You are on page 1of 29

‘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

You might also like