Frequently asked question in relation to Independent Director
Whether any self-certification is required from director? If yes whether there is any specific format for it?
Yes, Independent director is required to self-certify that he satisfies the criteria as specified under section 149(6) of Companies Act, 2013; (i.e. definition relating to independent director). This certification is required to be provided at
- At the first board meeting in which he participates as a director
- At the first board meeting in every financial year
- Whenever there is a change in the circumstances which may affect his status as an independent director
There is no specific format relating to self-certificates to be provided.
Whether Independent Director is considered as rotational director?
Any person who is appointed as Independent director in the company will not considered as rotational director, in fact while calculating number of directors that are liable to be rotated by virtue of section 152(6) and 152(7).
Can women become Independent director?
Yes, there is no restriction. Women can become independent director. Also, as per proviso to section 149(1) which prescribes particular class of company as defined under Rule 3 of Companies Rules, 2013 is required to appoint at least one-woman director, that women director can be appointed as Independent director.
What will be term of independent director?
Independent director can hold the office for a term up to five consecutive years, he will be eligible for reappointment after passing special resolution. It shall also be noted that while passing resolution for re-appointment it is not necessary that he is re-appointed for next five year; the term of reappointment may be less than 5 years. As an additional requirement on part of board of directors such re-appointed shall be disclosed in board’s report. Further person will not be eligible to be reappoint for the period of 3 years and for the said period he shall not be in connection in any other capacity whether directly or indirectly with company, only if both the conditions are satisfied then only person will be eligible to be reappointed after cooling period.
What if in re-appointment he is not appointed for 5 years? Whether for balancing year he can be re-appointed?
In this case even if person is not re-appointed for the period of 5 years
No, after completion of two term person shall not be eligible for re-appointment before completion of cooling period. Even if term period of second appointment or first appoint was not 5 years, person will not be eligible.
Which are the acts for which Independent director is liable?
Independent director will be liable for any acts of omission or commission by a company which had occurred with his knowledge i.e. with his consent or connivance and for acts where he had not acted diligently.
Whether nominee director and Independent director are same?
It shall be noted that nominee director cannot be taken as a substitute for appointment of an independent director. Though a nominee director is also independent of the other Board members but this independence does not make him an independent director. He is appointed to safeguard the interest of the respective financial institution to which he belongs.
Mr R was promoter of one the X Pvt. Ltd.(subsidiary of company), D Pvt. Ltd holding company desires him to appoint as Independent director, person who is applying for appointment is of the view that company can appoint him; as he was promoter of X Pvt. Ltd. (subsidiary of company)which was in past not related to D Pvt. Ltd holding company i.e. when he was promoter in subsidiary company was not subsidiary of D Pvt. Ltd. Determine the validity of statement.
As per section 149(6) it has been clearly stated that person shall not be promoter in company or in its holding company or subsidiary company, or associate company. Further even if he was promoter of the company when it was not the subsidiary company; the condition is checked as on the date of appointment; and therefore, such person will not be eligible to be appointed as independent director.
What if person was not a promoter but was related to promoter?
In that case also person will not be eligible to be appointed as Independent director as it has been mentioned person is not related to promoter or director of company or of its holding company, subsidiary company or associate company.
Mr. Hari is Chief Executive officer in a non-profit organisation which receives 20% of its contribution from G Pvt. Ltd. One of the directors of G Pvt. Ltd has contributed 10% of total contribution of such non-profit organisation. Whether Mr. Hari is eligible to be appointed as Independent director of G Pvt. Ltd.
In the given as Mr. Hari will not be eligible as per one the condition Person proposing himself to be appointed as independent director or his relative shall not be Chief Executive or Director of any non- profit organization 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.
What if instead of director of G Pvt. Ltd. its holding company director has contributed such amount?
In that case Mr. Hari will be eligible to be appointed as only directors and promoters of company has been covered under the above clause.
Mr. Nirav is holding 1% share of D. Ltd. also one of its relative is also holding is also holding 2% of share in D. Ltd; but as on the date of appointment his relative sold the share. Mr. Nirav stated that he is eligible to be appointed as director as now relative is not holding the share. Determine whether the contention of Mr. Nirav is valid.
In the given case it has been stated under section 149(6) 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. It has not been mentioned that which period will be considered for determining eligibility of appointment. Therefore, if as on date of appoint person either own his own account or along with relative is not holding the share than he will be eligible to be appointed as director. In the given case Mr. Nirav will be eligible to be appointed.
Mr. Desai is relative of Mr. John; he is currently employed at BR Pvt. Ltd; In that company Mr. John applied for his appointment as Independent director whether Mr. John is eligible to be appointed as Independent director?
In the given case it has been specified that 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 as his relative is employed in the company in current year Mr. John will not be eligible to be appointed as Independent Director.
What if Mr. Desai was employed only in previous year?
In that case Mr. John will be eligible to be appointed as independent director as it has been provided through exception that person will be eligible to be appointed if his relative was there in company in capacity of employee in preceding 3 years but is not engaged currently with company.
Mr. Rahul one the relative of Mr. Raj who proposed to be appointed as Independent director in one of the companies. In said company Mr. Rahul has given guarantee of Rs. 75 Lahks in relation to one his friend’s dues toward said company. Whether Mr. Raj is eligible to be appointed as Independent director on board of company?
As per the clause given under section 149(6) of Companies Act, 2013; If 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 and amount is exceeding rupees 50 Lahks at any time during two preceding financial year or during current year then person will not be eligible in the given case Mr. Rahul been relative of Mr. Raj has given the guarantee of amount which is exceeding the amount prescribed above; and therefore, Mr. Raj will not be eligible to be appointed as Independent director.