The details about qualification, appointment, and modus operandi of an Independent Director are not prescribed in the erstwhile Companies Act, 1956. Whereas the Ministry of Corporate Affairs has incorporated provisions regarding the same in the Companies Act, 2013 read with the Companies (Appointment and Qualification of Directors) Rule, 2014. The subsequent amendment made in the rules from time to time has mandated certain compliance requirements for an existing Independent Director and those who aspire to become one.
Who is an Independent Director?
Independent Director is a person who has a non-executive relationship (i.e., other than the Managing Director or a Whole-Time Director or a Nominee Director) with the company, who is treated as Mentor or Guide as they have no axe to grind.
Applicability u/s.149 of the Companies Act’ 2013:
- Every Listed Public Companies are mandatorily required to have one-third of the director as an independent director.
- In case of Other Public Companies (except a joint venture, a wholly-owned subsidiary, and a dormant company), two independent directors are required if any one of the below conditions are fulfilled :
- Paid-up Share capital is in excess of Rs.10 Crore; or
- Turnover is in excess of Rs.100 Crore; or
- Total of all the Outstanding Loans, Debentures and Deposits is in excess of Rs.50 Crore.
Registration with the IICA Databank:
- Every extant independent director as on 1st Dec 2019 shall register himself with the data bank, within 13 months (i.e. 31st Dec’2020) from the commencement of the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019.
- After 01st Dec’2019, it is mandatory for every person who intends to become an Independent Director to get himself registered with the data bank.
Renewal of Registration:
- The Registered Independent director shall renew his registration for further period of 1 Year or 5 Years or his lifetime, within 30 days from the expiry of the initial registration period, if not, the name shall be removed from the databank.
- The Independent Director whose name is registered with the data bank shall pass an online proficiency self-assessment test conducted by the IICA (Indian Institute of Corporate Affairs) within 2 years from the date of registration of his name in the data bank.
- The Registered Independent Director should obtain 50 % of the aggregate of the marks in the self-assessment test and there is no limit on the number of attempts, he may take for passing the test.
Exemptions from Self-Assessment Test:
- An individual who was acting as a director or a key managerial personnel in companies or body corporate or statutory corporation when he has served for a total period of not less than 3 years as on the date of registration of his name in the data bank as an independent director is not required to pass the online proficiency self-assessment test.
Appointment as an Independent Director
- Independent Director in a Public company can be appointed only from those who have registered with the IICA Databank.
The Companies Act 1956 does not provide any limelight as to the ‘Independent Director’. But, through the Companies Act 2013, the Union Government has institutionalized the qualification and streamlined the appointment of an independent director. It is research-proven and considered, the company ensures good governance practices if the decision-making authority consists of a considerable number of independent directors. The IICA Databank helps the corporate to identify the right skilled individual to act as an independent director and it is believed that the austere provision brought under the Companies Act, 2013 will curb the corporate scandals in the country.
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