‘The Independent Director’
-By CS Makarand Joshi
-makarandjoshi@mmjc.in
Coverage of this PPT
Eligibility
Liabilities Max
Limits
Independent
Director
Duties Max
Tenure
Powers
Who is eligible to be Independent
Director?
Non executive director, not being a nominee director
A director who is not a promoter or related to
promoters or directors of the Company or its holding
/ subsidiary / associate company
A person who by himself or through his relatives is not
having or had any material pecuniary relationship
with Company / its holding / subsidiary / associate
company / their promoters / directors during the 2
immediately preceding financial years or current
year
Who is eligible to be Independent
Director?
A person who, in any of the 3 years immediately
preceding the financial year in which he is proposed to
be appointed, has not, directly or through his relatives,
had the following relationship with Company/holding /
subsidiary / associate company:-
KMP or employee
Employee / proprietor / partner of a firm of auditors /
company secretaries in practice or cost auditors
Any legal or consulting firm that has / had transaction
with the above amounting to 10% or more of gross
turnover of such firm
Who is eligible to be Independent
Director?
A person who does not hold together with his relatives 2%
or more of the total voting power of the Company
A person who is not a Chief Executive or director, by
whatever name called, of any non profit organization that
receives 25% or more of its receipts from the Company,
promoters, directors or its holding, subsidiary or associate
company or that holds 2% of the total voting power in
that company
A person who is not a material supplier, service provider,
or customer or a lessor or lessee of the Company
A person who is not less than 21 years of age
Code of Conduct
The duties of Independent Directors should be
mentioned in the Code of Conduct of the Company
All Directors and senior management personnel should
affirm compliance with Code of Conduct on annual
basis
Code of Conduct to be posted on Company’s website
Maximum Limit
He can be an Independent Director in max 7 listed
companies
If he is a Whole Time Director in any listed company,
then he can be an Independent director in max 3 listed
companies
Maximum Tenure
Max term of 5 consecutive years
Eligible for reappointment on passing of a special
resolution by the company and disclosure of such
appointment in the Directors Report.
Powers of Independent Director...
To hold separate meetings without attendance of
non independent directors to review performance
of non independent Directors and Board as a
whole, Chairman, quality, quantity and timelines of
flow of information, etc
Board meeting can be held at shorter notice only
with the presence of at least 1 independent director
In case no independent director attends such Board
meetings, decisions taken thereat must be ratified
by at least 1 independent director
Powers of Independent Director...
To report concerns about any unethical behaviour,
actual or suspected fraud or violation of Company’s
code of conduct under the Whistle blower policy of
the Company
To report any such concerns to the Chairman of the
Audit Committee – who shall be an Independent
Director, for further investigation
Duties as per Companies Act
To act in accordance with Articles of Association
To ensure Company is operating to promote objects
of the Company for the benefit of shareholders,
employees and in best interest of Company
To exercise independent judgement while approving
decisions on behalf of Company
Not to involve in a situation in which he may have
direct or indirect conflict with the interest of
Company
Duties towards decision making
To attend Board / Committee Meeting
To discharge duties with diligence
To discharge duties with care
To discharge due skills
To ensure agenda is sufficient and proper
To ensure decisions are taken … and executed
Duty towards stakeholders
Share-
holder
Environ-
ment Employee
Govern-
ment Director Supplier
Society Customer
Lenders
Duty .. Not to have conflict
To give disclosure of interest in first BM of FY
To give disclosure about change in interest (either as
Director or Shareholder)
Not to involve in situation of conflict of interest
Not to deal in forward dealing in securities
No to deal in insider trading of shares of the
Company
What is disclosure of interest?
To disclose list of relatives
To disclose list of companies / firms / Trust in which
Director is owner / director / shareholder
To disclose list of firms in which his relatives has
interest
Disclosure to be given every year and whenever
there is change
Format is MBP 1
What is conflict?
Not to involve ‘self’ or ‘self benefited entity’ as
supplier or customer or in other nature
Not to have competing business with that of
company
Duty towards laws ….
To ensure compliance with all applicable laws
To ensure proper system to ensure compliance with
all laws
To ensure that compliance system is adequate
To ensure that compliance system efficiently
functioning
Stake holders protection visa a vis
compliance of laws
SHs
(Compani
es Act,
Economy SEBI) Customers
[Fema & Contracts
Customs and
laws] Ensure warrantee
compliance
of all Environmen
t
Governm applicable
(Environme
ent laws ntal Laws)
(Revenue
Laws) Employees
Company (Labour
(Corpora Laws)
te Laws)
Liabilities
Independent Directors are liable for acts / omissions
occurred with his knowledge attributable through
broad process
Penalties = monetary or imprisonment
Insurance can be taken to cover liabilities
Whether Director is liable for
liabilities of the ‘Company’?
Towards borrowed funds – yes, if personal
guarantee is given
Towards commercial liabilities – No
Towards contingent liabilities – No
Towards legal / compliance liabilities – Yes
Towards criminal liabilities – Yes, if involved either
Directly or Indirectly
How to avoid liabilities ?
Discharge all duties diligently
Ensure system is set to take care of financial controls
Ensure system is set to take care of compliance
Ensure that there is a system for preparation of
meaningful agenda
Ensure that there is a system to identify related
parties and avoid any contract without board
approval
Ensure Introduce doer .. Checker system
Thank you
We will be happy to help you become
successful Independent Director
MMJC
