Applicability of Independent Director and provision relating to Eligibility
Who can be Independent Director?
For being independent director, any person is required to fulfill the condition mentioned under section 149(6) of Companies Act, 2013.Therefore, only following person can become Independent director:
- Person who in opinion of board of directors, possesses relevant expertise and experience and who is person of integrity.
- Person is not related to promoter or director of company or of its holding company, subsidiary company or associate company.
- Person does not have pecuniary relationship or transaction which is exceeding 10% of total income of such person, other than remuneration as Independent Director with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year. Pecuniary interest transaction will not include any transaction which has been entered by Independent director in ordinary course of business at arm length price.
Exception : Remuneration received in capacity of independent director or where transaction has been entered in ordinary course of business at arm length price and which is not exceeding 10% of total income of such person.
- Who’s relative are not holding security or interest in excess of; Rupees 50 Lahks or 2% of paid-up share capital whichever is higher; in company or its holding company or subsidiary company or associate company during the two immediately preceding financial years or during the current financial year.
- None of his relative is indebted to company its holding, subsidiary or associate company or their promoters, or directors during the two immediately preceding financial years or during the current financial year. The amount shall not exceed rupees 50 Lahks at any time during two preceding financial year or during current year.
- None of his relative has given guarantee or security in connection with indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company. The amount shall not exceed rupees 50 Lahks at any time during two preceding financial year or during current year.
- Further relative shall not have any other pecuniary relationship with the company or its subsidiary, or its holding or associate company and amount of which is exceeding 2% of its gross turnover. Also, if total of above three transaction (4,5,6) is exceeding the limit then also person will not be eligible to be appointed as independent director.
- Any person who is willing to get appointed as Independent director shall not hold (either on his own account or his together with their relatives or relatives of that person on their own account) 2% or more voting power in company.
- Person proposing himself to be appointed as independent director or his relative shall not be Chief Executive or Director of any non- profit organisation which is receiving twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company. Also, person will not be eligible if such non-profit organisation is holding 2% or more of the total voting power of the company.
- Person himself or his relative shall not be key managerial personnel or employee company or its holding, subsidiary or associate company for immediately 3 previous financial (from year in which person is proposed to be appointed); or in current financial year. But there is exception to this rule i.e. relative may be employee of company in immediately 3 preceding financial year; but again, it shall be noted exemption is for 3 preceding financial year and not for current year i.e. if person relative is employment with the company in the year in which person is proposed to be appointed (i.e. of current year) then he will attract this disqualification.
Exception : Relative may be employee of company in immediately 3 preceding financial year; but again, it shall be noted exemption is for 3 preceding financial year and not for current year i.e. if person relative is employment with the company in the year in which person is proposed to be appointed (i.e. of current year) then he will attract this disqualification.
- Person who is proposing himself to be appointed as Independent director or his relative shall not be employee or proprietor or a partner, for current year or for any of the three-preceding year of firm of who are auditors or cost auditors or company secretaries in practice of the company or its holding company, subsidiary or associate company.
- Person who is proposing himself to be appointed as Independent director or his relative shall not be employee or proprietor or a partner, for current year or for any of the three-preceding year of any legal firm or consulting firm with which company or its holding company, subsidiary or associate company has transaction of more than 10% of gross turnover of such legal or consulting firm.
Thus, from above it can be seen that for a person who is proposing himself to be appointed as independent director law is very stringent and he is required to fulfill all the above conditions simultaneously.