companies Act, 2013, it is mandatory for the Independent Directors of the Company to hold at least one meeting in a year, without the attendance of non-independent directors. Every Independent Director should attend such a meeting to consider the following parameters:
- Review the performance of the board of directors
- Review the performance of the chairperson of the company considering the views of executive and non-executive directors of the company.
- Assess the quality, quantity, and timeliness of the flow of the information in the company
OTHER APPLICABLE PROVISIONS FOR INDEPENDENT DIRECTORS
- The Independent Directors can hold office in not more than seven listed companies at a particular time.
- An Independent Director shall be a member of the Corporate Social Responsibility Committee as required to be constituted under the act.
- The appointment of an Independent Director can be made from the data bank prepared by the ministry of corporate affairs.
- Any vacancy in the office of Independent Director is required to be filled in the next Board Meeting or within three months of such vacancy, whichever is later.
- The presence of at least one Independent Director is mandatory in the board meeting provided that such meeting is called at a shorter notice. If such an Independent Director is not present in the board meeting then the decision shall be circulated to all the directors and is required to be approved by an Independent Director.
Henceforth, Independent Directors play an important part in bringing transparency and effective decision-making to the organization.
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