APPOINTMENT OF INDEPENDENT DIRECTOR IN THE COMPANY

DIRECTOR MEANING

  • The person who is in the power of controlling the Business affair & management of the company.
  • The group of Director who manages the business affairs of the company collectively known as the Board of Directors.
  • Section 2(34) of Companies Act 2013 says that a director appointed to the Board of a company.
  • A director is a person appointed to perform the duties and functions of director of a company under the provisions of.
  • The Companies Act, 2013 provide the roles and responsibility of the Board of Director or Directors.
  • Director is always a Natural Person (eg, Ram, Shyam).

INDEPENDENT DIRECTOR

  • The definition of Independent Director provides under section 2(47) read with section 149(5) and 149(6) of Companies act 2013.
  • The Independent Director is the person other than Managing Director, Whole-time Director, Nominee Director and Executive Director of the company.
  • The person has no pecuniary relationship or any material or financial interest with the company/ directors except the sitting fees paid for attending Board Meetings.

DISQUALIFICATION OR INELIGIBILITY OF INDEPENDENT DIRECTOR

The Independent Director qualified the following condition in relation to the company as per section 149(6) of the companies act 2013 are:-

  • The person is or was not the promoter of the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The person is not related to Promoters or Directors of the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • He has or had no pecuniary relationship during the 2 immediately preceding financial years or during the current financial year with
  1. Company;
  2. Holding company of the Company;
  3. The subsidiary company of the Company;
  4. An associate company of the Company;
  5. Promoters &
  6. Directors.
  • No Relatives of person has or had pecuniary relationship or transaction amounting 2% or more of its gross turnover or total Income or 50 lakh rupees (which is lower) during the 2 immediately preceding financial years or during the current financial year with
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company;
  4. An associate company of the Company;
  5. Promoters &
  6. Directors.
  • The person is not holding or held or will hold any position of Key Managerial Position (KMP) or Employee in 3 Immediately preceding Financial years in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The person is not or has been an employee or proprietor or a partner of Auditor Firm or Company Secretary in Practice or Cost Auditor in any of the 3 Financial years immediately preceding the financial year in which he is proposed to be appointed in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The person is not or has been an employee or proprietor or a partner of Legal or Consulting firm that have any transaction amounting 10% or more of the gross turnover of that firm in any of the 3 Financial years immediately preceding the financial year in which he is proposed to be appointed in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The person is not Chief Executive or Director in any Non-profit organisation who received 25% of total receipts from the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company;
  4. An associate company of the Company;
  5. Promoters &
  6. Directors.
  • The person is not a Chief Executive or Director in any Non-profit organisation who hold 2% or more voting rights in the company.
  • The Relative of the person is not holding or held or will hold any position of Key Managerial Position (KMP) or Employee in 3 Immediately preceding Financial years in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The Relative of the person is not or has been an employee or proprietor or a partner of Auditor Firm or Company Secretary in Practice or Cost Auditor in any of the 3 Financial years immediately preceding the financial year in which he is proposed to be appointed in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The Relative of the person is not or has been an employee or proprietor or a partner of Legal or Consulting firm that have any transaction amounting 10% or more of the gross turnover of that firm in any of the 3 Financial years immediately preceding the financial year in which he is proposed to be appointed in the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company &
  4. An associate company of the Company.
  • The Relative of the person is not Chief Executive or Director in any Non-profit organisation who received 25% of total receipts from the
  1. Company;
  2. Holding company of the Company;
  3. A subsidiary company of the Company;
  4. An associate company of the Company;
  5. Promoters &
  6. Directors.
  • The Relative of the person is not Chief Executive or Director in any Non-profit organisation who hold 2% or more voting rights in the company.
  • The person or any of his relatives hold together 2% or more voting rights in the company.

CRITERIA FOR APPOINTMENT OF INDEPENDENT DIRECTOR

As per section 149 of Companies Act, 2013 the following company required to appoint Independent Director in their composition of Board are:-

  • Every Listed Public Company or
  • A public company who meet the following conditions as per latest audited financial Statement are
  1. Paid-up Capital 10 crore or
  2. Turnover 100 Crore or
  3. Total Outstanding Loans/Borrowings/Debentures/Deposits more than 50 crores.

Note:-

  • The Above limit calculated as per Latest Audited Balance sheet.
  • If the above company did not fall in the above mention condition for 3 consecutive years then the company is not required to appoint Independent Director.

APPOINTMENT LIMIT OF INDEPENDENT DIRECTOR FOR THE COMPANY

  • Listed Public Company shall have at least 1/3 of the total number of Director as Independent Director.

Example:- Total Directors in Company = 15Independent Director = Total Director * 1/3 (15*1/3 = 5)

  • Public Company shall have at least 2 Independent directors in the Board Composition.
  • The company may appoint a more independent director to fulfil the composition of the Audit Committee.
  • Any intermittent vacancy of an independent director, it shall be filled up by the board of directors within 3 months from the date of such vacancy or immediate next board meeting (whichever is later).
  • An Independent Director holds office in the board of the company for maximum 2 consecutive terms (1 term equal to 5 Years).
  • 3 years cooling period requirement for reappointment in the company after 2 consecutive terms.
  • The Independent director is appointed by Board of Director by passing Board resolution.

RESPONSIBILITY / DUTIES OF INDEPENDENT DIRECTOR

Abide by Articles of Association

The Independent director of the company is blind by the rules and regulation provided in the Articles of Association and memorandum of association of the company.

 

Good Faith

The person must act in good faith to increase the confidence of employee, management, other key managerial people, supplier in the company and promote the objective of the company for benefits of stakeholders without any conflict of interest.

 

No Financial Interest in the company

Independent director has no financial relationship with the company except his sitting fees paid to attend the board of directors or committee meeting of the company.

 

No assignment to his office

The director doesn’t provide his work or responsibilities to another person without taking proper approval of the director or shareholders.

 

No conflict of interest

An independent director provides real reports of company financial, projects, related party transaction and the decision of the board of director related to company stakeholder without having personal interest.

 

Proper due diligence of work

The independent director shall provide proper due diligence report to stakeholders related to any transaction carried out by the company or director or subsidiary or holding company.

 

Ethical practices

An Independent director shall always uphold the ethical standards of integrity and faith. He provides the report about unethical behaviour, suspicious act, violation of any rules and regulation of company code of conduct and its policy.

 

Bonafide decision

An independent director shall dispose of his duties in a bona fide manner towards the company and its stakeholders without any personal interest.

 

Proper intimation of his interest

The independent director shall disclose his interest in the company, subsidiary and holding company at the time of appointment and also in every financial year first board meeting and file MBP – 1 with the relevant authority.

 

Kept confidential information

He shall not disclose confidential information (Like commercial secrets, current or new technologies, advertising, sales promotion plans, share information, new products, unpublished price sensitive information) of the company, subsidiary and holding company except such disclosure approved by the board of director or any relevant authority.

 

Attend the meeting

An independent director is required to attend all the meeting of Boards of director and committee meeting in which he is appointed and acting within his authority, protect the legitimate interests of the company & its stakeholder.

 

APPOINTMENT OF INDEPENDENT DIRECTOR

Check eligibility

The Independent Director is not disqualified under section 164 of companies act, 2013 and eligible to appoint as director.

 

Empanel in the Independent data bank

Any person is going to appoint Independent director then need the empanel in the data bank of independent director after passing the online assessment test paper organised of IICA (Indian Institute of corporate affairs).

 

Application for DSC

The person shall be applied for DSC (digital signature certificate) through any agency. It’s mandatory for appointment of director.

 

Application for DIN

An independent director applied for DIN (Director Identification Number) through E-form DIR – 3 to ROCs (Registrar of companies) with relevant fees and ROCs issued him the DIN number.

 

Register DSC with MCA

After allotment of DIN number by ROCs then person register his DSC with DIN number through www.mca.gov.in

 

Notice sent for calling Board Meeting

The company secretary of the company issued 7 days advance Notice along with agenda to all director to attend a board meeting for appointing Independent director in 7 days before the meeting.

 

Passing of ResolutionT

The (BODs) Board of Directors passed the (BR) Board resolution for appointing of Independent director and signed the appointment letter by both parties.

 

Intimation to ROC

The appointment of independent Director is intimated by the company by filing e form DIR – 12 after attaching the signature of Director and relevant documents (Appointment letter, CTC of Board resolution, etc).

 

CONTENT OF LETTER OF APPOINTMENT

On Company Letterhead

An Independent Director appointment letter always printed on the letterhead of the company.

 

Nature of Appointment

The company BODs (Board of Directors) provide proper information related to the committee in which he appointed as Director.

 

Tenure

The company shall provide details related to his tenure or duration of the appointment. Normally Independent director is appointed for 5 years and not eligible for “retirement of Director by rotation”.

 

Sitting fee

The company need to pay sitting fees to independent directors to attend the meeting of Director or committee meetings and company need to disclose the amount payable to independent as sitting fees (A way to pay remuneration).

 

Code of conduct

The code of conduct is normally the roles and responsibilities of an independent director towards company MOA (Memorandum of Association), AOA (Articles of Association) & stakeholders are provided in the letter of appointment.

 

Insurance details

Directors are the lifeline of any organisation and in this case, company take insurance of every director concerning their resignation, violation of code, death, health, mischief act & any contingent liabilities.

 

Terms & Condition

The terms & condition are an integral part of the letter of appointment of Independent director. The T&C includes inspection right, confidential information, ethics, business hour, periodic fee, compensation, commission on profit, Resignation, reappointment, removal, duties & etc.

 

INDEPENDENT DIRECTOR DATABANK

  • As per Companies (Appointment and Qualification of Directors) Rules, 2014 the independent director databank is set up by the relevant authority.
  • The central government authorised MCA (Ministry of Corporate affairs) and IICA (Indian Institute of Corporate Affairs) to maintained this databank
  • The eligible & willing person registered himself through MCA portal.
  • This databank helps the companies to select the right candidate for their company as per their need.

EMPANELLING OF INDEPENDENT DIRECTOR DATABANK

As per Companies (Appointment and Qualification) Rules, 2019 all existing Independent Directors empanel with Independent Director databank within 3 months of commencement of this rules and the following is the procedure of empanelling are:-

  • Visit website www.mca.gov.in;
  • Click on MCA services on top of the bars;
  • Then click for Independent director databank individual registration;
  • Then link redirect to you for Login section;
  • If you are new then Register here or otherwise login by filling username, password & captcha;
  • Then portal ask for validating your details by asking DIN (Director Identification Number);
  • After filling the DIN then OTP send to your registered Email and mobile;
  • Then fill the OTP received on registered mobile number;
  • The MCA portal redirected to the page where you need to fill Personal, professional, educational & KMP (Key managerial personnel) details;
  • Then the person can click to weather opt to display personal details or not;
  • Three subscription plan appeared on the screen (I year Rs.5000 plus 18% GST, 5 years & lifetime);
  • Choose the plan and directed towards payment gateway;
  • Then the director make a payment through various mode (Debit/Credit card/UPI/Net banking);
  • After payment processed the invoice generated on the screen;
  • The procedure for the companies empanelled is at same source and fees structure notified later.

INFORMATION OF INDEPENDENT DIRECTOR IN DATABANK

The Independent Director Data bank has the following information are:-

  • DIN (Director Identification Number)
  • Full Name
  • Father’s name
  • Gender
  • PAN Number
  • Passport Number (In case of foreign national)
  • Nationality
  • Occupation
  • Date of Birth
  • Full Address (present and permanent)
  • Registered Mobile number
  • Registered E-mail id
  • Qualifications
  • Experience
  • Name of the company in which he already a director.
  • Directorship holding in the company
  • Partners in LLP (Limited liability Partnership)
  • Dates of appointment in various company & LLP
  • Nature of Industry in which he is a director or partner
  • Duration of his directorship or partnership in Various company & LLP
  • Social Behaviour status
  • Legal proceeding status
  • Civil & criminal record

SERVICES BY INDEPENDENT DIRECTOR DATABANK

Online Modules

  • The aim of this online test to provide the knowledge of corporate governance, moral, ethics, basic knowledge and enhance the effectiveness of independent director.
  • The test contains the module through with MCA (ministry of corporate affair enhance the efficiency moral & ethical values in the board of the company.
  • This course divided into two modules are;-
  1. Board practice module
  2. Board essential module

Online Self-assessment test by Director

  • The person wants to enter his name in the independent director databank shall clear the online test after paying relevant fees.
  • The online self-assessment test is conducted by IICA (Indian Institute of Corporate affairs).
  • Every individual shall clear the test within 1 year from registration in Independent director data bank
  • The person shall score minimum 60% marks to clear the exam and there is no negative marking
  • There is no limit of the attempt to clear the online test.

EXCEPTION

  • If the person acts as a director or KMP (Key managerial personnel) for the period of minimum 10 years from the date of inclusion of name in Independent Director data bank in the following companies are:-
  1. Listed Public company;
  2. Unlisted Public Company having paid-up capital 10 crores or more;
  3. Body corporate listed on any recognised stock exchange.
  • Then a person does not need to give an online self-assessment test
  • The person acted as director or KMP at the same time in two or more companies shall be counted as one.

EXAMPLE:-Gaurav is a director in A Ltd (3 years) and B Ltd (4 years)Then the tenure for the above purpose is calculated as 4 years not 7 years.

 

Corporate Access to Data Bank

  • The portal of independent directors databank contains the information related to an independent director like Name, addresses, qualification & occupation.
  • The portal provides the information of independent directors who willing & eligible to appoint.
  • The databank provides a one-stop solution to corporate to select the eligible person as per their needs through their online portal.
  • The companies or body corporates can view & download the following information of independent directors are:-
  1. Check the profiles
  2. Shortlist based on director eligibility
  3. Then click on checkout and made minimal charges through the payment gateway
  4. The details of Independent Directors automatically downloaded

RESIGNATION OF INDEPENDENT DIRECTOR

Prepare of Letter of resignation

The Director shall prepare his resignation letter including Date of resignation, Reason of resignation, Anticompetitive clause & any other information relevant to the company.

 

Intimate to Company

The independent director intimates to the company through Email or courier resignation letter to the Board of directors of the company.

 

Intimate to ROCs by Director

  • After resignation from the position of director. he responsible to file e form DIR 11 to ROCs (Registrar of companies) within 30 days of resignation.
  • The following details are to be mention & attached in Eform DIR-11 are:-
  1. Date of appointment in the company
  2. Enter his DIN
  3. Reason of Resignation;
  4. Copy of resignation letter sent to the company
  5. Attached proof of resignation letter dispatch to company
  6. Attached DSC for verification of details.

 

Intimate to ROCs by company

The company needs to inform to ROCs through Eform DIR-12 within 30 days from the date of receiving the letter of resignation from the director.

 

Effective date of resignation

The date mention in the resignation letter

OR

Date of receiving resignation letter to the company

(whichever is later)

 

Liability of Director after the resignation

The liability of the director shall continue after resignation for all the decision or transaction taken place when he is a director of the company.

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