Meaning of Independent Directors and their Meeting thereof as per Companies Act, 2013
Independent Director help in bringing Independent judgement and act as a bridge between management and shareholders by encouraging the principles of Corporate Governance through providing transparency, accountability and disclosures in the working of the Company and assist the Company in implementing the best corporate governance practices.
Who can be called Independent Director:
Section 2(47) “independent director” means an independent director referred to in sub-section (6) of section 149;
Section 149(6) :- An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director, —
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship, other than remuneration as such director or having transaction not exceeding ten per cent of his total income or such amount as may be prescribed, 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;
(d) none of whose relatives—
(i) is holding any security of or interest in the company, its holding, subsidiary or associate company during the two immediately preceding financial years or during the current financial year:
Provided that the relative may hold security or interest in the company of face value not exceeding fifty lakh rupees or two per cent of the paid-up capital of the company, its holding, subsidiary or associate company or such higher sum as may be prescribed;
(ii) is indebted to the company, its holding, subsidiary or associate company or their promoters, or directors, in excess of such amount as may be prescribed during the two immediately preceding financial years or during the current financial year;
(iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, its holding, subsidiary or associate company or their promoters, or directors of such holding company, for such amount as may be prescribed during the two immediately preceding financial years or during the current financial year; or
(iv) has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding or associate company amounting to two per cent or more of its gross turnover or total income singly or in combination with the transactions referred to in sub-clause (i), (ii) or (iii);]
Which Companies required to appoint Independent Directors: –
Every listed public company shall have at least one-third of the total number of directors as independent directors.
The following class or classes of companies shall have at least two directors as independent directors –
(i) the Public Companies having paid up share capital of 10 cr rupees or more: or
(ii) the Public Companies having turnover of 100 cr rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding 50 cr rupees:
Meeting of Independent Directors
Separate meetings:
(1) The independent directors of the company shall hold at least one meeting in a financial year, without the attendance of non-independent directors and members of management;
(2) All the independent directors of the company shall strive to be present at such meeting;
(3) The meeting shall:
(a) review the performance of non-independent directors and the Board as a whole;
(b) review the performance of the Chairperson of the company, taking into account the views of executive directors and non-executive directors;
(c) assess the quality, quantity and timeliness of flow of information between the company management and the Board that is necessary for the Board to effectively and reasonably perform their duties.
Thus, the Companies Act, 2013 aims at making transparency and making sure that all the decisions and activities of the company are taken in good faith and in the benefit of shareholders at large. Hence the Independent Directors are appointed to ensure that the company is complies Corporate Governance and Ethical Standards