Independent Director is appointed to govern the working of a company and is not related in any other role. This is done to have an unbiased judgement in case of decision making. Independent Director cannot hold more than 2% share capital of the company and in the opinion of the Board of Directors should be highly skilled and experienced.
According to the Companies Act, 2013, an independent director –
Every listed Public Company in India should have at least one-third of the total number of directors as Independent Director. Any fraction that comes in calculation of the Independent Directors will be considered as one number after rounding off.
However; The Central Government of India may decide the maximum number of independent directors in case –
The conditions specified for the listed public companies will be applicable from the first year till the tenure of the Independent Director even in case where the paid up share capital, borrowings or deposits fall below the limits.
Corporate Social Responsibility Committee of the Board shall consist of three or more directors out of which at least one director should be an Independent Director in the companies where in any financial year –
An Independent Director is appointed by the Board of Directors of the respective company. However; the person may be shortlisted from an official data bank provided by the Central Government on the Ministry of Corporate Affairs online website.
This data bank contains all the names and related information of the people who can be considered by different companies if they wish to appoint an Independent Director. The list may also be issued by any institute or concerned authority as proposed by the Government.
The Board of Directors must ensure that the person has required expertise and experience so that all the duties and roles and fulfilled in the required manner. All the stakeholders of the company must agree to the appointment of independent director.
The terms and conditions for appointment of the independent director can be inspected any time in the registered office of the company. The terms and conditions should also be uploaded on the respective company’s website for complete transparency.
The Independent Directors can also be reappointed in case their performance is considerably good. Once appointed, the independent director shall give a declaration stating that he/she fulfills the requirements/criteria in the first board meeting after being appointed.
Independent directors hold an office for the tenure of 5 years but, they can be reappointed by passing a special resolution in the board meeting. No independent director can be on board for more than two consecutive years. They can be re-appointed after the ceasing period of 3 years unless; the person has been associated with the company either directly or indirectly.
To remove an independent director from the company at least 75% of the shareholders must be present and require passing a special resolution in the general meeting. Also, a special notice with the motive of removing the director must be passed at least before 14 days of the general meeting.
Such a notice needs to be signed by the members holding at least 1% of the total voting power. However; the independent director has the right to be heard in the resolution of the meeting.