An Independent Directors-Roles, Applicability, Duties

Independent Directors: At a glance

• Indian Government has planning to implement a system of examinations for individuals who willing to become independent directors of corporate, this will going to stringent the system of corporate governess under the Company act 2013, which ensure implementation of good governance standards in the corporate, and the independent director’s Role will come under the scanner instances of corporate misdoings.
• The Govt of India is making appropriate efforts in minimal in the affairs of corporate by more transparency in the appointment of independent directors of corporate.
• MCA explains that a person must have certain qualifications & experiences to become an independent director on the boards of corporate to ascertain qualified & committed person to implement corporate governance in the in India,

“The requirement with respect to independent directors to have minimum reasonable qualifications and a certification course/ exam are also being considered,” Chaudhary told in an interview.

Why you need independent directors on your board?

• Business decisions are frequently made by board members of a corporation with far-reaching implications. Freedom, in this case, is becoming the pillar of responsibility, transparency, and justice.
• Independent directors, as the word implies, are ‘independent’ and therefore not driven by revenues, revenue or any other connection with the company.
• They serve as experts offering guidance on matters when making decisions and are expected to focus their advice on the legal, financial, and business world.
• In this article, we shed light on the need for independent directors, while also emphasizing the role that they have played in every business enterprise.

THE INDEPENDENT DIRECTORS IS MORE  ESSENTIAL

• While there are strong provisions under the companies’ act, 2013 to make sure that standard of good governance, the part of the single directors comes under the scanner in the definite instances of corporate immovability.
• When the government is putting efforts to create it’s part minimal in the incident of corporate, the part of the individualistic directors plays an important role.

STRONGER THE ROLE OF INDEPENDENT DIRECTORS

• Propound that the government is the performing to increase the material of the corporate governance in the country, according to the Chaudhary the building the part of the individual directors in the incident of firms is one of the important steps in the direction.

The function of Independent Directors

The Independent Director serves as the Company’s Guide, Coach, and Mentor. The role involves enhancing corporate credibility and governance practices by acting as a watchdog and helping to manage risk.

Independent directors are responsible for ensuring better governance by actively engaging in the various committees set up by the organisation.

In case of Independent directors are needed because they have the following critical part to play:

• Facilitate the opposition and counteracting stresses of owners;
• Performance control, monitoring, and reporting of management on the goals and objectives decided at the Board meetings
• Protecting the rights of all stakeholders, in particular, minority shareholders;
• carry out a valuable role in the preparation of succession;
• At the same time, assessing the success of the board and the management of the organisation brings an analytical perspective.
• In conflict situations between management and shareholder interest, the goal is to find solutions that are in the best interest of the company.
• Balancing the competing interests of the stakeholders;
• On topics such as policy, efficiency, risk management, personnel, key appointments, and standards of conduct, it must allow independent judgment to be taken into account in the Board’s deliberations.
• Ensure that financial controls and risk management processes are in place and track the integrity of financial information
• Fix the suitable levels of remuneration of
  • senior management
  • key managerial personnel (KMP)
  • executive directors,

QUALIFICATION REQUIRED TO BECOME AN INDIVIDUAL DIRECTOR

• According to the state for corporate affairs, an individual must have a definite modification to get the role of the individual director on the panel of the firms.
• The needs an individual director to have the base of the qualification and must have certification course or completed an exam.

TO BECOME AN INDEPENDENT DIRECTOR EXAMINATION A PERSON MUST COMPLETE AN ENTRANCE EXAM

• The ministry is seriously taking into account the proposal and stakeholder must seek before the end result is finalized and the proposal is must have to check for an independent who wants to get the role of the individual directors and not only for the people who finished the independent directorship.

DIRECTION FOR THE PRESENT INDIVIDUAL DIRECTORS

It could be the direction or orientation program for the present individual director and have both creating and advisory part in the practice of the governance at the organization.

IICA TO MAINTAIN DATA BANK OF IDs

• They are also strategizing to give the IICA to build and organize a data bank of individual directors.
• Under Section 150 of the Companies Act, 2013, the ministry can notify an institution or an agency to maintain independent directors’ data bank.
• The ministry can inform an agency or several institutions to organize individual directors.
• Proposed Amendment in the Companies (Appointment and Qualification of Directors) Rules, 2014
• The qualification and the appointment of the Directors (proposed amendment in the organization’s rules, 2014)
• Government sought to alter the organization rules, 2014 to provide the IICA as an agency to build and keep a data bank of the single directors.

New Update from MCA on Independent Director:

• MCA has given more relaxation in the registration process for the inclusion of the name of Independent Directors in the Independent Directors Data Bank until 1 December 2021 and the registration requirements have also been simplified and the ten-year directorship period has been reduced to three years and the passing mark criteria have been decreased from 60% to 50%.

PLAN TO CAP THE REMUNERATION OF INDEPENDENT DIRECTORS

• The proposal is expected to be executed soon. The government-appointed the team to check the offenses under the act which submit the capping of the pay of the single directors, along with the other measures.

WHO IS AN INDEPENDENT DIRECTOR?

• An individual director is a director who is not an executive of the company but supports the organization in increasing the capacity and the standard of governance.
• He/ she is not connected to the firm which may individual of her judgment.

DEFINITION OF INDEPENDENT DIRECTOR

• According to Section 2(47), “independent director”  an independent director referred to in sub-section (5) of section 149;
• Section 149 (6) consists that – An independent director regarding a company means a director other than a managing director or a whole-time director or a nominee director,—
• (a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;

Minimum qualification for an Independent Director of the Company?

• The Companies Act, 2013 does not define the credentials of the Independent Director. It simply gives a definition under section 149(5) similar to that of the SEBI 2009 Regulation and applies several limitations on those who would be an independent director.
• However, it goes on to make a very general suggestion that any person who is over 21 years of age and has the required expertise, experience or knowledge in one or more areas of finance, law, management, sales, marketing, administration, corporate governance, technical operations or other business-related disciplines can be an independent director.
• The qualifications prerequisite of an independent director is very transparent and opens the door for almost everyone to become one.
• The eligibility requirements laid down in the amended clause 49 include, in particular, that individuals be financially literate and recognise the different aspects of the legislation and relevant regulations.
• Ideally, therefore, individuals such as attorneys, CAs, CSs, cost accountants, or any other person with proper work experience in big corporations in Mgt Roles are considered to be good choice.

More read for related blogs are :

Companies in India

APPOINTMENT OF INDEPENDENT DIRECTOR MANDATORY FOR-

Listed public company: Each listed public company shall have at least one-third of the total number of directors as independent directors. Any fraction consists of that one-third shall be rounded off as one.

Are the unlisted public companies nominating independent directors?

In compliance with Rule 4 of the Companies (Appointment & Qualification of Directors) Rules of 2014, the following class or classes of companies should have at least two directors as independent directors.

• Public companies that have, in aggregate, outstanding loans, debts, and deposits in excess of Rs.50 crore.
• An Public companies with a turnover of Rs.100 crore or more;
• Public companies having paid up a share capital of Rs.10 crore or more;

The least number of ID in the case of the public company advised by the central government

• Paid-up capital must be more than 10 crores or more for the public company
• The turnover must have more than 100 crores for the public company.

Are private companies naming independent directors?

• A clear reading of the 2013 Act leads to the fact that it is not necessary for private companies to nominate independent directors. Even if they do, it is not essential for them to comply with any provision under the Act with respect to an independent director.

Independent Directors: At in summary

A summary of the above-mentioned requirements under the two statutes for public companies is as below:

Serial No.	Provision	Listing Agreement	Act and Rules
1.	Applicability to kinds of companies	Applicable to all listed companies, except the ones excluded by the September Amendment.	The act is applicable to listed companies and Rules to some classes of public companies.
2.	Criteria for independent directors	In addition to the requirements set out in the Act and the Rules of Practice, two additional criteria are laid down.	Criteria listed under section 149 (5) of the Act and Rule 5.
3.	Board composition	Where the chairman of the board is a non-executive member of at least 1/3 of the board of directors. Where the non-executive chairman is a promoter or is linked to another promoter or individual holding management positions on the board of directors, or where the company does not have a normal non-executive chairman, at least one-half of the board of directors.	Certain classes of a public company (if they cater to the criteria laid down under the Rules) – at least two independent directors. Listed company-at least one third of the board.

How are the independent directors compensated?

• An independent director earns his/her salary in 2 components. One is the sitting fee for attending board meetings, and the other is the commission, which is a larger deal, as this is mainly a decrease in the profits that businesses make. As a rule, an independent director can be charged up to 1 lakh as a sitting fee and up to 1 percent of the company’s profit as a total commission to the board of directors.
• Fortunately, companies are constantly nominating independent directors on board to protect the interests of their shareholders and improve their reputation on board to attract investors.

What do modern corporations expect from their independent directors?

• Strategy formation & experience on topics such as private equity, mergers, and acquisitions, corporate governance are key fields in which businesses want independent directors to specialise. Apart from a mere name on the board, they want an advisor to the CEO and watchdog to their corporate governance process. Another explanation for this is the rise in the number of foreign companies that are privately owned in India. These companies are mainly of European, Japanese, or American origin, and while it is not necessary for their board of directors to have an independent director or to comply with the legislation pertaining to them, they are nevertheless on the verge of hiring a consultant to better understand the Indian market.
• However, with this new perspective, businesses also argue that the need for talent to be realised is not necessarily fulfilled, as most people are not adequately trained or do not have an adequate business or legal experience to be an apt member on board. This leads to just a handful of individuals approached by the majority of companies and limited entry for a first-time manager.
• There are a number of different forms in which you can qualify as an independent director if you have the right degree to do so. However, it is the lack of expertise or realistic business awareness that takes over the experience. People with non-legal backgrounds frequently find it difficult to grasp corporate governance and relevant legal problems, and people of legal backgrounds find it difficult to cope with a bleak business climate.
• The MCA made suggested that to avoid unnecessary prosecution of Independent and Non-Executive  Directors

• MCA assured that no prosecution actions will be brought against Independent Directors and Non-Executive Directors of Companies without the existence of adequate proof of their involvement in fraud committed by corporations.
• The Ministry of Corporate Affairs released a circular to its Regional Directors, the Registrar of Companies (RoCs) and the Official Liquidators for the prosecution of Independent and Non-Executive Directors. The circular was released in the wake of the instances of Independent and Non-Executive Directors who came under the scanner for suspected corporate misdeeds.
• Normally, the company’s full-time director (WTD) and key management personnel (KMP) are concerned with the day-to-day running of the company; thus, certain WTDs and KMPs will be responsible for defaults committed by the company. Fortunately, litigation against Independent and Non-Executive Directors can only be taken if there is ample proof sufficient against them.
• According to the Circular, in the event of violations due to decisions taken by the Board or its committees, it should be ensured that civil or criminal proceedings against IDs or NEDs are not launched in an unnecessary manner unless there is ample proof to the contrary. In addition, no action may be brought against IDs or NEDs without the government’s explicit approval.
• The purpose of the circular is to protect Independent and Non-Executive Directors from prosecutions for both civil and criminal offenses, except if powerful evidence is available against them.
• Companies (Creation and Maintenance of Databank of Independent Directors) Amendment Rules, 2021, have been notified by the MCA and will take effect on the date of their publication in the Official Gazette, which is June 18, 2021.
• The MCA has announced the long-awaited change, which makes it easier for aspiring and sitting independent directors on corporate boards to have their names added to an official database of qualified professionals. Despite any delay, a professional could get her name empanelled in the official database of independent directors maintained by the Indian Institute of Corporate Affairs (IICA) by paying $1,000/-, according to a rule amendment announced by the ministry on Friday.
• Those who have missed their deadlines should be relieved as a result of this. Aspiring independent directors were required to get their names added to the database before starting the job, while serving directors had until last October to do so, according to an earlier instruction.

The Companies (Creation and Maintenance of Databank of Independent Directors) Amendment Rules, 2021,

• The Companies (Creation and Maintenance of Databank of Independent Directors) Amendment Rules, 2021, have been published in the Official Gazette and will enter into force on June 18, 2021. The MCA has announced a long-awaited modification that makes it easier for prospective and serving independent directors on corporate boards to have their names included to an official database of qualified professionals.
• Despite any delay, a professional could get her name empanelled in the official database of independent directors maintained by the Indian Institute of Corporate Affairs (IICA) by paying  Rs. 1,000/-, according to a rule amendment announced by the ministry.
• Those who have missed their deadline should be relieved as a result of this. Aspiring independent directors were required to get their names added to the database before starting the job, while serving directors had until last October to do so, according to an earlier directive.
• Post incorporation compliance of a company compliance for Foreign Subsidiary C