Quick Summary
Independent Director is a director who is independent of management and free from any business or other relationship that could materially interfere with their independent judgment.
Independent Director is defined under Section 149(6) of the Companies Act, 2013. They play a crucial role in corporate governance by providing independent oversight and protecting stakeholder interests.
Who Qualifies as Independent
- Not having material/pecuniary relationship with company
- Not promoter or related to promoter
- Has no undue influence
- Not executive director or related to executive director
- Not been promoter/partner/director in last 3 years
- Not significant supplier/customer in last 3 years
Applicability
- Listed companies: At least 1/3rd of total directors
- Public companies with paid-up capital ≥ ₹10 crores OR turnover ≥ ₹100 crores: At least 2 Independent Directors
Appointment Process
- Board identifies candidate
- DSE (Data Security Exchange) check for disqualification
- Obtain consent (Form DIR-2)
- Appointment by Board or Shareholders
- File DIR-12 with ROC
Duties
- Ensure ethical conduct and integrity of financial reporting
- Safeguard interests of all stakeholders
- Report concerns about unethical behavior
- Attend General Meetings
- Prepare for and actively participate in Board meetings
Tenure and Remuneration
- Term: Up to 5 consecutive years, eligible for reappointment
- Maximum tenure: 2 consecutive terms of up to 5 years each
- Cooling off: 3 years after 2nd term before reappointment
- No remuneration except sitting fees, reimbursement of expenses
- Profit-linked commission allowed with shareholder approval
Key Points
- Independent of management
- 1/3rd of Board for listed companies
- No material relationship with company
- Up to 2 terms of 5 years each
- Cannot receive stock options