Independent Directors [Section 149(6)]
Independent Directors function as an oversight body in monitoring the performance and should raise red flags whenever suspicion occurs. Companies Act, 2013 mandates appointment of Independent Directors by listed company and other class of companies.
Job of Independent director is to protect the interests of shareholders, particularly the minority shareholders.
Independent Director has to fulfill following criteria:
- He is not a Promoter of the company, NOT nominated by the Chairman
- He has no pecuniary interest in the company, except salary as director. (meaning company’s wholesaler, retailer etc. cannot become independent directors)
- He is not an employee of the company
Every Listed Company shall have one – third of the total number of directors as an independent directors.
Rule 4 of Companies (Appointment and Qualification of Directors) Rules 2014, provides that the following class of companies shall have at least two directors as independent directors –
- Public Companies having paid up Share Capital of 10 Crores or more; Or
- Public Companies having turnover of 100 Crores or more; Or
- Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 Crores.
Nominee Directors are not Independent Directors.
Independent Director have 2 terms of five years each of total 10 years. After 10 years’ service, if they want to join same company as ID again, they’ll have to wait for 3 years cooling period.