Role of Independent Directors
Companies Act of 2013 has endorsed the appointment of the independent directors
to corroborate that the ventures of the company are orchestrated properly and
scams do not occur. For the first time, the Companies Act, 2013, defines the
term ‘Independent Director’ under Section 2(47) which says that an ‘independent
director’ means an independent director referred to in sub-section (6) of
Section 149. Through my paper I have tried to emphasize on the eligibility criteria
for the appointment of the independent director, how they are to be appointed,
what are their roles and responsibilities, how can they be removed, briefly.
The significance and importance of the Indepenedent Director was
first emphasized by the Corporate Governance in India. however the terminology of
the wordings ‘Independent Director’ nor any provisions for the compulsory
elections of the Independent Director can be found in the Companies Act, 1956.
Regardless of this clause 491 in the listing agreement
which can be found on all the listed companies and firms has passed a decree
for the appointment of Independent Directors on board
The Companies Act, 2013 which is also popularly known as ‘the Act,
2013’ first came into picture on the 29 August 2013 as Act no. 18 of 2012. The Act’s 98 sections
were first applied or implemented into it in the year 2013 through a
notification by The Ministry of the Company.
Section 149 of the Companies Act, 2013 is one of section of the Act
which has been imposed and is essentially concerned with the appointment and
qualification of the Independent Directors and their importance to established and
incorporate a sturdy and able corporate
governance in the company. However it has not been put into force until now but
when it does the gazette shall be informed the moment it is implemented.
The Act goes greatly into details to establish and elaborate the
roles, liabilities, duties, etiquettes, and the means of selection of potential
candidates for the post of the independent directors in Boards and other
innumerable committees of the company.
Independent Directors- An Overview:
The role and importance of an Independent Director was first bought
into picture when the need of such a post arose in the corporate governance to
establish a sturdy, strong foundation, the relevance and significance of their
job and structured responsibility has been expanding ever since. The Companies
Act, 2013 has formulated the executive director’s role to be exteremely
divergent in contrast to that of Independent Director’s. Although the
Independent Director’s job is diverse and quite intricate as he has the
responsibility of of innumerous roles, liabilities, duties for the advancement
of the company. One of these many duties is to highlight the opinions of the
minority shareholders and to recognize their voice as an attempt to make sure
that the concept of discrimination and prejudices isn’t practiced in favor of a
certain category of shareholders and stakeholder thus to insure that a healthy
and welfare oriented structure is built amongst the shareholders.
The primary and vital role of the Independent Director’s job include
upholding the repute of the government standards, improvising the corporate
reliability, and maintaining the risk management of the company. Independent
Directors must look into and keep a check on the decisions and implements
created by the management and shareholders, they must also uphold their
integrity and be impartial in the decision and resolutions which they make of
their own. The Independent Directors who play the part of the trustees in a
well-functioning corporate governance are also responsible to bring about reliability
and accountability to the board affairs
Who can be an Independent Director under the statue:
The potential and the capacity in
order to be an Independent Director is identified and determined in Section
149(6) of the Companies Act, 2013:
· A director who works occasionally
or at part time as professionally or a director who is not an executive.
· With significant insight alongside with integrity and experience who
is in the favor of the Board of Directors. It is but then that these Board of
Directors shall pass their resolution. The usage of the word ‘significant’ is
not meant to limit the credentials to choose a potential independent director.
· Subsection (6) of Section 2 of the Companies Act, 2013 describes an
associate company, and an individual who has no ties to it as a promotor in the
current scenario or in the past of that company can be enlisted for the role of
an Independent director.
· An individual who has no links to the company through financial ties
nor any monetary relations to its promotors or their directors or its
subsidiary or associate companies during the previous two financial fiscal
years or during the recent two financial year.
1 As available on the
website of BSE and NSE
2 Ministry of Corporate